Energy & The Illusion of the Free Market


English: The logo of West Texas A&M University...

English: The logo of West Texas A&M University’s Alternative Energy Institute (Photo credit: Wikipedia)


One clever political trick is to convince people that one accepts an appealing principle and then act in direct violation of that principle. That way, one gains the propaganda benefit of espousing the principle while gaining the practical benefit of breaking that principle.

One of the most holy principles of American conservatives is the principle of the free market. It is put forth as a cure to any number of economic ills and is often described in a way that makes it seem to possess magical or divine powers. As might be imagined, thinkers of various stripes have debated the merits of the free market of capitalism. Both Adam Smith and Marx praised it while others have been rather critical of it, especially the forms that involve an essentially unregulated market.

Not surprisingly, one standard ritual for any Republican candidate is to praise the free market and promise to fight for the freedom of said market. However, the reality generally seems to be rather different. After all, the alleged free market is hardly free. Rather, the current system in the United States is quite the opposite of a free market. Rather than competitors competing on a level playing field without unfair advantages, the existing system consists of ossified mechanisms of advantage that ensure that the competition is anything but free.

One of the great castles of advantage is that enjoyed by those in the fossil fuel and nuclear industry. Interestingly, candidate Mitt Romney claimed that he would end the tax credit for the wind power industry. The reason for this, according to one of Romney’s spokespersons, is that eliminating this credit would create that legendary level playing field that is supposed to be a critical part of the free market.

In a nice bit of irony, when Obama pushed to eliminate about $4 billion tax loopholes enjoyed by the oil and gas industry, Romney opposed this idea. On the face of it, this would seem to be an inconsistency on the part of Romney. After all, if the tax credits for wind power should be eliminated to level the playing field, then the same should apply to the oil and gas industry.  In fact, some conservative thinkers have argued for eliminating government support for all energy industries on the basis of the free market principle.

However, it is possible to consistently argue in favor of support for an industry while arguing against the support of another. To be specific, if there were a relevant difference between the two industries that would require that the state support one industry to level the playing field, then a difference in treatment could be justified. To use an analogy, an athlete who is missing his legs can justly be allowed to use prosthetic legs so he can compete with runners who have legs. However, giving a mechanical enhancement (such as enhanced running shoes) to an able runner would be unfair. Likewise, an industry that needs governmental support to be able to compete against other industries could justly receive that support. As such, if it could be shown that the oil and gas industry needed to retain its government support in order to compete against alternative energy, then that support could be justified.  Obviously, the same would also apply to the alternative energy industries—if they need the support in order to compete on a level playing field, then they should receive such support.

This, of course, assumes that such support is acceptable. After all, another professed conservative principle is that the state should not take the hard earned money of tax payers and give it to those who have not earned it (or give them a tax break, which amounts to the same sort of thing). While this principle seems to be adhered to when it comes to the state providing support to the disadvantaged, it seems to be largely ignored when it comes to state support to the advantaged.

While it might be claimed that the oil and gas industry needs the state welfare it enjoys, this seems like a rather odd claim. After all, the top five companies in the oil industry have made $1 trillion in profits over the past ten years. As such, they hardly seem to be in need of state support in order to compete against alternative energy. Having this industry insist it needs its special support is rather like having a billionaire family telling the state that it needs food stamps and unemployment benefits for its members.

As noted above, some conservative thinkers have contended that the energy market should be made into a free market. However, doing this would not level the playing field. After all, the oil and gas industries have enjoyed state support since 1918 and the nuclear industry has been supported by the state since 1947. While the exact numbers can be disputed, it is estimated that the oil and gas industries have enjoyed about $4.86 billion a year in state support since 1918 (adjusted for inflation). The nuclear energy industry received about $3.5 billion a year from 1947-1999.  In contrast, the renewable energy industries have received about $0.37 billion a year since 1994. Also of interest is the fact that the tax credits for alternative energy are set to expire, typically after two years. They can be renewed, but Romney proposed not doing so for wind energy. In contrast, the four permanent energy tax preferences are enjoyed by fossil fuels (three) and nuclear power (one).  As such, even if the state support of energy industries was eliminated, the playing field would not be level. After all, the fossil fuel companies would have decades and billions of dollars in advantages over the alternative energy companies.

To use an analogy, to call for a “level playing field” now by eliminating all support for energy industries would be like calling for a “fair boat race” by forcing all competitors to row after some of them have been pulled for miles by powerboats and others are just a little bit out from the starting buoy. While everyone would be rowing, it would hardly be a level playing field or a fair competition.

Obviously, the analogy does break down. In a boat race, the competitors could be returned to the start to begin the race anew. In the case of the energy industries, the oil and nuclear companies cannot be “pushed” back to the starting point of the industries to give the alternative energy companies a fair competition. As such, it might be argued that while decades of state welfare for the energy industries was not a free market system and gives them an unfair advantage, since nothing can be done about the past, the right thing to do is to restore the free market now and let the competition play out. Perhaps the alternative energy industries can still make a go of it, despite being at a tremendous disadvantage (like in the classic feel good movies in which the underdog wins against all odds) and being denied the sort of support that enabled the fossil fuel and nuclear energy industries to become viable. Of course, this would be rather like making a competition “fair” by eliminating funding for training for all athletes and then having the trained athletes compete against the untrained newcomers.

This analogy does seem to suggest a potentially fair solution. To level the playing field, the alternative energy industry would need to receive support comparable to that enjoyed by the fossil fuel and nuclear industries. This could be done by shifting the support from the fossil fuel and nuclear industries to the alternative energy industries. Once the playing field has, in fact, been leveled in a few decades, then the support for the alternatives can be withdrawn and the fair competition can begin. To go back to the boat analogy, the competitors would be allowed to be pulled by a power boat for the same amount of time, then they could row fairly against each other. In the case of the training analogy, the new athletes would receive comparable training to the old and then they could compete fairly on a level playing field. We would then have a real free market, rather than a system that has given the fossil fuel and nuclear industries an incredible advantage over the competition via state welfare.

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