Front Page Titles (by Subject) Government Energy Conservation - Literature of Liberty, October/December 1979, vol. 2, No. 4
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Government Energy Conservation - Leonard P. Liggio, Literature of Liberty, October/December 1979, vol. 2, No. 4 
Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.
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Government Energy Conservation
“The Performance of Government in Energy Regulation.” American Economic Review (May 1979):352–365.
President Carter's claim that “we can have an effective and comprehensive energy policy only if the Federal government takes responsibility for it.” But the “record of past energy policy does not lead one to be confident that more intervention will improve resource allocation. An alternative national energy policy would be to let the market allocate scarce resources.”
Judged by the standard of optimum resource conservation, the government's performance in energy regulation over the past 50 years has been a wasteful, counterproductive failure. A half century ago the Congress allowed percentage depletion tax allowance for oil and gas production. Later it permitted companies to expense intangible drilling costs. These tax subsidies encouraged capital flows for energy exploitation, more production, and lower energy prices. But (by the government's present values) these “artificial stimulants” contributed to the energy crisis of the 1970s by encouraging consumption, and thus worked against conserving energy.
Additionally, in 1959, President Eisenhower imposed import quotas on foreign oil. This regulation violated free trade, protected and profited domestic oil producers, and stimulated additional domestic production of a non-renewable resource.
The government imposed its price controls on natural gas in 1954 and regulated crude oil in the same way in 1971. The resulting artificial low prices led to high demand for natural gas and a consequent shortage through the inevitable reduced supply. But substituting oil for the lack of natural gas led in turn both to increased dependence on imported oil and to balance of payments problems. The effects of oil price controls, in a complex fashion, transferred wealth from crude oil producers to refiners. Oil and gas price controls also misallocated resources because of the high cost of a price control administration and the costs of industry complaints.
Detailed evidence refutes the standard arguments against eliminating government price controls: (1) that free prices would imitate alleged OPEC monopoly prices; (2) that market clearing prices would harm the poor; and (3) that energy deregulation would give “windfall profits to oil and gas producers.”
Government energy regulation makes sense neither economically nor as a conservation measure. Such counterproductive public policy results from the standard inefficiencies of government revealed by political economy: (1) Politicians' main goal is not to conserve energy but rather to stay elected. Hence they bow to the pressure of such interest groups as consumerists and environmentalists. (2) Congressmen can easily pass on the negative “externalities” of their wasteful regulatory policies to uninformed taxpayers and energy consumers. (3) Since the legislative process is a compromise, and ideal allocating and conserving policy is not likely to emerge. (4) Whatever legislation does emerge must be administred, usually for the benefit of politically dominant interest groups. (5) Finally, it is unlikely that direct and indirect costs of government regulation will be less than the alleged imperfections in the marketplace.