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Pickens Plan Is Based on Ignorance

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Can a person be a good businessman but a lousy economist? Yes. Take T. Boone Pickens, for example. Hes all over television touting his plan for wind power as a substitute for foreign oil, a plan that calls for massive government subsidies. This should immediately make us suspicious. If wind is so good, why does it need subsidies?

In trying to sell the American people on the plan, Pickens either displays his ignorance of elementary economics or hes counting on the ignorance of his viewers. How else to explain this statement about oil imports: Over 700 billion dollars are leaving this country to foreign nations every year. The largest transfer of wealth in the history of mankind.

Whats wrong with this statement? The first problem is that it focuses on only one side of a series of transactions. Judging by this statement, you wouldnt know that Pickens is talking about transactions at all. He conjures up images of wealth pouring out of our pockets and into the pockets of gulp foreigners.

But no transfer is taking place. Pickens has conveniently forgotten that we buy something with that money; we get something in return oil which we want because it renders useful services. It makes as much sense to talk about dollars leaving the country without mentioning the valuable stuff we get in return as it would for oil exporters to talk about all the oil thats leaving their countries without mentioning the money coming in.

Its a transaction. When two parties agree to exchange oil for money, each side expects to benefit or the transaction would not occur. One party wants the oil more than the money; the other wants the money more than the oil. Theres a gain for both sides. Thats Economics 101.

True, buying and selling oil do not occur in a true free market. The world economy is riddled with subsidies and regulations that distort decision making and create privileged and exploited groups. But Pickens is not calling for an end to this corporatist system. On the contrary, he merely wants to shift the privileges to different groups through subsidies for his favored projects. The exploitation would continue. And as a domestic oil producer, he would profit from a forced reduction in oil imports.

Pickenss fear-mongering is sheer demagoguery, an emotional appeal to economically illiterate people in order to promote his self-serving plan. Pickens is also counting on Americans suspicion of foreign nations. As economist Bryan Caplan points out in The Myth of the Rational Voter, many people are biased against profit and foreigners. Pickens is using his commercials to tap into peoples deep feelings that if one person makes a profit, someone else must lose and if the one making the profit is from another country, the situation is even worse.

These biases strike at the very heart of trade, which is the foundation of our civilization. Trade not only makes us all richer by permitting specialization and the division of labor we save money by importing it also exposes us to new ideas and encourages peace. Frederic Bastiat, the nineteenth-century free trader, is reputed to have said, If goods dont cross borders, soldiers will. His English counterpart Richard Cobden called international trade the great panacea.

Aside from his attack on trade, what is Pickens up to? He believes we must break our addiction to oil by subsidizing wind and natural gas. But its not an addiction. Its a rational choice based on economic calculation. If another form of fuel made more economic sense, it wouldnt need subsidies. And if government intervention such as the historical favoritism for the oil industry impedes the introduction of alternative fuels, lets end the intervention. The last thing we need is clumsy bureaucrats trying to pick winners in the energy market.

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.