As the prices of oil, gasoline, and natural gas have skyrocketed over the past year, many people have demanded that the government do something about it. They have short memories. The last “energy crisis,” complete with fossil-fuel shortages, soaring prices, long lines at gas pumps, occurred during the Seventies. President Jimmy Carter wore a sweater, preached conservation, and in 1977 signed a law creating the U.S. Department of Energy (DOE).
On my blog recently, I mocked the thirtieth anniversary of (DOE), asking rhetorically: “Hey, folks, how’s that been working for you?”
I received a number of comments in response, one from a correspondent who cited some of the alleged benefits from DOE subsidizing research into “basic science.” Oil, he declared, is an old and dying energy source. “I love big oil,” he wrote, “and I thank them [sic] every time I step on the gas pedal for that wonderful flow of power to the wheels; but they are big and strong. They don’t need to be propped up with government subsidies. On the other hand, some of these nascent technologies (wind/solar) could use a jump start so that our wheels keep turning when the black gold starts drying up.”
I agreed with my correspondent that the taxpayers shouldn’t be subsidizing the oil industry. But that’s because taxpayers shouldn’t be subsidizing any source of energy. In fact, they shouldn’t be forced to participate in the subsidy racket, period. I didn’t object to the particulars of my correspondent’s position about energy subsidies; I objected to his underlying premises, both practically and morally.
First, let’s consider the practical side.
Government has a horrible track record in picking the “right” technologies and businesses to support. When government makes “investment” (subsidy) decisions, choices are governed by politics—not by considerations of consumer need and available resources. Pleasing this or that group among competing political constituencies (i.e., lobbies) controls the flow of capital, and when political regimes change, suddenly it flows elsewhere.
This makes impossible any rational, consistent, long-range economic planning based on objective forecasts of future demand. Resources are inevitably squandered; projects started and funded are suddenly stopped when political winds blow in a different direction; and—with politicians directing where the funding goes—everyone acquires a vested interest in banding together into lobbies to mooch for tax funding, an ugly process that corrupts everyone involved.
For example, the political ascendancy of environmentalism has transformed many government-funded scientists into gangs of manipulative lobbyists, each competing for tax support from Congress for their own pet research projects by trying to outdo each other with alarming predictions. The taint of politicized funding is rapidly corrupting the scientific community, transforming researchers into shrill, manipulative beggars, and providing them huge financial incentives to manipulate their “science,” too.
There are other practical consequences of political funding. Consider the sorry history of foreign governments’ “industrial policies.” Force-feeding subsidies into technologies that are inappropriate for a given time and place is not just uneconomic; it can lead to disasters.
Recall the 1984 Bhopal, India, chemical-plant leak, which killed a couple thousand people and injured many thousands more. That catastrophe was the direct result, not of “private enterprise,” but of the Indian government’s industrial policy. I documented this at length in a July 19, 1985 article, “Bhopal: The Fruit of Industrial Policy,” in The Intellectual Activist, later excerpted by the Wall Street Journal on Dec. 3, 1986:
The Indian government had its heavy hand on every aspect of the Bhopal plant, from its design and construction to its eventual operation. Initially, the facility merely imported raw pesticides, such as one called Sevin, and then diluted, packaged and shipped them. This was a relatively safe and simple operation. But, in accordance with industrial policy, Union Carbide was under constant pressure from the government to cut imports and reduce the loss of foreign exchange. To do this, Carbide was required by its state-issued operating license to transfer to the Bhopal facility the capability to manufacture the basic pesticides and, subsequently, even their ingredients. Everything was to be “Indianized.” Even the chemical production processes used in Bhopal were developed by Indian researchers . . . .
To produce Sevin, carbon tetrachloride is mixed with alpha-naphthol and a chemical known as methyl isocyanate, or MIC (the chemical that leaked in the accident). Liquid MIC is a highly unstable and volatile chemical, and a deadly toxin. . . . MIC was not required in Bhopal while the factory simply packaged Sevin, its final product. But the logic of “industrial self-sufficiency” and “technology transfer” required the manufacture of Sevin from scratch—and that meant dealing with its hazardous ingredients, including MIC.
So in 1971, the Union Carbide factory opened a small plant to manufacture alpha-naphthol, and began to import and store MIC—a chemical which never had to be in India in the first place, except to satisfy the Indian government. . . .
In 1977, based upon projections of growing demand, the Bhopal factory began to increase its alpha-naphthol facilities dramatically. A new $2.5 million plant—designed, of course, by an Indian consulting firm—was built. Ten times larger than most similar plants, it at once displayed design problems of scale: equipment would not work or would turn out to be the wrong size. . . . Ultimately, faced with an inoperable alpha-naphthol facility, the factory’s management decided to [open an MIC production facility in 1980]. . . .
What had begun as a Carbide subsidiary for packaging pesticides was now a government-directed business manufacturing and storing a deadly chemical in a technologically backward culture. Those were not business decisions. Those were political decisions. . . .
One last element of government policy helped lay the groundwork for the pending disaster. The area around the plant had been deserted at the time Carbide moved in. But in 1975 the local government, in a re-zoning scheme, encouraged thousands of Indians to settle near the plant by giving them construction loans and other inducements. In effect, government first helped to make the plant unsafe, and then drew the people into the path of the coming gas cloud.
Add to all this the fact that after the plant was opened, the technologically trained Americans who built and ran it were sent packing and were replaced by under-educated locals—most of them friends, relatives, and cronies of local officials. They allowed operations to continue despite the fact that all five redundant safety systems had been broken for months. One of the incompetents let water from a hose leak for hours into one of the chemical tanks, which caused a dangerous reaction. The night-shift employees were all sipping tea in the lunch room while gauges indicating rising gas pressure in the tank went off the top of the scale—allowing a pipe to rupture and gush deadly gas into the sleeping community nearby.
No, the Bhopal disaster was not the result of American capitalism: no American capitalists were permitted to be present at or in control of the plant. The gas leak was instead the result of technology decisions and subsidies directed by politicians—just the kind of “industrial policy” that many now wish to impose upon our whole energy industry.
For practical reasons alone, the laws of economics much better allocate and conserve natural resources than does a political regime. Energy scarcity relative to demand raises energy prices; entrepreneurs, motivated by the desire to reap profits in a world of high energy prices, are encouraged to invest capital in new energy production, while using resources as carefully and efficiently as possible. Some may invest in “renewables”; some may invest in totally new ideas; but some may also focus on finding ways to make existing fossil-fuel-driven technologies operate more efficiently. These market-guided solutions will compete, in various combinations, and the result will be the most sensible, practical solutions to the energy crisis.
In private investment decisions, entrepreneurs risk private money voluntarily loaned to them by investors looking for a profitable return. This means that there are built-in economic incentives to get results—and also not to squander capital and natural resources: Economics is the enemy of waste. It also means that countless private experiments are being conducted simultaneously by competing entrepreneurs.
By contrast, in political subsidy decisions, government (meaning politicians and bureaucrats) “play favorites”: They force taxpayers to hand over billions of dollars, then they redistribute those billions according to which lobbyists have the most political clout. This warped incentive structure virtually guarantees the misallocation and squandering of capital and natural resources.
However, one other consideration trumps all of these, and that consideration is the moral one.
It is simply immoral to forcibly swipe money from some people in order to bestow it on others—regardless of any “good intentions” or alleged “social benefits.” When private individuals forcibly take money from others, we call it “theft.” But when politicians do it, we describe their legalized theft with euphemisms, such as “government support,” “grants,” “subsidies,” etc.
It’s certainly more comfortable, morally speaking, to focus solely on the intended recipients and beneficiaries of a government subsidy program. As the nineteenth-century economist Frederic Bastiat observed, these beneficiaries are “what is seen.” What is not seen, however—what is ignored and forgotten—are the taxpayers, the anonymous millions who are forced to hand over their hard-earned money in order to subsidize those politically favored beneficiaries.
The unseen, unacknowledged taxpayer is forced to forgo his personal investment plans and dreams—braces for his son’s teeth, a new home, a family vacation, a safer car, a better college for his daughter, a new roof, night classes that could lead him to a better job, etc., etc. That’s because thousands of dollars of his income are confiscated annually by government, then doled out to complete strangers who have the political pull he lacks. While politicians congratulate themselves as if they were philanthropists, and the recipients of the unearned loot revel in their new cash, the fleeced taxpayer is ignored—the unacknowledged victim of their redistribution schemes.
Let me repeat: What Bastiat called “legalized plunder” is immoral, no matter what the “good cause” is. Personally, it doesn’t matter to me whether the recipients of my stolen property live in California or in my home town, whether they are scientists or artists or farmers or corporations or beggars, whether their “cause” is truly great or lousy. It’s the fact of the theft that makes the entire process corrupt—and also corrupting, because it compels me to join in the mutual looting, in my own self-defense. It’s a coercive process which forces everyone involved into becoming either a victim or a victimizer: a victimized producer of wealth, or a victimizing parasite on stolen wealth.
And so we arrive at a cannibalistic society, in which everyone plunders everyone else by trying to seize the reins of an all-powerful government.
In response to this moral indictment, many answer that this system is “democracy in action.” But democracy is simply a procedure of choosing candidates for public office by majority vote. It is not a moral blank check: The moral legitimacy of a democratic vote depends on what voters and the politicians they elect choose to do. The fact that a plurality of my neighbors (i.e., a majority of those who even bother to show up and vote) can hide behind closed curtains on election days and vote away my wealth, doesn’t mean they have a moral right to it. If I, a lone individual, have no moral entitlement to your property, I don’t magically acquire such a right merely by joining a gang of your neighbors to overpower you. Might does not make right. Meeting with a gang of my neighbors, taking a vote to plunder you, then sending you a formal demand notice to surrender your property “voluntarily,” or else we’ll send in armed agents to seize it, can’t sanitize or mask what is going on.
It’s called extortion. And it’s a hell of a thing that we’ve descended from our Founders’ regime of individual rights and private property to today’s vicious politics of mutual plunder.