Freeman

ARTICLE

Yes, America, There Is an Energy Problem, BUT...

NOVEMBER 01, 1977 by BENJAMIN A. ROGGE

Dr. Rogge is Distinguished Professor of Political Economy at Wabash College in Indiana. His inter­view is reprinted, by permission, from the Wabash Street Journal which is published as part of a pro­gram to teach high school students about business and businessmen.

The energy crisis is real, according to Dr. Benjamin A. Rogge, Distin­guished Professor of Political Economy at Wabash College. The nature of that crisis and its remedy, however, are not as they have been outlined in the President’s national energy plan, Prof. Rogge said in an interview with the Wabash Street Journal.

Prof. Rogge’s assessment of the energy problem and his discussion of the proper remedies are reprinted in full in the following paragraphs. Interview by Paul Valery.

Question: Isn’t the world (in­cluding the U.S. ) rapidly running out of resources, particularly those used in energy production?

Answer: Nonsense! Both an­alysis and history suggest exactly the opposite. If resources and energy markets were permitted to be even partially free in the years ahead, there is every reason to believe that the real cost of energy would con­tinue to decline over the next 100 years, as it has over the last 100.

Q.: How can you say that, when we are told that we can anticipate a serious shortage of natural gas this coming winter? Won’t this shortage be real?

A.: Of course it will be real!—but totally unnecessary. As Professor Milton Friedman has said recently, "Economists may not know much but there is one thing they do know how to do and that is how to produce a shortage or a surplus. Set a price below the market price and a short­age is created; set a price above the market price and a surplus is created."

The existing "shortage" of natural gas is the predictable (and pre­dicted) consequence of the ceiling price on natural gas at the wellhead that was imposed in 1954 and that continues to this day. Estimates have been made that at a free-market price (that would still leave gas the lowest-cost source of energy for most uses), our natural gas re­serves should be adequate for another 1000-2500 years of full and expanding use.

Q.: But, whatever its cause, don’t you agree that we now face an energy problem and that we need to conserve our currently available energy supplies?

A.: Of course we need to take conservation measures—which is precisely why I am urging an im­mediate deregulation of the prices of basic energy materials. The market has its own magnificent incentive to conservation—an increase in price!!

Moreover, the market way of con­serving permits each individual householder, businessman, farmer, car owner, or the like to conserve in the way that is best suited to his special circumstances. To conserve on heat use, one householder may wish to add insulation, another may wish to close off unused spaces, another may wish to turn down the thermostat, buy sweaters for everyone and order his daughter and her boyfriend to take up the old courting practice of bundling.

In addition, the market method of inducing conservation, in contrast to the government-ordered method, also encourages suppliers and would-be suppliers to redouble their efforts to add to the supply of energy.

Q.: But how do you know that that will happen? Exactly where is all this new energy supply going to come from? Nuclear? Solar? Geo­thermal? Gasification of coal?

A.: I do not know; James Schlesinger, our energy czar, doesn’t know. No one knows, because the very essence of the free market op­eration is the unpredictability of the specific outcomes. The market pro­cess is a never-ceasing search pro­cess, carried on by literally millions of participants, each trying to serve his own purposes by finding new and better ways of producing and mak­ing efficient use of energy.

The number of variables in the energy equations is literally in the billions and it is for this reason that any attempt to "solve" the problems involved by government direction is predestined to failure. The miracle of the market consists precisely in its capacity to make use of these billions of bits of special information in getting the world’s work done efficiently—and in the interests of the consumers.

Q.: But isn’t the cost of this so-called miracle a significant factor? What about the windfall profits the big oil and mining companies would enjoy in the meantime?

A.: All profits and losses are "windfall" in nature, in the sense that they arise out of a concurrence of events that no one could have foreseen in perfect detail. At the same time, these windfall profits will be the carrot hanging in front of every possible producer of energy, and hence will be precisely the agent of a continuing solution to the energy problem—in the process of which the profits will tend to return to normal.

How can we encourage people to try to produce energy for us, with a warning that, if they fail, they must bear the losses, if we don’t also as­sure them that, if they succeed, they will get to keep their winnings?

Q.: But how can people like Ralph Nader and others be so wrong in what they propose as solutions to the energy problem?

A.: For one thing, Nader has had a lot of experience at being wrong—witness the Corvair epi­sode. But most importantly, in their approach to the energy prob­lem, they seem to me to be largely giving vent to their dislike of indus­trialization, economic growth, sub‑

Q.: You sound pretty biased yourself. But, however that may be, wouldn’t turning the market loose lead to an explosion of prices and real damage to the low-income families of America?

A.: The groups in America that have the most to gain from the free-market approach are precisely those with little money and even less influence with the powers that be. The world of government con­trols and rationing is a world made to order for those who have money and/or influence. For the man on the street, it is a world of disaster and frustration.

Q.: But surely you wouldn’t de­regulate everything right away!

A.: Oh, but I would! Don’t cut off the dog’s tail an inch at a time. 

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November 1977

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