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July 31, 2003

Stasists win Another

With the passage of an energy bill by the Senate today, it appears inevitable the federal government will codify still more regulations and rigidity to the U.S. economy. And what's really sad is the President and Congress undoubtedly all believe that their handiwork will help, rather than harm, the country.

I know very little about energy. But I'm willing to bet any amount you'd care to name on one thing: any attempts to resolve current energy problems through government regulation will cause more harm than good. Not because our legislators don't put lots of thought into their bills (although I suspect they don't), nor because they don't care about solving the problem (which I believe they do). No, they will fail because the future, as Yoda once observed, is very difficult to foresee. Therefore, solutions offered by government are very unlikely to address the conditions that will prevail within a year or so. But government regulation takes time to put in place, and rarely is removed once it is in place. Therefore, even if the new regulations are ideally suited to the situation when the bill is passed, in short order the regulations will be out of date. Yet they'll remain in effect, which means they will continue to warp the market long after any positive effect they might have had is gone.

Let's take a look at the ethanol situation, for example, since the new bill adds still more subsidies for that boondoggle. Nobody would bother to make ethanol if it weren't for government subsidies, because it's not an efficient use of resources. Stop by USS Clueless for an explanation of why this is so, if you're curious. Despite this inefficiency, millions of dollars are poured down this rathole every year because Iowa grows a lot of corn, and presidential candidates are unwilling to tell the truth and face losing the Iowa caucuses. This is not only a major waste of tax dollars (i.e., your and my money), but it means that those dollars cannot be used for any more productive purpose. For those environmentalists who complain we're killing the planet with our use of fossil fuels, ask yourself what that money could do if it were applied to alternative fuel research? Free market fans, what other economic benefits are foregone or shorted because those dollars are being wasted on crass vote-buying? The bottom line is this: significant resources are being flushed down the toilet every year because government has decided to lock money into what it has determined to be the one best way to address the problem.

Yet even a cursory study of history suggests that economic breakthroughs tend to come from unexpected directions. Just 20 years ago, IBM was convinced that there would never be a market for personal computers. Now how big a sector of the economy is the PC driving? If the government had been permitted to decide how much money would flow into the PC market 20 years ago, how big a negative effect would that have had? Yet the government does that every day, whether with ethanol, steel subsidies, or any of the other of hundreds of ways the government preselects winners and losers, and we'll never be able to tell how that is distorting the economy.

Now we're preparing to do it again. This new energy bill will once again select winners and losers arbitrarily, probably based on political contributions, almost certainly to the detriment of the economy. For a president who desperately needs the economy to rebound to ensure his chances at reelection, this is an odd move at best.