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Category — Energy Economics

‘Simple Rules for a Complex World’: Five for Energy Policy

“[P]ermanence and stability are the cardinal virtues of the legal rules that make private innovation and public progress possible. To my mind there is no doubt that a legal regime that embraced private property and freedom of contract is the only one that in practice can offer that permanence and stability.”

- Richard Epstein. Simple Rules for a Complex World,  Cambridge:  Harvard University Press, 2004, p. x1.

In U.S. Energy Policy and the Pursuit of Failure–and in a recent blog post at MasterResource–I have argued that for government energy policy to be effective it has to be modest—modest especially in what policy can be expected to accomplish.

But for modest policy to be effective, there must be some basic understandings about what energy policy should or should not entail. Here are my rules for effective energy policy.

  1. Make energy policy be about energy. Seems too obvious? Not to policymakers. Since the 1970s, energy policy has been said to have near magical qualities. Proponents of energy legislation have claimed bills would: reduce the U.S. trade deficit, aid farmers, build U.S. manufacturing capabilities, provide world technological leadership, strengthen the dollar, reduce inflation, boost economic growth, protect the American way of life, and restore America’s confidence. And of course, energy legislation is always supposed to create jobs – thousands, hundreds of thousands, even millions. I find it hard to take seriously any policy that claims to deliver such long lists of goodies, especially since, to date, most energy legislation has delivered little or nothing of value. [Read more →]

October 4, 2013   3 Comments

Milton Friedman’s 100th: Exploring His Wisdom for the Ages (Part II: Energy)

[Ed. note: Milton Friedman's views are also explored in Part I of this series (worldview) and in Part III (political capitalism).]

“Economists may not know much. But we know one thing very well: how to produce surpluses and shortages. Do you want a surplus? Have the government legislate a minimum price that is above the price that would otherwise prevail…. Do you want a shortage? Have the government legislate a maximum price that is below the price that would otherwise prevail.”

       – Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1979), pp. 219.

“It is a mark of how far we have gone on the road to serfdom that government allocation and rationing of oil is the automatic response to the oil crisis.”

- Milton Friedman, “Why Some Prices Should Rise,” Newsweek, November 19, 1973.

Milton Friedman is best known for his monetary economics,  Monetarism, a school of economics that challenged and largely defeated Keynesianism. “By century’s end, stated Paul Krugman in the New York Review of Books, “classical economics had regained much though by no means all of its former dominion, and Friedman deserves much of the credit.”

But as Friedman became a public intellectual, writing popular books and writing his biweekly Newsweek columns, he became conversant in different fields, including energy. And energy, and Harold Hotelling’s fixity/depletion model in particular, became the rage of applied economics in the energy-troubled 1970s.

Friedman’s harsh negative reaction to President Nixon’s wage and price control order of August 1971 is particularly important for the energy debate, for this action (and not the Arab Embargo) created the oil shortages that led to a decade of oil regulation and misery from U.S. consumers.

Friedman’s salient quotations on energy, at least what I have been able to find, are presented below. (Perhaps readers can add to this compilation in the comments section below.) For additional thoughts of Friedman on energy, see the MasterResource post, Milton Friedman on Mineral Resource Theory. [Read more →]

August 2, 2012   5 Comments

Fifteen Bad Things with Windpower–and Three Reasons Why

[Note: This article has been updated to Twenty Bad Things about Windpower — go here.]

Trying to pin down the arguments of wind promoters is a bit like trying to grab a greased balloon. Just when you think you’ve got a handle on it, it squirts away. Let’s take a quick highlight review of how things have evolved.

1 – Wind energy was abandoned well over a hundred years ago, as it was totally inconsistent with our burgeoning more modern needs of power, even in the late 1800s. When we throw the switch, we expect that the lights will go on — 100% of the time. It’s not possible for wind energy, by itself, to ever do this, which is one of the main reasons it was relegated to the dust bin of antiquated technologies (along with such other inadequate sources like horse power).

2 – Fast forward to several years ago. With politicians being convinced by lobbyists that Anthropological Global Warming (AGW) was an imminent threat, a campaign was begun to favor all things that would purportedly reduce CO2. Wind energy was thus resurrected, as its marketers pushed the fact that wind turbines did not produce CO2 in their generation of electricity.

3 – Of course, just that by itself is not significant, so the original wind development lobbyists then made the case for a quantum leap: that by adding wind turbines to the grid we could significantly reduce CO2 from fossil fuel electrical sources (especially coal). This argument became the basis for many states’ implementing a Renewable Energy Standard (RES) — which mandated that their utilities use an increased amount of wind energy.

4 – Why was a mandate necessary? Simply because the real world reality of integrating wind energy made it a very expensive option. As such, no utility company would likely do this on their own. They had to be forced to. [Read more →]

September 20, 2010   40 Comments