Thursday, April 1, 2010

Oil and Water: Obama supports another already subsidized industry


By Nick Sorrentino 4-1-2010

Often we libertarians and conservatives are weary of any talk of “alternative fuels.” These 2 words perk our ears in ways similar to the words “gun control” or “Teddy Kennedy.” They should not however.

Aside from those who are simply afraid that an embrace of alternative fuels means that solar powered hippies will rule the highways and force them to permanently park their Chevy Suburbans at the local recycling plant, most people who have an aversion to fuels such as wind, solar, geothermal, etc, dislike them because they demand government subsidies to work- currently.

But what we champions of the market often fail to realize is the extent to which the current oil based economy is subsidized by governments. Oil, when it was plentiful and easy to get at built its own market fairly quickly 100 years ago. In the decades since however oil has been subsidized and competitors regulated away by the government.

So it is unfair to characterize the current debate over fuel sources as one where oil is the good, free market choice and “alternative energy” as simply an example of another government sponsored boondoggle.

Over the years the oil industry has been one of the great beneficiaries of government largess. It is estimated that worldwide the oil industry will enjoy nearly $500,000,000,000 in government subsidies from various countries in 2010 alone. How can alternative energy compete in a marketplace where the main competitor is subsidized to this extent?

In addition, consider the American highway system created by the feds with taxpayer money which in turn encouraged the culture of the car, suburban “sprawl,” and the death of light rail in mid-sized cities. The highway system also encouraged segregation in places such as Chicago and Saint Louis by splitting off minority neighborhoods from the “white” parts of town. This colossal government program, this subsidized program, encouraged an unsustainable level of oil consumption by everyday people.

President Obama has now opened up much of America’s coastline to oil drilling much to the surprise of many on the left. Many of Obama’s traditional opponents have applauded the move. But really this is just an example of the bizarre things that happen in markets that are warped by government intervention. Conservatives and libertarians should be aware of this. The opening up of our coastlines to oil exploration is not a “freeing” of an otherwise freely operating market, it is just an example of the ongoing manipulation of a market that has been anything but “free” for many, many decades.

It is asinine that many continue to see the oil/alternative energy debate framed in terms of oil being “the fuel that people want” versus alternative energy sources being “the energy that must be subsidized and thus is not what people want.” Oil is subsidized far more than alternative energy, even now.

But that does not mean that we should increase subsidies for alternative energy. This will only morph the marketplace that much more, and in turn create unintended consequences that invariably will have to be addressed with more subsidization and regulation ad infinitum.

What we should instead strive for is a truly free energy market where the true cost of oil is expressed to the consumer. In so doing we will likely see that traditional and “alternative” sources of energy actually are much closer in real cost than we currently think. Who knows maybe solar will actually prove more cost effective in a truly free fuel market.


About Me

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Nick Sorrentino is the Editor of The Liberty and Economics Review and CEO of Exelorix.com a social media management company.