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Wisdom from T. Boone against Rent-Seeking Pickens (remember when you said ….?)

“The two greatest enemies of free enterprise in the United States … have been, on the one hand, my fellow intellectuals and, on the other hand, the business corporations of this country.”

- Milton Friedman. “Which Way for Capitalism?” Reason, May 1977, p. 21.

Special government favor. A little something for nothing at the other’s expense…. Sure, a particular business or industry can gain in the short run. But when everyone is getting the booty, almost all lose.

Just look where government is today. The chronic, gargantuan federal budget deficit is testament to the Enrons then, GEs now  receiving government subsidies from either the U.S. Treasury or the tax code. The rest of us pay (or will pay) what the rent-seekers are getting and not paying for (outside of their lobbying costs).

Business has been a force for regulation. In the twentieth century, the energy industry was behind the large majority of major government intervention with oil, natural gas, and coal. As I concluded in Oil, Gas, and Government: The U.S. Experience:

As a rule, the free market was the “default” situation into which government intervention was introduced to achieve business objectives. In the great majority of cases, identifiable industry coalitions led the way. The history of regulation of the oil and gas industry is the story of how compromise and pragmatism, in the absence of principle, created interventionist pressure at every turn. When it was costless, the industry proclaimed its support for the free market in principle. But this philosophical leaning meant little when more was at stake. (1)

The same is true with electricity, a story that my forthcoming book, Edison to Enron: Energy Markets and Political Strategies, will detail through the rise and fall of the father of the modern power industry, Samuel Insull.

And so it is with 21th-century energy interventionism. Whether Enron saving the domestic wind industry or Pickens trying to politically wedge natural gas in the transportation market by T. Boone Pickens, political capitalists are expanding the government side of the mixed economy.

T. Boone Pickens circa 1987, 2000

Guess what? The pre-Pickens Plan T. Boone gave ample warning against the very behavior that characterizes him today.

If I were a congressman questioning Pickens under oath, I would read him the following quotations and ask him for comment–and then get to the sour economics of whatever he is pushing for the government to push on consumers.

Four quotations (with references) follow:

“I am a conservative…. I believe the greatest opportunity lies in a free marketplace. There are powerful forces afoot trying to restrict that freedom in the interests of the vested and already wealthy.  I am talking about a relatively small collection of corporate executives who would use the engine of American commerce for their own narrow ends.”

- T. Boone Pickens, Jr., Boone. Boston: Houghton Mifflin Company, 1987, pp. xi–xii; The Luckiest Guy in the World. Washington, D.C.: BeardBooks, 2000, pp. xi–xii.

“We must reduce the influence of big business in Washington…. The way to do that is to kill the protectionist game.”

- T. Boone Pickens, Jr. Boone. Boston: Houghton Mifflin Company, 1987, p. 287;  The Luckiest Guy in the World, p. 287.

“Senator Bob Packwood said in the spring of 1986: ‘Boone Pickens is the only businessman I know that if Congress would leave him alone he would never come to Washington.’”

- T. Boone Pickens, Jr. Boone. Boston: Houghton Mifflin Company, 1987, p. 287; – T. Boone Pickens, Jr. The Luckiest Guy in the World. Washington, D.C.: BeardBooks, 2000, p. 287.

“The government doesn’t step up and say, ‘Now, how much do you need for giving it a try, fella?’ That’s why America is so far superior to the rest of the world’s economies.”

- T. Boone Pickens, Jr. The Luckiest Guy in the World. Washington, D.C.: BeardBooks, 2000, p. 297.

T. Boone Pickens circa 2007

These-type quotations were not to be found in T. Boone’s latest biography, The First Billion Is the Hardest: Reflections on a Life of Comebacks and America’s Energy Future (Random House: 2007).

I reviewed the book in the Wall Street Journal. Some excerpts follow:

Now Mr. Pickens has new dreams — and he is lobbying Washington to make them come alive.

In particular, Mr. Pickens wants the federal government — through a mix of tax incentives, mandates and subsidies — to override the market and redirect the uses of natural gas. At the moment, natural gas produces about a fifth of the nation’s electricity; Mr. Pickens thinks wind power should do that work, with natural gas fueling cars and trucks.

To push his program, Mr. Pickens has all but put Al Gore in the shade with a $58-million public-relations campaign. “When it comes to energy, we are at war,” he explains. “Sleepwalking” America — if it is to dodge $200 per barrel oil — must employ a “George Patton” to “lead us to victory no matter the obstacles.” And, he says, “we have to make the transition in less than ten years.”

The First Billion argues for this plan, along with recounting Mr. Pickens’s business ups and downs. The book is often entertaining, featuring the usual “Boone-isms”: e.g., “Show me a good loser, and I’ll show you a loser.” But readers unfamiliar with Mr. Pickens’s earlier memoirs may not realize that the new one represents a kind of bait-and-switch. Mr. Pickens’s standing to pronounce on energy matters was earned as a free-market producer. He is now using that standing to defy the market itself.

His arguments for a government-led remake of the nation’s energy use are sketchy at best, dangerous at worst. Despite his grand claims, generating wind power is uneconomic, and transmitting it is even more so (windy places are far from electricity markets). Wind is unreliable, requiring constant backup from natural-gas-fired plants in particular. Wind takes summer days off. In Boone-speak, wind is all hat and no cattle.

As for natural gas: Mr. Pickens scarcely mentions the manifold problems with natural-gas vehicles, from the price premium for a new car (around $6,000) to the cost of fuel conversion (averaging around $12,000 per car). Converted vehicles must sacrifice trunk space to accommodate a heavy natural-gas cylinder. The task of retrofitting service stations, let alone cars, puts the cost of the Pickens Plan north of a trillion dollars. And what happens if oil prices fall and natural-gas prices spike?

Why is Mr. Pickens pushing this energy plan so hard, aside from the supposed good of the nation? The most obvious reason is that his Clean Energy Fuels Corp. — invested heavily in natural-gas dispensing stations — would be a big winner. Mr. Pickens also has on the drawing board a $10-billion wind-power project — “the biggest deal of my career.” Another reason, one suspects, is a desire to reclaim the kind of folk-hero status that Mr. Pickens lost after Mesa’s fall. He might become the “greenest” energy man since Ken Lay was at Enron and Lord John Browne rebranded the “BP” of British Petroleum to mean “beyond petroleum.”

A third reason is less obvious. Mr. Pickens refers to Big Oil as “the monster.” Why such an animus toward an industry that has been at the forefront of the American dream? As it turns out, both Mr. Pickens and his father (a failed independent) spent unhappy years at Phillips Petroleum. During the takeover battles with Big Oil, Boone was professionally and personally smeared and was ultimately denied his dream job: running an integrated major. He also links Mesa’s fall to overdrilling by the cash-flush majors.

A man is entitled to his vendettas, of course. But surely the government shouldn’t help fuel them. One hopes that Mr. Pickens can reinvent himself one more time, remembering — how did he put it? — that “the greatest opportunity lies in a free marketplace.”

Has my review from September 2008 stood the test of time–so far?

—————————————-

(1) Bradley, Robert. Oil, Gas, and Government: The U.S. Experience. Lanham, Md: Rowman & Littlefield, 1996, pp. 1843–44.

6 comments

1 Energy and Environment News { 05.27.11 at 7:07 am }

[...] T. Boone: Remember When You Said…? Robert Bradley, Master Resource, 27 May 2011 [...]

2 Rich Webb { 05.27.11 at 10:29 pm }

Being in the business, I crunched the numbers when the “Pickens Plan” first came out. Base on what I know of wind energy (Quite a lot actually.) and natural gas vehicles, depending on how deep into the vehicle fleet you go the Pickens Plan will cost between $15 and $25 TRILLION. Given that T. Boone has aligned himself correctly, about 10% of that goes directly into his own pockets. The question becomes, what does a man who has alienated everyone who ever cared for him, and who is somewhere north of 75 years old, need with $1.5 to $2.5 Trillion?

Has he figured out how to take it with him?

3 rbradley { 05.30.11 at 12:25 pm }

Rich:

Can you share your math behind the trillion-dollar range?

- Rob

4 T. Boone was against it before he was a beneficiary of it… | JunkScience Sidebar { 05.31.11 at 2:01 am }

[...] Wisdom from T. Boone against Rent-Seeking Pickens (remember when you said ….?) [...]

5 Lee { 05.31.11 at 12:32 pm }

What impressed me with Pickens plan was that he was initially putting his own fortune into it. It surprised me that he pulled back on the project. He must have failed to do the efficiency and uptime calculations on the wind farms before he made his proposal.

6 Natural Gas Rent-Seeking | Institute for Energy Research { 06.28.11 at 8:36 am }

[...] competitive, government-neutral market in energy. Perhaps the T. Boone Pickens of old—the man who once bragged about his propensity to stay out of Washington, D.C. and just be left alone by the feds–would [...]

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