Carter's Energy War


"The moral equivalent of war." The President's metaphor is an apt one. For indeed, his energy program amounts to a declaration of war—not against the Arabs or against waste but against the American taxpayer and the remnants of our once-free economy. For what Carter has proposed is nothing less than a giant step towards fascism.

To begin with, the administration has exaggerated the extent of the (nonetheless real) energy crisis. The much-touted CIA report forecasting severe oil shortages by 1985 was largely guesswork and made worst-case assumptions throughout, according to an appraisal by National Economic Research Associates, of New York. Other analyses—by the UN, by the 24-member Organization for Economic Cooperation and Development, and by Stanford Research Institute—have found the oil picture to be considerably brighter.

To the extent that a crisis (i.e sharply inadequate supplies relative to demand) does exist, it is largely the creation of the U.S. government. It began in the 1950's with the absurd FPC controls on natural gas prices, which led to widespread displacement of coal as a utility boiler fuel, and displacement of solar water heaters (yes!) in Florida and the Southwest by artificially-cheap natural gas. It continued in the 1970's with the FEA price controls and regulations on oil production, leading to reduced U.S. production and an ever-greater volume of imports. Adding to the problem were environmental laws that permitted far too easy harassment of utilities seeking approval of power plant construction, and which forced automakers to produce increasingly inefficient (i.e. gas-guzzling) engines in order to meet clean-air standards. All the while tariffs impeded free consumer access to more efficient imported cars. This kind of track record should be cause for healthy skepticism about any government plan to solve the mess it has created.

But a look at Carter's plan replaces skepticism with alarm. For at one stroke he is proposing the most audacious expansion of taxation and Federal intervention in recent memory. The Federal government, rather than the marketplace, would now be responsible for determining: the price of gasoline, the price of large versus small cars, the price of within-state natural gas, the price of using oil, the growth rate of the solar heating and insulation industries, the way utilities set their rates, etc., etc.

Those massive new taxes on gasoline, oil, and automobiles would bring in $70 billion a year of new government revenue by 1985. And in case you believed Carter's initial pledge that this tax money would all be rebated back to the taxpayers (April 20), note well that by April 22 Mr. Trust-Me was already saying "I can't certify today that every nickel of the taxes collected will be refunded to consumers," and two days later-energy czar Schlesinger told Face the Nation that he could not make a firm commitment on recycling taxes back to consumers, "because we want to integrate our energy proposals into welfare reform and tax reform. " (You didn't really think the Feds were going to pass up an opportunity to achieve social goals [i.e. wield power] with $70 billion a year, did you?) By mid-May Congress had already begun talking about spending the gas tax funds on mass transit instead of rebates.

Curiously, the Carter plan is being called a "free-market" approach in some quarters because of its emphasis on raising energy prices to market or near-market levels. But doing this via taxes rather than the market does only half of what free-market pricing would do. Sure, a higher price will induce consumers to conserve, but if government, rather than the producers, gets the increased revenues, there is no increase in capital available to expand production (except when and as the Feds see fit to hand out grants—but maybe that's the point). Carter rails against "windfall profits." But where can these profits go? Only into increased dividends (which will either be spent or invested—surely he and Charles Schultze couldn't object to that) or increased retained earnings, i.e. expansion of production capacity. There are no other alternatives!

Besides failing to come to grip with the need for increased production, the Carter plan poses increased risks of international confrontations. As a sop to the United Auto Workers and the auto companies, the administration apparently plans to apply the automobile tax rebates only to domestic cars—unless the governments of Japan, Germany, Italy, et. al., agree to restrict exports to this country. This kind of meddling with free trade not only violates the rights of consumers to free choice in the marketplace, but also risks bringing back the trade wars of the 1930's. Consumers already have been buying gas-saving cars—imports—in record numbers, hitting an all-time high in April at 20 percent of the U.S. market. All without any gas-guzzler tax and despite U.S. import duties.

A sensible policy would, of course, seek to return energy to the free market. The two most important steps in this direction would be to abolish the FPC and the FEA—or at the very least to repeal the laws giving them the power to fix energy prices. This should be done at once, not phased in "painlessly." Every day that passes with energy prices controlled by the State leads to further dislocations in the economy due to misallocations of resources. Far better, in this case, to make a clean break and get it over with. The shock to consumers of free-market pricing of gasoline, heating oil, and natural gas would certainly be no worse than under Carter's tax-based plan—yet the increased revenues would go immediately into productive use, rather than increasing the power of the State.

A variety of other steps would also assist in solving the energy problem. The administration and Congress should end once and for all their periodic threats to dismember the large oil companies, thereby creating a stable climate in which these firms can invest in the exotic technology needed to exploit more costly energy sources (e.g. natural gas in the geopressurized zone, secondary and tertiary oil recovery, shale oil, etc.). To promote the development of more efficient automobiles, the government should, simultaneously, abolish all import duties and restrictions and repeal mandatory mileage requirements, thereby letting the spur of competition motivate auto industry down-sizing and fuel economy R&D. Federal and state regulations holding back industrial firms from generating electricity from waste steam in their boilers, both for their own use and for sale to others, should be repealed.

There are many things the Federal government can do to stimulate solutions to the energy problem facing this country. But they are not the measures called for in Jimmy Carter's energy war. They involve getting the Federal behemoth out of the way and turning American capitalism loose on the problem.