Rand Paul masquerades free market dogma for energy policy
March 14th, 2010
I generally agree with U.S. Senate candidate Rand Paul on a number of key issues. That said, the stereotypical and empirically false dogma flowing from his campaign--not to mention his voluntary association with dolt Sarah Palin--has soured me on supporting his election.
Rand is promoting the idea that the "free market" is the solution to everything. His message is ideologically pure, which makes it sufficiently simple to appeal to a mass audience. The problem is that the feasibility of a solution to any real world problem tends to be inversely proportional to its ideological purity. "Free market" demagogues are incapable or unwilling to separate simplified, academic models of markets from real markets. Consider:
- Academic model of competition: Competition is good for consumers and drives innovation! Regulations hinder competition and results in higher prices for consumers.
- Real world: As markets mature, they come to be dominated by a few major players who collude and exhibit cartel-like behavior. They erect huge, if not insurmountable, barriers to entry and engage in a host of other anticompetitive practices.
For example, Microsoft started giving away Internet Explorer to put Netscape out of business. Under-capitalized startups with brilliant ideas lose to or are acquired by multinational corporations with billions in the bank, or they are relegated to permanent niche status. An exception is the creation of new industries; for example, Google and internet advertising. I'm sure you can find other exceptions to my generalization, but they are just that--exceptions.
Keeping in mind the above and the fact that Rand has no first hand knowledge of the energy industry (I do), let's explore some of Rand's statements about "Energy Innovation."
Washington’s bureaucratic regulations, corporate subsidies, and excessive taxation have made it virtually impossible for the market to produce new forms of cheap and clean energy.
The dirty energy is the cheap energy. Exxon is the biggest, most profitable company in the world. They will continue not to have much of an incentive to profit from anything other than oil unless doing what they are already doing becomes much more expensive for them. Deregulating and lowering their taxes moves in the opposite direction. Ending subsidies contradicts the other two points and makes no sense in the context.
Also note that "the market" does not produce anything. People produce things. This choice of wording subtly demonstrates Rand's deification of an abstract concept.
Like all other sectors of the economy, allowing businesses and ideas to compete on the free market will not only produce the most efficient forms of energy, but will also pass along the savings to the consumer.
This is dogma at its finest. It is a flight of fancy oblivious to empirical contradictions. I work for an energy conglomerate at a generating station which supplies electricity into a "deregulated" market.
What is a deregulated energy market?
In the latter half of the 19th century, competing utility companies where frequently digging up the streets to bury pipes for transporting water, gas, and wire for electricity. At some point, prudent, reasonable people realized that having the conduits for competitors running side by side all over the place was an assininely inefficient public nuisance, and they created regulated utility monopolies.
Fast forward to the present. If you live in a regulated market, you have one company generating your electricity at various sites and supplying it to you via one electrical grid. That company owns the generation and transmission assets.
If you live in a "deregulated" market, one company still owns the grid, but it does not necessarily own any of the generating facilities. The generating station at which I work is one of a handful getting paid by the owner of the transmission lines to put electricity into the grid. If you said, "Doesn't that mean that the grid owner is still a monopoly?" the answer is, "Yes!" Furthermore, the grid owner now takes on the role of a lead firm which can demand cheaper electricity from suppliers because the grid is the generators' only customer.
What's the bottom line?
In the "deregulated" market in which I live, prices have not decreased. Customers, via their billing statement, can opt to use one type of generation instead of another--for example, gas instead of nuclear--but who actually does that? Most people just want the cheapest rate. If you look at your bill, the electricity is already inexpensive. The bulk of the bill is delivery costs, and delivery has no competition for obvious practical reasons.
I will vote to cut taxes and lift regulations on companies developing new sources of energy.
Who does that help? The nuclear industry is heavily regulated--exactly as it should be. Will Rand vote to lift regulations on profit driven facilities with the potential for accidents that could render large tracts of land unusable for thousands of years? I like having limits on the amount of mercury coal plants can dump into what becomes my drinking water. Etcetera, etcetera. Most regulations exist for very good reasons.
But this does not mean that I want to take taxpayer money to subsidize them. Any energy source that really meets the needs of the American consumer would not need the government to subsidize it. Just as we don’t subsidize laptops and iPods, we should not be subsidizing solar and wind power.
Subsidies make consumers' end price lower, not higher. If the government cuts subsidies for the petroleum industry, for example, consumers will simply pay more at the pump to make up the difference. The root problem is that consumers don't really have any alternatives to using gasoline, so the three or four companies dominating the market can charge whatever they want, within reason.
Coal and nuclear generation produces vastly more energy than any other source for the same land area. If you don't subsidize cleaner energy sources, they may never be able to compete with older, dirtier sources on the basis of price alone. Do you want clean energy and its associated benefits, or do you want a "free market?" Everybody cares about the environment in a survey; most people won't actually pay three times as much for electricity when they can get it cheaper. That is why government intervention might be necessary to establish a viable alternative energy industry.
Comparing energy, which is a prerequisite for modern society, to pure luxury goods, like iPods, is a fallacy of irrelevance, otherwise known as "apples to oranges."
Conclusion
Rand is playing buzzword bingo: free market, subsidies, deregulation, lobbyists. He does not actually offer any concrete proposals for a viable course of action in response to a very serious problem.
Perhaps you, or somebody for whom you care, is considering joining the nuclear Navy. You might already have heard the recruiters promising the world. I will provide you with one objective critique of the "nuke" experience in terms of what the Navy promises versus what it delivers.