Politicians who favor governmental solutions to energy problems often make two statements that those more committed to market solutions tend to avoid. One of the statements is that rising energy prices hurt poor people most. The other is that government-sponsored energy development creates jobs.
The statements are related in ways that should weaken energy agendas centered on governments.
The first statement, that rising energy costs hurt the poor most, doesn’t need expression. It’s self-evidently true. Vulnerability to preeminent hardship when necessities rise in price is the sad essence of poverty. To point this out as though it were some grand insight about a point requiring debate is condescending, if not outright annoying. The point requiring debate is how best to avoid hurting the poor.
Fuel choices
Here, supporters of governmental solutions to energy problems stumble. The solutions they favor require the government to make fuel choices. These choices invariably raise costs. They do so directly with mechanisms such as taxes on disfavored energy forms and price supports for politically preferred alternatives. And they do so indirectly through hidden subsidies and general inefficiency.
Proponents of such manipulations deny the costs and structure their initiatives to make it appear that companies or governments pay them. But companies and governments are just economic conduits. Only people—individual taxpayers and consumers—can bear the costs of governmental actions. When governments try to engineer energy patterns, taxes and energy prices ultimately rise, and taxpayers and consumers carry the whole load. Needless as it is to say again, the costs hurt poor people most.
Promises of job creation camouflage the costs of energy forced into the market by governments. Yet job creation becomes a talking point when, for example, Democrats seeking their party’s presidential nomination propose to spend $150 billion on noncommercial energy or to tax oil and gas companies to fund subsidies of hydrocarbon substitutes. It can seem sensible: Government money creates an industry, companies of which hire workers. So subsidizing energy creates jobs. What’s to argue?
The problem with this analysis is that the government doesn’t create the money it uses to promote an industry. It takes or borrows the money from taxpayers—ultimately individuals, not companies—elsewhere in the economy. In those parts of the economy, spending, profits, and investment decline under the new burden. Job creation does, too.
The government, therefore, doesn’t create jobs when it manipulates energy. It just moves them around. What’s more, it moves jobs from parts of the economy profitable enough to be paying taxes into some favored part that would be unprofitable without an inflow of other people’s money. So resources flow from efficient, low-cost activities into inefficient, high-cost sectors. There’s no way to do this without generating cost. And everyone knows who suffers most from added cost.
This is not an argument against regulation. Some government moves raise costs legitimately. Oil-product standards toughened to fight air pollution raise the costs of making fuel for a good reason—as long as the new standards really cut emissions and pursue genuine environmental benefit, which isn’t always the case. The argument here is that concern for costs, and their effects on the poor, should be a prominent factor in environmental policy-making. It should start as recognition that toughened product specifications do raise costs that people must pay—because refiners either pass along the costs or absorb them and cut investment, limiting supply. Both options represent costs to consumers.
Political decisions
The tactics governments use to implement fuel preferences raise costs more generally than this and often more insidiously. Decisions about them are inescapably political, not economic, scientific, or charitable. Suppliers of the subsidized fuels benefit, and everyone else pays from the consequent reductions in profits and job, tax hikes, and imposed inefficiencies. And the beneficiaries seldom include the poor, who tend not to make heavy political contributions.
The indisputable suffering that rising energy costs impose on the poor should induce governments to avoid mistakes that make those costs rise unnecessarily. That it seldom does is a bitter hypocrisy of modern politics.
