Good Luck, T. Boone Pickens

Submitted by John on Wed, 07/23/2008 - 3:02pm. Tags:

Economics and Business

I don't know if anyone of you have seen Pickens' timely (think: ELECTIONS) TV Ads about a "plan for energy independence" and reducing "dependence on foreign oil". They struck me as sophistic as soon as I heard them and rife with appeals to mechantilism and benevolent, nice-sounding cronyism. Being certain it was simply that, I just rolled my eyes and didn't give it much thought.

Well, Jerry Taylor of Cato has given it some thought and it's just what I expected.

Says Taylor:

Virtually every claim made by T. Boone Pickens to justify the lavish subsidies he is seeking for his wind energy investments is flat wrong.

First, oil imports are not the cause of high gasoline prices. On the contrary, oil imports serve to keep gasoline prices down. After all, we import oil for a reason; it's cheaper than the domestic alternative. If we were to restrict our energy diet to energy produced in the United States, it would make domestic energy producers (like Mr. Pickens) far richer and energy consumers (the rest of us) far poorer, and GDP would be reduced as well. While one can understand why Mr. Pickens is attracted to the idea of "energy independence," for the rest of us, keeping the country open to imported goods is pro-consumer whether we're talking about oil, steel, textiles, or athletic shoes.

So, Pickens is simply seeking government subsidies to be our energy savior. Sure. IOW, Pickens is trying to get government largesse and favoritism to create an energy alternative to imported oil. Well, that sounds since but it simply doesn't make sense. Pickens should simply do his "plan" and beat the competition...like everyone else tries to. Get venture capitalists behind you and a variety of angel investors. If a plan is a winner, it doesn't need government favors and subsidies. If lowering carbon emissions is the goal, government could simply allow things to proceed as they are and not interfere. But it if really wants to keep it low, it can simply make sure the use of carbon-emitting energy is made to be more expensive while the market reacts to fill the void. This is the least intrusive way.

Taylor mentions promising developments in compressed natural gas as well. If this is as good as some hope then no "master plan" is needed.

Price signals will induce investors to invest and consumers to buy without government having to lift a finger. The same goes for all the other energy-related R&D Mr. Pickens would like the taxpayer to dole out. If that R&D is promising, it will be pursued whether government subsidizes it or not.

Wow, so many variables, so many possibilities. Pickens would be in a heck of lurch...just as I would be if I tried to sell something that required proper and predictable market conditions for years to come.

So, concludes Taylor,

Of course, if the market were to go into any of those directions, Mr. Pickens would be out a lot of money, which is probably why Mr. Pickens wants to hard-wire the market to consume the things he's investing in and have the government lavish him with subsidies in the course of doing so. I wish Mr. Pickens well in the course of his wind energy business, but I see no reason why taxpayers, ratepayers, or consumers ought to be forced to sacrifice in order to fatten his already ample bank account.

John's blog
Login or register to post comments

Cato, as usual, is ignoring externalities. (#105006)

by M Aurelius on Wed, 07/23/2008 - 8:37pm

After all, we import oil for a reason; it's cheaper than the domestic alternative.

Well, it does result in cheaper gasoline prices, but it's not exactly hard to show that our long-term involvement in the Middle East has been, and continues to be, very expensive.

I'd rather throw money at T. Boone Pickens at home than spend it in Iraq or anywhere else in the region, or in Russia or Venezuela, for that matter.

Cato is also ignoring our overall balance of payments situation, and what that does to the dollar. If everything is cheaper abroad, do you import everything? How long can that work?

Lastly, I don't believe cheap gasoline has a big positive impact on GDP. It lets us buy bloated vehicles, but it is not a significant input for most industry. As has been widely noted here, we don't use much oil for power generation.

We are in serious, worsening trouble.

(

)

I Saw The Ad Tonight...Boffo, Boom, Great Stuff...Maybe We Have (#105044)

by Traveller on Thu, 07/24/2008 - 1:04am

...a future if we kick enough dirt on the well deserved grave of the lying Cato Institute.

Go Government!

Best Wishes,

Traveller

(

| parent )

A quick question? (#104896)

by Floater on Wed, 07/23/2008 - 3:13pm

Do you believe that we are near or at Peak Oil? Because if we are that changes things drastically. Getting a new energy infrastructure off the ground in order to minimize the impact of Peak Oil is a valid area of government policy As for this

If a plan is a winner, it doesn't need government favors and subsidies.

I agree 100%. Of course we have been providing enormous direct and indirect subsidies to the oil industry for decades so I'm not sure why we should not do that for other energy technologies in order to give them a level playing field.

(

)

Peak oil or not, it changes nothing (#104947)

by John on Wed, 07/23/2008 - 5:26pm

Innovative people are working hard to fill the eventual void left by oil...some in wind, some in solar, in petrol-producing microbes, some in compressed natural gas, some in hydrogen and so on.

There's simply nothing the government is going to do to change this outcome. Pickens looking for the path of least resistance to suck at the government's whoring teat to get an artificial leg up on the competition isn't going to change the progress being made...but it may cause an expensive diversion that sucks in tax payers dollars along the way. Yes, the ebergy infrastructure will need to change in time but that doesn't mean we make some phantom leap to some logical conclusion that the government has to direct it by picking winners and losers in that endeavor.

Sorry for the cliche but the market will decide as the writing on the wall becomes clearer. It's really that simple.

Like I said, the only thing government can do, and it's a debatable point, is make oil EVEN MORE expensive than market rates through taxation and push innovators to relieve the pain faster. That's it.

As for the second part, I don't agree with subsidies given to oil. Had it not been for those subsidies, another solution may have come around faster...or maybe not. We don't know. Better to pull subsidies from oil than start doling out new subsidies. Two wrongs don't make a right.

(

| parent )

How many companies (#105051)

by HankP on Thu, 07/24/2008 - 2:13am

would or could fund fusion research? None, that's how many. It's difficult, and it will take time, but that's going to be the ultimate solution to our energy problems (for this millenia, anyway).

BTW, high oil prices are the market's answer to the problem. There is literally nothing that can replace petroleum as a cheap, easily obtainable source of large scale energy.

I blame it all on the Internet

(

| parent )

A tax on oil... (#104998)

by Wagster on Wed, 07/23/2008 - 7:43pm

Could be a sloping floor below the current price. That way, investors could know that their investment won't be competing against a newly affordable fuel if a worldwide recession crimps demand, or if producers pump up production to choke off renewable alternatives.

More Wagster!

(

| parent )

Recent Diaries