The False God of Policy

By Kennedy Maize

Washington, D.C., August 17, 2013 — How fortunate that the U.S. does not have and has never had an energy policy. Policy, particularly big policy aimed at big issues and big events, is an enemy of progress, as policy seeks to forestall opportunities that are counter to policy. Social and government policy becomes orthodoxy and orthodoxy prevents creativity.

For the U.S., pundits, politicians and policymakers of both political parties have pontificated about the need for an energy policy since the Arab oil embargo of the 1970s. Before that, of course, the U.S. needed no official energy policy; its de facto stance (never phrased in terms of national energy policy), embodied in import quotas, was to keep low-cost Arab oil out of the U.S., because it undercut higher-priced domestic crude. That was then. And let’s not even talk about how natural gas prices were kept high under explicit federal controls in the name of keeping natural gas prices low,  a classic government fake-out, going back to the 1950s.

This is now: North America has such plentiful supplies of fossil fuels – coal, natural gas and oil – that we can thumb our noses at the Arabs to whom we were bowing and scraping a few decades ago. Combined with copious amounts of wind, lots of sunshine, and bountiful falling water, we are in excellent shape in terms of the ability make electricity, the most useful of sources of power, going forward. We were driven astray by the apparent (but not real) imbalances in world energy supplies. We no longer need be blinkered by bad visions based on flawed resource assessments.

We have managed to get to today, a largely beneficent energy environment, without an articulated, coordinated national energy policy. We haven’t fully trashed the environment or unduly impoverished our population. The air and water are getting cleaner and our people have a higher standard of living. Amazing!

I would argue that we got to the comfortable position of today because we didn’t have a national energy policy, despite many failed attempts to create such a monster. We got lucky because we were unable to muster the national will to march down the wrong road for very long. Instead, we stumbled and grumbled and bumbled along a winding road, wandering hither and yon, letting the private sector proceed as it would. And it turned out just fine. Maybe that’s a testament to the ultimate utility of our fractious, awkward polity, that it leads us not astray but often far afield. And that’s a benefit.

Facing the illusionary threat of Arab oil control in the 1970s, Richard Nixon proposed an energy policy (thankfully never implemented) called “Project Independence,” without any concept of just what that entailed. Jimmy Carter had a national energy policy of sweaters, long underwear, White House solar panels, and the creation of an entirely feckless Energy Department, along with an even more ludicrous Synthetic Fuels Corporation to turn coal into oil.

Bush, Clinton, Bush, Obama? Not much different: a lot of hand waving and throwing a lot of good money after bad technology. Good for them for failing inadvertently.

A national energy policy never would have anticipated the shale oil and gas revolution. While apologists for federal spending on energy technology insist that horizontal drilling and hydraulic fracturing were the fruits of federal R&D (a bit of a stretch of history), it’s clear that directing federal energy policy in conventional ways – the heart of “policy” – would never have foreseen the advent of shale resources. Shale is the evidence of the value of vacuity in national energy policy, although some of the shale boom may be the unplanned result of ill-advised tax policy aimed at coal-bed methane. By the way, one of the most assiduous followers of the coal-bed methane path, taking advantage of the tax code, was Enron founder Key Lay. In those days, we irreverent ink-stained wretches in the press called it “moonbeam gas.” But it took George Mitchell, a tenacious visionary, to figure out how to use tax breaks to help finance finding natural gas and crude oil from Devonian shale (not coal formations), something a national energy policy would never have countenanced.

I’ve been reading two books lately that are pertinent to the discussion of the nature of overarching government policies and the fallacies of central planning. The first is Peter Z. Grossman’s “U.S. Energy Policy and the Pursuit of Failure,” (Cambridge University Press, 2013) an excellent work only slightly diminished by the emphasis on academic economic theory. That dry-as-dust stuff, accompanied by soporific supply-and-demand curves, subtracts from the power of the practical argument that what our government and our politicians have pursued for 40 years is, and was from the start, doomed.

I highly recommend this book to anyone who wants to inquire deeply into U.S. economic history since the 1970s. Here’s the “Cliff Notes” summary, in Grossman’s words: “Thus far, as this book has shown, legislation has produced mostly waste and confusion. Still, elected officials seem forever smitten by the prospect of a fairy-tale ending: the U.S. achieves energy independence through an Apollo-type program that produces a low-cost technological energy panacea. When members of Congress talk about energy technology, they evince little knowledge of what technology might be possible, of what sort of technological or scientific breakthrough would be needed to make any particular technology possible, or what economic, environmental, and even social effect it would have if it became possible. Nevertheless, usually during a perceived crisis guided by the political need to ‘do something,’ successive presidents and Congresses have acted on their rhetoric, failing in the process.”

The second book I want to call to your attention is Jeremy Adelman’s excellent “Worldly Philosopher: The Odyssey of Albert O. Hirschman” (Princeton University Press, 2013), a biography of the brilliant economist Hirschman, one of the 20th century’s most insightful thinkers about government policy and economic development. While nominally a figure of the left, Hirschman was a global intellectual who embraced a philosophy of modesty in the pursuit of social goals and pragmatism in developing policies to implement the goals. He defied ideological labels.

Throughout his pursuit of ideas to advance the prospects of countries and societies that Hirschman examined and advised, he maintained a stance of optimism that progress was possible by taking incremental steps and eschewing grand illusions driven by ideology or ego. He did it with humor, felicitous phrasing, and largely without the mathematical formalism that today unnecessarily divorces economics from the average citizen. His economics are accessible to those whose calculus classes have faded into the dim mists of personal history.

As Adelman says, Hirschman was “someone who thought hard about and dwelled in the neglected, ravaged space between the romance of revolution and the firmament of reaction.” His was a world of the “middle ground seen through the eyes of someone firmly committed to its place in the world.” Hirschman, notes Adelman, was deeply ambivalent about the word “theory,” although committed to the world of “reform,” a man who saw mankind “as a source of possibilities the intellectual can help summon with a different combination of humility and daring.”

What links Grossman’s history of failed U.S. energy policy and the elevated thoughts of philosopher and economist Albert Hirschman? The keys are humility and modesty, virtues too long lost in the making of economic and political policy in the U.S. by both political parties and fake ideologies. In my mind, no policy at all has proven to be far better than the flawed results of hubris and immodest overreaching that has characterized our last 40 years of failed reaches for an overreaching energy policy. We have lucked out.