Category — Bradley, Robert L. (Jr.)

[Editor note: This introduction was given on March 28 at the University of Rochester where Dr. Rizzo is assistant professor of economics. An increasing number of colleges and universities are becoming 'freedom friendly,' creating opportunities for free-market guest speakers such as Robert Bradley on energy.]

Welcome to Liberty Week at the University of Rochester hosted by the Alexander Hamilton Institute for the Study of Western Civilization. We want to again thank the College Democrats for co-sponsoring the opening event with Robert McNamara of the Institute for Justice. His sobering and inspiring presentation was on the fight to protect the right to freely choose to enter into occupations and consume from businesses of their choosing, to pursue their own destinies, in the face of overreaching by governments and interest groups.

Tonight, we focus on the forces operating the other side of this coin – the businesses and governments who cozy up in bed to benefit themselves at the expense of all Americans. We are pleased  to have Robert L. Bradley Jr., founder and CEO of the Institute for Energy Research to talk to us about how this process works, with a particular focus on how this operates in the energy sector.

We’d like to thank the College Republicans for co-sponsoring our event this evening.

Institute for Energy Research

Rob Bradley joins us from the Houston office of the Institute for Energy Research. IER is a scholarly non-profit that studies the economics and politics of energy markets from Houston and its main office in Washington, D.C.

The scholars (profiles here) who write/research for IER are accomplished and prolific economists, lawyers, mathematicians and policy experts from a wide variety of backgrounds, including Mary Hutzler a former head of the U.S. Energy Information Agency; Andrew Morriss, a lawyer and economist who has written widely on Common Law and the Environment, Green Jobs programs, and the history of property rights; and Robert Murphy– financial consultant and one of the leading purveyors of basic economic knowledge in America today. The full-time staff of the Institute has extensive experience in a variety of positions on Capitol Hill.

Check out IER’s website, where you will find neat short summaries of almost all possible forms of energy supply and see infographics and links to the work from their scholars. [Read more →]

In the closing act, we have the protagonist foisting on the world a set of insights, which we proceeded to dissect in Act II and Act III. Is there a happy ending to our play? Alas, it is a tragedy.

The Bradley Project, which can be overviewed at his website Political Capitalism,  brilliantly narrates the ethos of what he calls “Heroic Capitalism” in contrast with “Political Capitalism.” As applied to energy policy, Bradley is largely correct in his insights that the energy industry has become so mixed up with the mixed economy that corporate leaders legitimately fear that capitalist advocacy will be punished.

As an out-of-the-closet energy policy market advocate, I have often been privately besieged to take public positions that corporations were loath to take publicly because of their fear of regulatory retribution.

Thus, we have lost any truly national champions for the views expressed in the Bradley Project. We have bit players. I have run small pro-market energy think tanks for more than a decade, after a career of almost 20 years in government advocating pro-competitive energy policies. Bradley has run the Institute for Energy Research even longer. We have been on the front lines, as have some others in the think tank community, credit the Cato Institute, Heritage Foundation, American Enterprise Institute, and even to some extent, Brookings Institution.

But Bradley names only one nationally recognized corporate advocate of pro-competitive energy policies: Charles Koch. I would argue, however, that while Mr. Koch has applied his pro-competitive thinking to his company and has generously supported some think tank efforts, he has not really taken on the mantle of the national leader of a free-market-in-energy movement. [Read more →]

Act I finds the protagonist boldly proclaiming an original and bold explication of the economics and history of the gas and electric industries. In Act II, we use the weapons developed by our protagonist to render much that passes for sound energy policy both tragic and comedic.

In Act III, we search deeply within ourselves to discern if the protagonist provides answers to the modern vexations that ail us. Come let us listen to Friedman Milton as he disarms the protagonist.

Black and White–or Gray?

The Bradley Project seems to dichotomize the world into free market capitalism and political capitalism. To paraphrase George Orwell, free markets good; political markets bad.

I have no quarrel with Bradley’s conclusion that both energy generally and natural gas and electricity in particular have been victims of political capitalism in all its hoary forms. I disagree, however, with the Bradley Project’s hostility to addressing market failures.

The energy industry, more than any other industry I can think of, has some serious market failures in the classic sense defined by economists. For example:

· Market power problems in gas and electric transportation and distribution;

· Externalities in every supply option, including renewables;

· Public goods issues in basic research and some free rider problems;

· Information asymmetries in various industry segments (let a marketer try to get customer load information from a regulated utility).

Finding the right policy in light of these market failures, while not compromising market forces, is what makes energy policy so treacherous and complex. [Read more →]

Yesterday, I fawningly reviewed Robert Bradley’s Political Capitalism Project for providing information and insight to where much of our economy has gone wrong in the last 80 years, i.e., allowing companies to succeed by using political muscle instead of free market acumen.

The Bradley Project provides a sturdy worldview for thinking about energy policy. Today, I will critique both recent and historical energy policy by relying on Bradley’s framework for assessing the implications of political versus market capitalism. Tomorrow I will argue the legitimate role of government in energy markets and give an example where active government policy is needed.

Back to 1973

The modern era of energy policy began on October 17, 1973, the day that OPEC announced an oil embargo against the U.S. With very few exceptions, since that day, energy policy, on both sides of political aisle, deteriorated until finally, and literally, it fell off a cliff with the Obama Administration’s embrace of the “green economy” and its hostility to carbon energy.

We have had our share of “energy crises,” and I would agree with the Bradley Project that all have been self-inflicted by bad government policy advocated and adopted on a bipartisan basis, Democrats supporting distortions on a soft path and Republicans on a hard path.

Unfortunately, we are headed for more crises in energy markets. Washington makes two fundamental mistakes when it comes to energy policy. The first is it focuses on problems that don’t exist (today’s discussion). The second is it ignores problems that do exist (tomorrow’s discussion).

Washington’s Energy Meddling

The Bradley Project does an excellent job of providing the intellectual framework that shows that many of the things that Washington is focusing on are not problems. Here is a brief list: [Read more →]

“Edison to Enron … [is] the second part of a three-volume series on the history of American energy, told through the distinction between productive and predatory capitalism.  Bradley is a very much underrated economic historian, largely because of his ‘amateur’ [nonacadmic] status, but there is a remarkable amount of learning in his books.”

- Tyler Cowen, ‘What I’ve Been Reading,’ Marginal Revolution, November 15, 2011.

Last Friday afternoon in our nation’s capital, Robert L. Bradley, Jr., a prominent figure in the esoterica of energy markets, unveiled the Project on which he has labored for a decade before a full room at the American Enterprise Institute. Kenneth Green moderated, and comments were provided by Stephen Hayward and yours truly. My formal remarks follow.

The Project

Enter stage right, our protagonist with The Bradley Project. He has three arrows in his quiver, a trilogy of books that will be the authoritative commentary on American political capitalism and energy policy inspired by the rise and fall of Enron (where Bradley worked for 16 years).

He artfully aims his first arrow, (Capitalism at Work: Business, Government, and Energy) a political economy text that forges a path for his second onslaught (Edison to Enron: Energy Markets and Political Strategies), a history text that applies the economic principles of Book 1 to the natural gas and electric industries from their 19^thcentury inception to about 1985.

Both books are dense and lengthy–but very readable. Bradley tackles the vast literature behind subjects and provides hundreds of pages of documentation. For the most serious scholars (are there many anymore?), he provides Internet appendices per chapter, no less than 52 for Book 1 and 74 for Book 2. The extra mile seems to have been run in virtually all instances.

His actions set the economic, political, and historical stage for his yet unleashed third arrow, a text that will mine the Enron debacle and its aftermath for trenchant insights that will help both academics and energy professionals better understand what happened but more importantly, develop insight for the future regarding the nexus of politics and the market economy.

· Act I (today): the Bradley Project is brilliantly conceived, brilliantly executed, and will stand the test of time.

· Act II (tomorrow): his perspective pierces the veil that hides the excrescence that passes as the current sorry state of energy policy.

· Act III (Saturday): dare we venture that there is such a thing as sound government intervention, heretical as that may be in this crowd.

· Act IV (Sunday): the future or, who is John Galt? [Read more →]

“Arguments have no chance against petrified training; they wear it as little as the waves wear a cliff.”

— A Connecticut Yankee in King Arthur’s Court

Last month, The Economist magazine conducted a two-week Oxford style online debate over the proposition “that subsidizing renewable energy is a good way to wean the world off fossil fuels.”

“Renewable” in the case is really politically correct renewables: basically wind power, with some solar and a bit of of biofuel/geothermal thrown in.

Matthias Fripp, a research fellow for the Environmental Change Institute and Oxford’s Exeter College, defended the motion, while Robert L. Bradley Jr., founder and CEO of the Institute for Energy Research, argued against. Three comments by Jeremy Carl , Travis Bradford , and Ben Goldsmith each played to the premise that government energy policy had to displace fossil fuels.

The Economist’s James Astill, the magazine’s energy and environmental editor, and a decided climate alarmist/energy transformationist, moderated the discussion.

On November 18, Astill (reluctantly) announced the winner: the opposition (Bradley) with 52% of the vote. Turnout was high, with the total votes more than doubling the pre-debate estimate of 6,000.

An Upset Victory

Readers can follow the to-ing and fro-ing of the debate, while perusing the various comments from people around the world and drawing their own conclusions about the merits of the argument. However, the wording of Astill’s brief announcement, barnacled with non-sequiturs and the audacity of hope, barely disguised his disappointment over the outcome.

The Economist, indeed, has been promoting renewables for many years. The magazine cheered Enron’s ecopork, particularly when this company became a founding member of the Pew Center on Global Climate Change’s Business Environmental Leadership Council.

The Economist has been handwringing over global warming even as the sloganeering shifted to Climate Change. Moderator Astill distilled the magazine’s supercilious editorial stance that a surfeit of CO2 from fossil-fuel dependence is turning the world into a too-hellish place.

It is a tribute to Bradley and discerning voters, and not to mention many perceptive comments (of the 450 in all), that the opposition prevailed if the face of the home bias. [Read more →]

“Sorry to bother you with this…. Rob is obviously not a fan of renewables or the global warming issue.  Unfortunately, he works for a company that is.”

- “Rob Bradley’s Writings.” Tom White [chairman & CEO of Enron Renewables Energy Corp. ] to Ken Lay [chairman & CEO of Enron Corp.], June 8, 1998.

The Confluence, a blog advertising itself as “Democrats Putting Principle Over Party,” recently criticized a new initiative of the Institute for Energy Research, Stop the Energy Freeze. After reciting some peak-oil arguments against IER’s case for expanding access and production of domestic oil and gas resources for new jobs and greater BTUs, the post Sunday: Spreading the mess to YouTube goes after yours truly.

I also bothered to look up who was behind this Stop the Energy Freeze campaign.  It’s the Institute for Energy Research and it seems to be particularly concerned with oil that is currently off limits in the Gulf of Mexico, for some strange reason.  Maybe that’s because they’re based in Houston?  Or maybe it’s because it’s because it’s been touted by Rush Limbaugh who hasn’t met a resource (natural or human) that he hasn’t considered exploitable?

Ahhh, this little tidbit is interesting.  The co-founder and CEO of The Institute for Energy Research is some dude named Robert L. Bradley.  And HE used to work for Enron and Kenneth Lay.  You know, the Smartest Guys in the Room?  The ones whose traders used to yuck it up about how they were going to f$^& over some Granny in California by manipulating the energy market?  The company that made all of its employees invest in Enron stock in their 401Ks and then locked them out of their accounts when the price plummeted so that they lost EVERYTHING? 

Yeah, that Enron.  Bradley was the PR guy.  He’s also an adjunct “scholar” of the Cato Institute.  How charming.  Is that where he learned to deceive unsuspecting youtube viewers?  Is the liberty to make the end really justify the means ensconced in the Constitution somewhere?  Are we free to pull the wool over citizen’s eyes with bullshit?  I guess it’s the responsibility of every rugged individualist to be on his guard.

Well, I founded (not co-founded) IER, and headquarters is in Washington, D.C. (not Houston where I continue to work). And most importantly, I was a quite arguably public-policy whistleblower against “green” energy inside the company. [Read more →]

“The economy is not recovering…. It’s now impossible to deny the obvious, which is that we are not now and have never been on the road to recovery.”

- Paul Krugman, “The Wrong Worries,” New York Times, August 5, 2011, p. A21.

Federal energy policy is being driven by the failure of neo-Keynesian economic policy.

Stimulus spending was supposed to end the Great Recession and transform tax expenditure into additional tax revenues. Instead, we are left with both recession and broke government. Obama borrowed from the future and made the present worse. George W. did his share too.

Three Strikes: Is Keynesianism Finally Out?

Keynesian economics failed during the Great Depression (will more textbooks now admit it?). The activist approach of Herbert Hoover (the first New Dealer, according to Murray Rothbard) used the powers of government to slow the liquidation of unsound investments, narrow profit opportunities, injure international trade, and block employment.

FDR doubled down on activist government policy with new spending programs, higher taxes, and regulation and business hostility (Robert Murphy tells the story well in The Politically Incorrect Guide to the Great Depression and the New Deal).

Government spending and deficits crowd out private-sector activity that is consumer driven and thus efficient. The timeless explanation of the artificiality of public jobs by Henry Hazlitt in Economics in One Lesson applies to the U.S. experience in the 1930s and to today’s quagmire. Rothbard’s America’s Great Depression (1963) documents the artificial 1920s boom from expansionary monetary policy (the Federal Reserve Bank was founded in 1913) and the necessary bust that was not ever allowed to run its course to sustainable recovery.

Keynesianism failed again with the 1970s stagflation, which occurred during the energy crisis. The simultaneous existence of high unemployment and high inflation empirically refuted the (Keynesian) Phillips Curve, which graphed how more of one meant less than the other with the two never being high at the same time.

In the face of stagflation, neo-Keynesian leader Paul Samuelson, his guilty textbook Economics exposed, lamented:

It is a terrible blemish on the mixed economy and a sad reflection on my generation of economists that we’re not the Merlins that can solve the problem. Inflation is deep in the nature of the welfare state. Even when there is slack in the system, unemployment doesn’t exert downward pressure on prices the way it did under “cruel” competition.

But lessons were not learned, and Obama finds his third-way interventionism running on empty. The stimulus borrowed from the future and simply propped up mal-investments and created new ones, such as the government-dependent wind power industry. “Green” jobs are bubble jobs that are set to burst sooner or later.

Three strikes–is neo-Keynesianism out?

Austrian-School (Real World) Economics

Enter the ‘Austrian School’ or ‘market-process approach’ to economics. [Read more →]

“Greedy capitalism got the blame for Enron, but Enron was anything but a free-market corporation…. They were gaming the system, using politics for their own interests. That’s not free-market capitalism. That’s political capitalism.”

- Robert L. Bradley, Jr. Quoted in Leigh Brown Perkins, “Energy Surge: Robert Bradley ’77 Profile, Rollins College Magazine, Fall 2009.

The end of Enron was an unlikely new beginning for Robert Bradley ’77.

After 16 years at the energy giant, the last seven as a public policy analyst and speechwriter for CEO Ken Lay, Bradley found himself stranded when the company imploded in a firestorm of shady dealings. Like most people at Enron, he never saw it coming. “As with most Enron employees, my equity was in company stocks,” he said. “So I not only lost my job, I lost my financial cushion. It was a crisis for me.”

Bradley transformed that crisis into a new career as one of the nation’s leading advocates of free-market energy policy. He founded the Institute for Energy Research, a think tank for market-based sustainability, and its lobbying affiliate, American Energy Alliance, which leads the drive against cap-and-trade (what Bradley calls “cap-and-tax”) energy legislation, as well as a national renewable-energy mandate.

Bradley espouses the view that concerns over global warming are exaggerated and that, in fact, government can significantly increase energy costs and reduce energy reliability without appreciably influencing the climate. Politically popular or not, he is no lightweight. An academic and historian with a Ph.D. in political economy, Bradley is an adjunct scholar for the Cato Institute in Washington, DC, the University of Texas at Austin, and the Institute of Economic Affairs in London. He has written for The New York Times and The Wall Street Journal and blogs on climate issues for masterresource.org and on libertarian politics for politicalcapitalism.org.

He is also the author of six books on energy, including Oil, Gas and Government: The U.S. Experience. He is currently writing the second book in a trilogy titled Political Capitalism, which uses Enron as the canary in the coal mine. “Greedy capitalism got the blame for Enron, but Enron was anything but a free-market corporation,” he said. “They were gaming the system, using politics for their own interests. That’s not free-market capitalism. That’s political capitalism.”

It was government dependence and arrogance that precipitated the Enron bust, Bradley writes in the trilogy’s first book, Capitalism at Work. “Only by manipulating the levers of government was Enron transformed from a $3-billion natural gas company to a $100-billion chimera, one that went from seventh place on the Fortune 500 list to bankruptcy.”

Bradley’s vision for a sustainable energy market focuses on greater reliance on free markets (less government control) and the end of corporate welfare (leaving business to compete without subsidies). For example, he explained, Enron was sounding the climate alarm for years, all while benefiting from wind and solar subsidies and banking on potential emissions trading markets. [Read more →]

[Yesterday (May 15) was the 100th anniversary of the U.S. Supreme Court decision [Standard Oil Co. of New Jersey v. United States finding John D. Rockefeller's company guilty of restraint of trade and monopolizing the petroleum industry. The court’s remedy was to affirm a lower court decree effectively dividing Standard Oil into several competing firmsdissolution of Standard Oil. This post, taken from Robert Bradley's Oil, Gas and Government: The U.S. Experience, summarizes the manifold contributions of John D. Rockefeller to a fledgling, powerhouse industry. Documentation for the points and quotations below can be found on pp. 1089–1094.], 221 U.S. 1 (1911)]

A resume of the contributions of Standard Oil prior to its court-ordered dissolution in 1911 offers an illuminating glimpse into entrepreneurship, the market process, and consumer service therein.

Rockefeller and the management team at Standard Oil can be credited with accelerating the maturation of the kerosene age in petroleum. Their entrance in the 1870s found an infant industry prone to cyclical growth, undercapitalization, and coordination problems. Explained Williamson and Daum:

Lack of balance between various segments of the industry appeared to be chronic; crude production, refinery capacity and throughput, and market demand were rarely in equilibrium. First, production would outrun throughput by refineries; the manufacturing capacity would exceed either current crude production or the rate at which refined products could be absorbed by the market. These more or less continuous maladjustments were reflected in wide fluctuations in prices of crude and refined products.

Within the free-market environment, company and industry problems invited profitable solutions, and Rockefeller proved to be the right man at the right place and time. Standard strategically bypassed the unstable exploration and production phase, where drilling was risky and production often exceeded storage and demand capabilities, and concentrated instead on the manufacturing phase. Demand for refined products was solid and growing, and the lure of a big strike would keep the drillers busy; Rockefeller’s plan was to concentrate in the middle with storage, transportation, and refining to lower cost and add value to the oil. The refining phase, in particular, was in need of great improvement. Summarized John McLaurin:

The first refineries were exceedingly primitive and their processes simple. Much of the crude was wasted in refining, a business not financially successful as a rule until 1872, notwithstanding the high prices obtained. Methods of manufacture and transportation were expensive and inadequate. The product was of poor quality, emitting smoke and unpleasant odor and liable to explode on the slightest provocation…. Railroad-rates were excessive and irregular…. The cost of transportation and packages had been important factors in crippling the industry.

Rockefeller clearly recognized the “manifold economies,” to borrow biographer Allen Nevin’s term, associated with large size. Contracting in bulk lowered input prices and transportation rates. Diverse plant locations reduced the business risks of fire and explosion. Improvements in distillation technology steadily lowered unit costs. Integration into complementary phases (barrel making, pipelines, wagon production, storage, loading facilities, marketing) internalized profits and trimmed costs. By-products that other refiners treated as waste Rockefeller found uses for. Literally hundreds of by-products were distilled from each barrel of oil. Opportunities for efficient operation were discovered and implemented that set industry standards in favor of the consumer. [Read more →]