Free Market, Not Government Policy, Drives Energy Boom

Free Market, Not Government Policy, Drives Energy Boom
By Michael Barone
6/8/2011

There's an awful lot that's stale in the debate on government energy policy.

Some stale arguments are nevertheless valid: It's dangerous to depend heavily on Middle Eastern oil. Others have increasingly been seen as dubious: that global warming caused by human activity will result in catastrophe.

There's stale talk about federal and state laws that promised great change but have produced very little. Electric cars, even with subsidies, are no larger a part of the auto fleet than they were 100 years ago.

Renewable energy sources like wind and solar still produce only a tiny percentage of electricity. That offshore wind farm hasn't gone up in Nantucket Sound, and the Mojave Desert is never going to be covered with solar panels.

Ethanol subsidies have jacked up the price of corn, raising the price of meat here and tortillas in Mexico. But the subsidies haven't done much for gas mileage, and presidential candidates heading to Iowa now call for abolishing them.

In contrast to the marginal effects of these much ballyhooed public policies, there has been a huge breakthrough in energy production in the past couple of years.

Petroleum engineers working for private companies have used a technique called "hydraulic fracking," injecting vast amounts of water into rock, to release commercially viable amounts of natural gas and oil.

Hydraulic fracking has resulted in a boom in the Bakken oil shale formation under North Dakota and Montana. North Dakota is now the No. 4 state in oil production.

And hydraulic fracking has made commercially viable huge volumes of natural gas previously imprisoned in shale rock in western Pennsylvania and West Virginia.

The U.S. Energy Information Administration has estimated that there is at least six times as much natural gas available now as a decade ago, as well as a big increase in commercially recoverable oil.

All thanks to hydraulic fracking, a phrase I bet you didn't hear in the energy debate in the 2008 presidential campaign or in the debate over the cap-and-trade bill passed by House Democrats in June 2009. My (perhaps defective) search for the phrase in the New York Times and Washington Post websites didn't yield any mentions earlier than 2010.

While government's ethanol subsidies and renewable requirements have made little difference, the private sector's hydraulic fracking has increased our energy supply and reduced our dependence on dicey Middle Eastern oil.

This kicks back against the efforts of government under the Obama administration to restrict energy supply. The administration has shut down much offshore drilling in the Gulf of Mexico (even though President Obama cheered Petrobras' drilling off the shore of Brazil) and has been denying permits for oil drilling in Alaska that are needed to keep the pipeline pumping. This on top of environmental groups' successful attempts to prevent drilling on the desolate tundra of the Arctic National Wildlife Refuge.

The State Department has even been stalling on approving the Keystone pipeline from the tar sands of Alberta, Canada, to refineries in Oklahoma and Texas. Environmental groups object to drilling techniques Canada allows.

It's unclear why we should feel called on to second-guess the internal regulations of a competent and environmentally conscious nation like Canada. And it's incomprehensible why we should want to keep out a plentiful supply of oil from a dependable and friendly neighbor.

There is a lesson here for public policy generally, including health care. No centralized government expert predicted the vast expansion in energy supply from hydraulic fracking. It was produced by decentralized specialists in firms subject to market competition.

Just as Friedrich Hayek taught, no central planner can know or foresee enough to produce the beneficial results regularly produced by competition in free markets regulated in accordance with the rule of law. And no central planner can accurately predict the course of innovation that can be achieved in decentralized markets.

That's something you might want to keep in mind when someone tells you that Medicare costs can be controlled by 15 members of an unelected board created by Obamacare. Better results and lower costs can be expected with the kind of market competition set up by the 2003 Medicare prescription drug law.

No one can tell you just how that will happen, just as no one was telling you three years ago just how hydraulic fracking would expand our energy supply. But it did. That's what market competition can do -- and government control can't.
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To read another article by Michale Barone, click here.