[Editors note: This four-part post examines the innovation and creative destruction of the early oil market. It was originally published by The Objective Standard.]
The most important and most overlooked energy issue today is the growing statist threat to global energy supply.
There is no substitute for available, affordable, and reliable supply. Cheap, industrial-scale energy is essential to building, transporting, and operating everything we use, from refrigerators to Internet server farms to hospitals. It is desperately needed in the undeveloped world, where 1.6 billion people lack electricity, which contributes to untold suffering and death. And it is needed in ever-greater, more-affordable quantities in the industrialized world: Energy usage and standard of living are directly correlated.1
Every dollar added to the cost of energy is a dollar added to the cost of life. And if something does not change soon in the energy markets, the cost of life will become a lot higher. As demand increases in the newly industrializing world, led by China and India, 2 supply stagnates 3—meaning rising prices as far as the eye can see.
What is the solution?
We just need the right government “energy plan,” leading politicians, intellectuals, and businessmen tell us. Of course “planners” such as Barack Obama, John McCain, Al Gore, Thomas L. Friedman, T. Boone Pickens, and countless others favor different plans with different permutations and combinations of their favorite energy sources (solar, wind, biomass, ethanol, geothermal, occasionally nuclear and natural gas) and distribution networks (from decentralized home solar generators to a national centralized so-called smart grid). But each agrees that there must be a plan—that the government must lead the energy industry using its power to subsidize, mandate, inhibit, and prohibit. And each claims that his plan will lead to technological breakthroughs, more plentiful energy, and therefore a higher standard of living.
Consider Nobel Peace Prize winner Al Gore, who claims that if only we follow his “repower American plan”—which calls for the government to ban and replace all carbon-emitting energy (currently 80 percent of overall energy and almost 100 percent of fuel energy) 4 in ten years—we would be using fuels that are not expensive, don’t cause pollution and are abundantly available right here at home. . . . We have such fuels. Scientists have confirmed that enough solar energy falls on the surface of the earth every 40 minutes to meet 100 percent of the entire world’s energy needs for a full year. Tapping just a small portion of this solar energy could provide all of the electricity America uses. And enough wind power blows through the Midwest corridor every day to also meet 100 percent of US electricity demand. Geothermal energy, similarly, is capable of providing enormous supplies of electricity for America. . . . [W]e can start right now using solar power, wind power and geothermal power to make electricity for our homes and businesses. 5
And Gore claims that, under his plan, our vehicles will run on “renewable sources that can give us the equivalent of $1 per gallon gasoline.” 6
Another revered thinker, Thomas L. Friedman, also speaks of the transformative power of government planning, in the form of a government-engineered “green economy.” In a recent book, he enthusiastically quotes an investor who claims: “The green economy is poised to be the mother of all markets, the economic investment opportunity of a lifetime.” 7 Friedman calls for “a system that will stimulate massive amounts of innovation and deployment of abundant, clean, reliable, and cheap electrons.” 8 How? Friedman tells us that
there are two ways to stimulate innovation—one is short-term and the other is long-term—and we need to be doing much more of both. . . . First, there is innovation that happens naturally by the massive deployment of technologies we already have [he stresses solar and wind]. . . . The way you stimulate this kind of innovation—which comes from learning more about what you already know and doing it better and cheaper—is by generous tax incentives, regulatory incentives, renewable energy mandates, and other market-shaping mechanisms that create durable demand for these existing clean power technologies. . . . And second, there is innovation that happens by way of eureka breakthroughs from someone’s lab due to research and experimentation. The way you stimulate that is by increasing government-funded research. . . . 9
The problem with such plans and claims: Politicians and their intellectual allies have been making and trying to implement them for decades—with nothing positive (and much negative) to show for it.
For example, in the late 1970s, Jimmy Carter heralded his “comprehensive energy policy,” claiming it would “develop permanent and reliable new energy sources.” In particular, he (like many today) favored “solar energy, for which most of the technology is already available.” All the technology needed, he said, “is some initiative to initiate the growth of a large new market in our country.” 10
Since then, the government has heavily subsidized solar, wind, and other favored “alternatives,” and embarked on grand research initiatives to change our energy sources—claiming that new fossil fuel and nuclear development is unnecessary and undesirable. The result? Not one single, practical, scalable source of energy. Americans get a piddling 1.1 percent of their power from solar and wind sources, 11 and only that much because of national and state laws subsidizing and mandating them. There have been no “eureka breakthroughs,” despite many Friedmanesque schemes to induce them, including conveniently forgotten debacles such as government fusion projects, 12 the Liquid Fast Metal Breeder Reactor Program, 13 and the Synfuels Corporation. 14
Many good books and articles have been written—though not enough, and not widely enough read—chronicling the failures of various government-sponsored energy plans, particularly those that sought to develop “alternative energies,” over the past several decades. 15 Unfortunately, the lesson that many take from this is that we must relinquish hope for dramatic breakthroughs, lower our sights, and learn to make do with the increasing scarcity of energy.
But the past failures do not warrant cynicism about the future of energy; they warrant cynicism only about the future of energy under government planning. Indeed, history provides us ample grounds for optimism about the potential for a dynamic energy market with life-changing breakthroughs—because America once had exactly such a market. For most of the 1800s, an energy market existed unlike any we have seen in our lifetimes, a market devoid of government meddling. With every passing decade, consumers could buy cheaper, safer, and more convenient energy, thanks to continual breakthroughs in technology and efficiency—topped off by the discovery and mass availability of an alternative source of energy that, through its incredible cheapness and abundance, literally lengthened and improved the lives of nearly everyone in America and millions more around the world. That alternative energy was called petroleum. By studying the rise of oil, and the market in which it rose, we will see what a dynamic energy market looks like and what makes it possible. Many claim to want the “next oil”; to that end, what could be more important than understanding the conditions that gave rise to the first oil?
[editor’s note: each footnote is hyperlinked to the references]
Alex Epstein is a fellow at the Ayn Rand Center for Individual Rights, focusing on energy issues. He is the author of numerous articles on oil and energy, which have appeared in such publications as the Wall Street Journal, Forbes, Investor’s Business Daily, and FOX News. Epstein is a frequent speaker at universities around the country, a frequent guest on nationally syndicated radio programs, and a guest panelist on the popular “Front Page” show on PJTV.com