So I have arrived safely in Aspen. I'm listening to Thomas Friedman urging America to lead the way towards "abundant, cheap, clean, reliable electrons". His approach sounds like the approach near and dear to my heart--can the talk of a "Green Manhattan Project" and use prices to signal inventors to get cracking on the problem. But it's not clear whether he's talking about a tax or subsidies. Taxes I like. Subsidies are going to replicate many of the worst features of a "Manhattan Project"--the government will pick the winners, with no guarantee that it will do a very good job.
He's also talking about reconfiguring the power companies to shift their incentives away from selling you more dirty power. A regulatory shudder is going up my spine. I mean, it sounds nice, in theory. But imagine a food processing company paid not to sell you fattening food, a bar paid not to sell you liquor, a doctor paid not to give you healthcare. The opportunities for unpleasant unintended consequences.
At this point he sort of goes off the deep end and talks about how great it would be if we could be China for a day--have the government get in, totally reorganize the energy market, and then go forward from there. He bases this on a conversation with Jeff Immelt, who thinks the world would be a better place if this happened.
Where to start? Very few people think that China is succeeding because of its awesome industrial policy--China is succeeding very much in spite of its industrial policy. Indeed, its industrial policy is threatening to drag down important sectors of the economy, like the banking system, which may well cause the whole thing to implode.
There's also this dodgy belief, fervently embraced by many liberals advocating regulations--"Look, even a big business head who would be regulated believes it's a good idea! It must be!" Au contraire, mon frere. The heads of big businesses often love big new regulatory bodies, because they have the resources to best negotiate a complex regime. The end result of this kind of radical regulation is usually that the big companies capture the regulator and use it to shut out competition.
A government reorganization of the energy market might produce a fabulous new system that saves us ton of energy and money. It's much more likely, however, to become a sclerotic boondoggle that will soon spend most of its time in petty arguments between bureaucrats and regulatees over small rule changes. And it's not necessary. You don't need to reorganize the energy market to get companies to make people save energy. If you raise the price of pollution, consumers will demand less of it. Better yet, they will save the energy in whichever way is least painful to them, minimizing the loss of consumer surplus from the intervention.
Maybe it's just that I'm a natural pessimist, but these sort of optimistic attempts to change the world by easy fiat seem like cheap escapism to me. No one wants to write a book saying "Do this--it will really suck!" So instead we get promises that the whole thing can be practically painless. It won't be. We don't waste most of the energy we use. It goes to heat and cool our homes, wash our clothes, cook our food, and transport us and the stuff we consume from Point A to Point B. There are some things we can do that are easy--but most of them will involve having less of stuff we like, such as personal space.
Ultimately, I think we will find cleaner forms of energy, and also, I think we'll find that living a little denser isn't nearly as bad as most people imagine it will be. But rest assured, during the transition, we'll notice. The changes will be right up there in our faces.
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