Yesterday’s New York Times op-ed page had a couple of rather interesting pieces on global warming that merit some thought. The first, by Thomas Friedman, discussed how American capitalists — motivated as much by the hunt for profit as they are by the quest so save the world — are undertaking a “distributed Manhattan project” to develop economically attractive alternatives to fossil fuels. No centralized government program is necessary, thank you very much. The second, by environmental writer Gregg Easterbrook, described why he has switched sides in warming debate, moving from skeptic to cautious activist. Both are far more sensible than the usual screeds on those subjects published by the Gray Lady.
The Friedman piece was spot-on. Thousands of rather brilliant minds and billions of private dollars are being devoted to ambitious alternative energy R&D. While government sprinkles money here and there, the real work is being done by venture capitalists and entrepreneurial visionaries. If anything emerges from that creative soup, it will be primarily due to the fact that capitalism is the most powerful engine of technological change and innovation ever created by man. Waiting for the Congress or the Department of Energy to come up with something would be a triumph of hope over experience.
Friedman worries, however, that it won’t be enough. “If we want to see these alternatives move from little start-ups to large-scale commercial ventures, ‘we need to get the price mechanism right.’ When you’re talking about oil, you can’t just say ‘Let the market work’ because there is no free market in oil: the producers have a cartel, and governments — like ours — subsidize oil so we don’t pay the full cost.” Friedman proposes a price floor for gasoline ($3.50-$4.00 per gallon) and green purchasing practices for the federal government.
Fear not, Tom Friedman. The alternative energy revolution (if one is to come) will indeed be televised. First of all, to say “there is no free market in oil” is to say “I don’t know a damn thing about oil markets.” One would be hard-pressed to find a freer market on this planet than the one that trades in oil. There are a multiplicity of buyers and sellers who are free to sign long term contracts or to buy and sell in futures markets and spot markets with little regulatory interference. Secondary markets are likewise robust. Prices in wholesale markets are established by supply and demand and the only reason they don’t translate directly to the consumer is because governments are fond of taxing the hell out of the product at the retail level.