Maggie's Farm

Speaking of the near-universal goal of "energy independence", my old friend David R. Henderson is worth listening to this month.

He says on his blog:

http://econlog.econlib.org/archives/2008/10/energy_independ.html

Both McCain and Obama believe that moving towards energy independence is a good idea. But, as I pointed out in this month's The Freeman, it's not. Energy independence is no more desirable than coffee independence, banana independence, or car independence. The case for free trade does not break down just because the good being exchanged is important, as oil is. It doesn't generally make sense, if your goal is the wellbeing of country A's citizens, for country A's government to impose tariffs or import quotas on a product from other countries.

Here is the Freeman article url and an excerpt:

http://www.fee.org/Publications/the-freeman/article.asp?aid=8340

“Energy independence” is a term that sounds good but falls apart on closer examination. Although the United States could achieve energy independence, we could do so only at an enormous cost. Energy “dependence” is much cheaper and much more desirable.

...

Many supporters of “energy independence,” instead of arguing for a ban or prohibitive tariffs on oil imports, advocate government subsidies for alternative fuels or for conservation. They seem to think that such policies can create energy independence at a low cost. They are mistaken.

The cost of using these alternatives, if successful in driving oil imports to zero, would actually be quite high. What makes these other policies politically attractive is not that they cost little, but that they hide the cost. A tariff on oil is a tax, and people can see the result of the tax in the price of oil. A subsidy to alternative fuels or to conservation, however, comes from the government’s treasury or from some other source and therefore is not visible to more than a small percent of the population. Economist David Loughran and engineer Jonathan Kulick studied the effect of state public utility commissions’ policies requiring electric utilities to subsidize their customers’ investments in conservation. The subsidies came not from tax revenue, but mainly from higher prices to other customers. Loughran and Kulick found that the cost of the conservation was between 14 and 22 cents per kilowatt-hour. This was a whopping two to three times as expensive as the energy conserved. (David Loughran and Jonathan Kulick, “Demand Side Management and Energy Efficiency in the United States,” Energy Journal 25, no. 1 [2004], cited in Jerry Taylor and Peter Van Doren, “Energy,” in David R. Henderson, ed., The Concise Encyclopedia of Economics.)

“Energy independence” is a bad idea. Every individual understands that it is far better to depend on others for most of what we want rather than trying to do everything for ourselves.

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I think David is quite convincing in the low-key, Austrian economics, general-reasoning explication that commands the agreement of sensible readers. How can one read this and disagree? Judge for yourself - read it all and see if you are not convinced that the primary purpose of the Department of Energy is another case of the Emperor's New Clothes.