Energy and Power


As gasoline lines spread nationwide in June, truckers struck over fuel shortages, and OPEC decreed yet another oil price increase, an energy panic seemed to sweep the nation. In response, presidential assistant Stu Eizenstat sent a now-famous memo to Jimmy Carter urging him to seize the opportunity—to rescue his political career.

And seize it he did. In his July 15 speech Carter missed no opportunity to propose expansion of the power of government and demand sacrifices from individuals. Do you value your freedom of mobility? Garage your car one day a week! Do you have urgent needs for gasoline? Stand in line for your ration book like everyone else! Do we need alternative energy sources? We'll have only the ones the government's Energy Security Corporation and Solar Bank decide are good for us! (This, from the same people who can't run trains or deliver letters competently!)

Where to get the money? Why, from the "windfall profits" of the greedy oil companies, of course. Nobody mentions that this supposedly "temporary" tax—justified as the price of decontrol—contains a permanent provision taxing away half the difference between the OPEC price and a base price. By 1985 that tax alone would be taking some $19 billion a year out of our pockets.

In short, the stage is set for a major increase in the power and scope of government. If "war is the health of the State," the "moral equivalent of war" seems to be a pretty good substitute. As this is being written, the House has passed a $3 billion synthetic fuels subsidy program, while its Education and Labor Committee (!) hastily approved a $200 billion government synthetic fuel corporation. That idea, whose roots extend back to Nelson Rockefeller, was sounded out for several weeks prior to Carter's embrace of it—in the Wall Street Journal (by Walt Rostow), the New York Times (by James Reston), and by the editors of Business Week. The Solar Bank idea has been promoted by Tom Hayden's Campaign for Economic Democracy for several years. And related ideas—for a government corporation to compete with the oil companies (from Ralph Nader) and for government takeover of the energy industry (from Americans for Democratic Action)—have been dusted off and presented as new solutions in recent weeks.

What is particularly ironic is that anyone should still be so naive as to think that the government—least of all James Schlesinger's $12 billion white elephant—can do anything to solve our energy woes. It is Schlesinger and Carter, after all, who in recent months have:

• Unexpectedly changed gasoline allocation rules in February, leading to regional shortages; then changed them again in April.

• Told refiners to stay out of the spot market for crude in March; then told them to get into it in May.

• Urged refineries to produce more heating oil at the expense of gasoline in April; then hastily reversed themselves when they saw the results in May.

• Ruled that farmers should get all the diesel fuel they wanted—leading to shortages for the truckers who haul farm products to the cities, and thence to truckers' strikes.

• Threatened to punish refiners for low gasoline production (June 15); then turned around and said it was not the industry's fault that gas supplies were low (June 21).

Little wonder that one oilman complained, "The real odd-even plan is Schlesinger's assessment of the energy situation." In the face of that incredible performance, we are supposed to let the government lead us out of the energy crisis?

Yet make no mistake—there is a crisis. The American economy—now importing 8 million barrels of oil a day, 50 percent of its consumption—is dangerously vulnerable to the shifting sands of Arab policies. What would happen to American farms, jobs, and homes if radical Iranian political committees shut down oil production there (3 million bbl./day), or if Saudi Arabian dissidents overthrew their monarchy (8.5 million bbl./day), or if the leaders of Iraq (2.2 million bbl./day) or Libya (2 million bbl./day) decided to punish the West for supporting Israel, or if the large Palestinian minority in Kuwait shut off its oil production (1.8 million bbl./day)? Simple prudence dictates measures to reduce our vulnerability—both to economic disruption and to pressures for continued political intervention.

Fortunately, there are some alternatives that do not involve expansion of government control and taxation. Most obviously, all energy prices could be deregulated—immediately—and the "money-grubbing" oil companies left free to earn whatever "windfalls" they can manage. The most likely result would be a surge of investment in new wells and oil and natural gas prices high enough to make such unconventional sources as oil shale, tar sands, coal-mine methane, and geopressurized zone gas economically viable. Very possibly, liquid and gaseous fuels from coal—of which the United States has immense reserves—would also become cost-competitive under these conditions. The only thing stopping such a solution is ideology—the aversion of so many politicians to the thought of "unlimited" energy company (i.e., stockholders') profits.

Another part of the solution could be the creation of a "North American Common Market"—establishing open, no-tariff borders between the United States and Mexico and Canada, both of which have huge underutilized reserves of oil and gas. Such a proposal has been advanced by Kenneth E. Hill, president of Blyth Eastman Dillon & Co.; Tenneco chairman James Ketelsen is also an advocate. One "price" for such an arrangement might be free immigration across these borders—but under free-market conditions, Americans have nothing to fear and much to gain from immigrants who seek to better themselves by working here.

A third proposal was made by engineer R.W. Johnson in these pages in May 1975: that a new category of "exempt commodities" be defined in law, to encompass all newly developed energy sources—coal gas, solar panels, fuel cells, breeder reactors, etc. All such items, and every aspect of their production, would be exempted from taxation and regulation—totally and permanently. Even employees' income would be exempt from taxation. Under these conditions, such a flood of private, voluntary resources would be directed into new forms of energy that the OPEC cartel would be out of business in short order.

Why won't our politicians and bureaucrats implement such solutions? You know the answer. Because it would demonstrate that free people and free markets can solve problems like the energy crisis without any help from them.

It's high time we exposed the big government "solutions" for the naked power grabs they are. Only an informed and aroused public can stave off this new expansion of the State—and demand the freedom that can make possible a real solution to our energy problems.