WEBVTT NOTE A No-Nonsense Look at U.S. Energy Policy 1 00:00:00.000 --> 00:00:09.000 Thank you very much. It's a pleasure to have the opportunity to speak to you tonight, the Alabama Forest Owners Association, on the topic of energy. 2 00:00:09.000 --> 00:00:16.000 I'm originally from the North, and I want to tell you how we do things up in New York. 3 00:00:16.000 --> 00:00:24.000 One of the best pieces of advice I ever received when I arrived in Alabama 25 years ago was to never make that statement. 4 00:00:24.000 --> 00:00:32.720 And I hope to limit my advice here to you tonight as acting as sort of a moderating voice, a moderator, maybe even possibly a referee. 5 00:00:32.720 --> 00:00:43.800 After all, we have one professor from the University of Alabama who's advocating fossil fuels and one professor from Auburn University who is advocating biofuels. 6 00:00:43.800 --> 00:00:48.240 And you know we have this rivalry problem in the state of Alabama. 7 00:00:48.240 --> 00:00:58.000 But I must say it has been a pleasure meeting Dr. Hayes in War Eagle, David. 8 00:00:58.000 --> 00:01:03.280 I came to Alabama 25 years ago this August to study economics, a particular brand of 9 00:01:03.280 --> 00:01:08.040 economics referred to as Austrian or free market economics. 10 00:01:08.040 --> 00:01:14.120 It's not Keynesian, it's not Chicago, it's not monetarist or supply sider. 11 00:01:14.120 --> 00:01:17.960 It's not microeconomics or macroeconomics. 12 00:01:17.960 --> 00:01:22.320 You know the difference between a micro-economist and a macro-economist? 13 00:01:22.320 --> 00:01:27.360 A micro-economist is wrong about something very particular and a macro-economist is wrong 14 00:01:27.360 --> 00:01:31.200 about just things in general. 15 00:01:31.200 --> 00:01:35.480 Austrian economics is the oldest continuous tradition in economics and was on the verge 16 00:01:35.480 --> 00:01:38.440 of extinction when I went to graduate school. 17 00:01:38.440 --> 00:01:44.140 Fortunately Lew Rockwell and the Mises Institute showed up at Auburn University during my second 18 00:01:44.140 --> 00:01:46.460 year of graduate school. 19 00:01:46.460 --> 00:01:52.100 He began a series of lectures, reading groups, conferences, as well as publishing newsletters, 20 00:01:52.100 --> 00:01:54.320 books, academic journals. 21 00:01:54.320 --> 00:01:59.460 The Austrian School is now in the midst of a revival and resurgence around the world. 22 00:01:59.460 --> 00:02:10.220 Our website, which is www.mises.org, is the largest and most trafficked economics webpages 23 00:02:10.220 --> 00:02:11.700 in the world. 24 00:02:11.700 --> 00:02:16.540 And the foundation for this grand movement is in Little Auburn, Alabama. 25 00:02:16.540 --> 00:02:22.640 As a matter of fact, I brought some handouts today that were on the back table about some 26 00:02:22.640 --> 00:02:24.360 of the recent successes that we've had. 27 00:02:24.360 --> 00:02:29.580 We've had an article about some of our books in Barron's Business Magazine. 28 00:02:29.580 --> 00:02:36.380 We've had an article about the Instituteivid's impact in Europe in the Wall Street Journal. 29 00:02:36.380 --> 00:02:39.980 And I even brought this article from the Plainsman, the last week of the Plainsman. 30 00:02:39.980 --> 00:02:50.980 And I was a little leery of bringing this one because it starts out by saying the building itself looks like what might be a retirement home or a mental institution. 31 00:02:50.980 --> 00:03:03.980 It's not very flattering, you know. And so I was kind of leery about bringing that here tonight, but then I started thinking, you know, we are kind of like a mental institution. 32 00:03:03.980 --> 00:03:17.980 We work in the world of ideas. We work in the world of theories. And so that's our business and so in a sense we are working at the mental level. 33 00:03:17.980 --> 00:03:25.980 So what is this Austrian economics and why am I speaking it to the Alabama Farm Owners Association? 34 00:03:25.980 --> 00:03:30.980 Austrian economists do not use fancy mathematical or statistical models. 35 00:03:30.980 --> 00:03:48.980 Our approach is a theoretical one of true and time-tested validity. We try to remain neutral with respect to policy goals so you wouldn't see an Austrian economist saying something like we need more housing and fewer golf courses, or we need less country music and more opera. 36 00:03:48.980 --> 00:04:03.980 Mainstream economists, however, have concocted all sorts of arguments to vent their own wishes for such things as more national defense, more education, more government research, or less fun and games, less alcohol and tobacco, and less pollution. 37 00:04:03.980 --> 00:04:18.980 It's not that we don't agree that some of those things are good and that others are bad, it just simply means that we do not wish to impose our goals through government intervention in the economy. 38 00:04:18.980 --> 00:04:27.980 We find that wrong-headed, misguided, and ultimately counterproductive, and we're going to see that same result when we turn to energy policy. 39 00:04:27.980 --> 00:04:33.980 My boss, Lew Rockwell, recently wrote about economic law. He said quote, 40 00:04:33.980 --> 00:04:41.980 Ludwig von Mises said that the great accomplishment of Austrian economists was to draw attention to the extreme limits on the power of government. 41 00:04:41.980 --> 00:04:48.980 His point was not merely that government should be limited, but that it is actually limited by the very structure of reality. 42 00:04:48.980 --> 00:04:56.980 It cannot make all people rich by its own initiative. It cannot provide universal housing, literacy or health. 43 00:04:56.980 --> 00:05:03.000 or health. It cannot raise wages across the board. It cannot ban products. Those who seek 44 00:05:03.000 --> 00:05:08.660 to accomplish economic ends, such as those, are choosing the wrong means. That is because 45 00:05:08.660 --> 00:05:14.740 there is something more powerful than government, namely economic law. And what is economic 46 00:05:14.740 --> 00:05:19.620 law? It is the force that operates within the structure of all societies everywhere 47 00:05:19.620 --> 00:05:24.840 that governs the production and allocation of material resources and time according to 48 00:05:24.840 --> 00:05:37.840 and the strict bounds of what is possible. Some things are just not possible. It just so happens that this includes most of the demands that are made by the public and pressure groups on the government. 49 00:05:37.840 --> 00:05:50.840 This was the great discovery of the modern science of economics. This was not known by the ancients. It was not known by the fathers of the early church. It was the discovery of the medieval school men. 50 00:05:50.840 --> 00:05:56.960 and this insight was gradually elaborated upon and systematized over the centuries culminating 51 00:05:56.960 --> 00:06:00.380 in Austrian economic thought. 52 00:06:00.380 --> 00:06:05.560 The power of government to do what we desire is strictly limited and those who do not understand 53 00:06:05.560 --> 00:06:12.340 this point do not understand economics and the economic teaching has a broader implication 54 00:06:12.340 --> 00:06:16.160 that concerns the organization of society itself. 55 00:06:16.160 --> 00:06:23.360 is not free to make and unmake society as it see fit. It is not a tool we use to fulfill 56 00:06:23.360 --> 00:06:29.440 our private dreams. Society is too complicated, too far-reaching, too much a reflection of 57 00:06:29.440 --> 00:06:36.360 the free volition of individual actors for government to be able to accomplish its ends, 58 00:06:36.360 --> 00:06:42.080 and most often what government attempts to do, whether abolish poverty, end liquor consumption, 59 00:06:42.080 --> 00:06:50.080 or make all citizens literate and healthy ends up backfiring and generating the exact opposite. 60 00:06:52.080 --> 00:07:01.080 As we turn our attention to the topic of energy, we are not, as Austrian economists, surprised to find that energy is a giant mess. 61 00:07:02.080 --> 00:07:11.080 Governments around the world control over 90% of known oil reserves in a very high proportion of all energy resources 62 00:07:11.080 --> 00:07:20.040 There are market forces at work, of course, but because government essentially controls 63 00:07:20.040 --> 00:07:27.300 so much of oil in the world, we don't really know if oil is being over or underexploited. 64 00:07:27.300 --> 00:07:30.880 Government doesn't allocate resources rationally. 65 00:07:30.880 --> 00:07:36.280 Government doesn't conserve resources like private entrepreneurs do. 66 00:07:36.280 --> 00:07:42.940 In terms of forests, we need no longer look further than the 6 o'clock news. Forest fires 67 00:07:42.940 --> 00:07:48.100 burn out of control west of the Mississippi all the time, but hardly ever burn out of 68 00:07:48.100 --> 00:07:54.040 control east of the Mississippi. Is that because of rain or the type of trees that are involved? 69 00:07:54.040 --> 00:07:59.520 No, it's because most of the forest land in the west is allocated and controlled by government, 70 00:07:59.520 --> 00:08:04.960 but in the east, private foresters control most of the land. Bureaucrats actually want 71 00:08:04.960 --> 00:08:19.960 To protect the government trees. Government bureaucrats want to protect the trees that they're in charge of, so they first decided to put out every little fire that came along until the undergrowth fuel was so large that the fires could not be contained at all. 72 00:08:19.960 --> 00:08:31.960 Fighting these catastrophic fires out west is simply your tax dollars going up in smoke. Most of the money to fight forest fires is done in the west, of course. 73 00:08:31.960 --> 00:08:39.960 Over $2 billion this year and they literally have an open checkbook from the U.S. Congress. 74 00:08:39.960 --> 00:08:47.960 Private foresters manage their resources to minimize the possibility of fires burning out of control by mechanical, chemical, and controlled burning, 75 00:08:47.960 --> 00:08:57.960 which eliminates the fuel ladder that would otherwise result in fires reaching the treetops and spreading out of control, but of course you all know that. 76 00:08:57.960 --> 00:09:08.960 The federal government has a one policy fits all across the United States with respect to controlling fires when in fact there are multiple different types of controlling fires, 77 00:09:08.960 --> 00:09:19.960 each of which is applicable to certain conditions and those conditions can only be verified by private entrepreneurs who are interested in making a buck. 78 00:09:19.960 --> 00:09:20.960 Back to energy. 79 00:09:20.960 --> 00:09:26.720 In the 1970s, energy prices skyrocketed when we went off the gold standard, something we 80 00:09:26.720 --> 00:09:31.680 in the Austrian School would like to bring back as a monetary system. 81 00:09:31.680 --> 00:09:35.920 And the government's solution at that point was to control gas prices. 82 00:09:35.920 --> 00:09:40.640 So then we had long lines at the gas station, and you could only buy gas on certain days 83 00:09:40.640 --> 00:09:42.580 of the week. 84 00:09:42.580 --> 00:09:46.960 When that fiasco collapsed, government decided to regulate the fuel economy of cars, which 85 00:09:46.960 --> 00:09:50.920 which of course gave Japan a foothold in the auto business and led to the production of 86 00:09:50.920 --> 00:09:56.000 more dangerous American automobiles and more deaths on the highways. 87 00:09:56.000 --> 00:10:00.080 We then got the great five mile per hour bumper regulation which meant that your car would 88 00:10:00.080 --> 00:10:04.720 be just fine if you tapped into another car but that your car would be completely totaled 89 00:10:04.720 --> 00:10:13.720 in a real accident. Government solutions do not work, market solutions do work. The conclusion 90 00:10:13.720 --> 00:10:19.720 The problem we make here is that there needs to be less government in the energy business, not more. 91 00:10:19.720 --> 00:10:25.720 We will only have an energy crisis if we continue to lay more government solutions onto the problem. 92 00:10:25.720 --> 00:10:29.720 However, we must also conclude that with existing government intervention, 93 00:10:29.720 --> 00:10:35.720 that energy prices will probably remain high, and I bet that they will be going even higher. 94 00:10:35.720 --> 00:10:42.720 And this might provide you, of course, with profit opportunities available, as suggested by the previous speakers. 95 00:10:42.720 --> 00:10:46.680 Remember, we could save a lot of energy right away if we converted most of what the government 96 00:10:46.680 --> 00:10:49.080 does over to the private sector. 97 00:10:49.080 --> 00:10:54.960 The private sector is about twice as efficient overall, not just in energy, but just overall 98 00:10:54.960 --> 00:10:59.240 efficiency in everything that they do. 99 00:10:59.240 --> 00:11:03.960 And so if we converted most of government over back to the private sector and say they 100 00:11:03.960 --> 00:11:11.680 got a 15% improvement in energy efficiency, that would mean close to 5% reduction in energy 101 00:11:11.680 --> 00:11:17.760 use in the United States and over 1% of world total energy use could be eliminated by moving 102 00:11:17.760 --> 00:11:21.320 us back to the private sector. 103 00:11:21.320 --> 00:11:25.340 And I would like to emphasize and stress that this is an energy issue, it's not a climate 104 00:11:25.340 --> 00:11:27.840 or environmental issue. 105 00:11:27.840 --> 00:11:32.160 I've known since I was six years old that the world was getting warmer because my great 106 00:11:32.160 --> 00:11:37.000 uncle told me that the lake we lived near regularly froze over in the winter but hadn't 107 00:11:37.000 --> 00:11:40.600 done so since before World War II. 108 00:11:40.600 --> 00:11:44.680 I also remember when I was 10 years old, we got out of school for one hour on the first 109 00:11:44.680 --> 00:11:53.200 Earth Day to go out and pick up trash because we were combating the problem of global cooling. 110 00:11:53.200 --> 00:11:57.360 Which is probably a real threat, but really wasn't the case at all. 111 00:11:57.360 --> 00:12:04.480 I've never really trusted any of these proclamations about what the world is or is not doing. 112 00:12:04.480 --> 00:12:08.760 My guess is that actually global warming is a fact and is probably a good thing for most 113 00:12:08.760 --> 00:12:15.760 I side with Professor John Christie of the University of Alabama at Huntsville, and most other leading climatologists, and against Al Gore and UN bureaucrats on this issue. 114 00:12:15.760 --> 00:12:26.760 In all likelihood, CO2 is not a cause, but an effect of global warming, and that the globe is getting warmer because of the sun. 115 00:12:26.760 --> 00:12:37.760 In all likelihood, CO2 is not a cause but an effect of global warming and that the globe is getting warmer because of the sun. 116 00:12:37.760 --> 00:12:54.760 I mean, I've done a lot of reading on this topic in preparation for this talk and that's basically the conclusion that I've seen reached amongst the scientific community. 117 00:12:54.760 --> 00:12:57.240 Community. 118 00:12:57.240 --> 00:13:01.280 Here are the four considerations that you need to have when contemplating entry into 119 00:13:01.280 --> 00:13:02.880 the energy business. 120 00:13:02.880 --> 00:13:05.520 The first is opportunity cost. 121 00:13:05.520 --> 00:13:10.680 The opportunity cost of your time, your effort and your energy. 122 00:13:10.680 --> 00:13:15.900 Producing fossil fuels and biofuels means that part of your time, your money and land 123 00:13:15.900 --> 00:13:19.200 must be diverted and all of these have opportunity cost. 124 00:13:19.200 --> 00:13:22.720 If you plant switchgrass, you have to cut down trees. 125 00:13:22.720 --> 00:13:27.720 So time and money obviously have opportunity costs and there are, of course, risks. 126 00:13:27.720 --> 00:13:32.720 Less so, obviously, with the fossil fuel because somebody else is doing most of the work. 127 00:13:32.720 --> 00:13:40.720 Two, diversification. Having two or more sources of income obviously diversifies your income over different markets, 128 00:13:40.720 --> 00:13:44.720 and that's a possible benefit. It doesn't mean you're necessarily going to make more money, 129 00:13:44.720 --> 00:13:48.720 but it probably diversifies your income and probably increases it. 130 00:13:48.720 --> 00:14:02.720 3. Cash Flow. Having two or more types of income helps you diversify your income in terms of cash flow. Oil rights may pay monthly or quarterly. Switchgrass would be harvested or wood chips annually. 131 00:14:02.720 --> 00:14:16.720 So it does have certain costs and certain benefits. The trick here for many of you is that the demand of energy is related to the demand for timber. 132 00:14:16.720 --> 00:14:23.120 For example, the Chinese demand for oil is similar to the demand for wood and everything else. 133 00:14:23.120 --> 00:14:25.720 So China is driving up the price of wood. 134 00:14:25.720 --> 00:14:33.020 It's also driving up the price of oil and copper and cement and everything else. 135 00:14:33.020 --> 00:14:39.620 Also, on the flip side, the falling value of the U.S. dollar, which has been falling rather precipitously in the last few years, 136 00:14:39.620 --> 00:14:44.320 means both rising energy prices and rising fuel prices. 137 00:14:44.320 --> 00:15:14.320 Biofuels is also a good case of government mismanipulation, which should lead us to be opposed to any further government programs or subsidies. The ethanol program subsidizes the production of corn that is used to make alcohol, which is then a substitute for gasoline. There are doubts, however, if this provides any net increase in energy, and that it may actually be a boondoggle just for corn growers. It has led in part to a 138 00:15:14.320 --> 00:15:20.440 The doubling of corn prices has led to marches, demonstrations and riots in Mexico City because 139 00:15:20.440 --> 00:15:25.800 of the high price of tortillas. 140 00:15:25.800 --> 00:15:29.640 We are making our environmentalists feel good at the expense of less food for poor people 141 00:15:29.640 --> 00:15:32.920 in the third and developing world. 142 00:15:32.920 --> 00:15:34.800 So we don't want subsidies for biofuels. 143 00:15:34.800 --> 00:15:39.220 We want them to stand on their own economic feet and I'm confident that such alternatives 144 00:15:39.220 --> 00:15:43.360 will emerge in the future from American entrepreneurs such as yourself. 145 00:15:43.360 --> 00:15:49.600 If energy prices get high or technology develops, it will be a reality without any government 146 00:15:49.600 --> 00:15:51.320 help whatsoever. 147 00:15:51.320 --> 00:15:53.880 Look at what government programs have done to agriculture. 148 00:15:53.880 --> 00:15:58.360 We are losing the independent American farmer and the ones that are left are simply tools 149 00:15:58.360 --> 00:16:01.280 of the agricultural bureaucracy. 150 00:16:01.280 --> 00:16:05.800 Subsidies and programs do not help the independent farmer very much. 151 00:16:05.800 --> 00:16:11.080 They help corporate farmers who have a vast array of lawyers, accountants and lobbyists 152 00:16:11.080 --> 00:16:23.080 The Independent Farmer has a tough time trying to figure out these programs, more or less being able to make full advantage of them. 153 00:16:23.080 --> 00:16:34.080 Austrian economists place great emphasis on entrepreneurship. Entrepreneurs are the stewards of the economy. They allocate resources and hire workers at their own risk. 154 00:16:34.080 --> 00:16:40.080 They do so in a search for profits, and profits accrue to entrepreneurs who best meet the wishes of consumers. 155 00:16:40.080 --> 00:16:51.080 Not only does this system work, it is the only possible system outside of the medieval feudal estate where life is truly nasty, brutish and short. 156 00:16:51.080 --> 00:16:54.080 We now know that socialism and communism do not work. 157 00:16:54.080 --> 00:17:00.080 This is something that Ludwig von Mises demonstrated at the very outset of the 20th century. 158 00:17:00.080 --> 00:17:05.080 Central planning and regulation simply do not work in an economic sense. 159 00:17:05.080 --> 00:17:11.080 We see this in forestry, we see this in energy policy, we see this in Katrina, 160 00:17:11.080 --> 00:17:20.080 and even Enron, where an army of regulators overlooked everything that a single private investigator was able to uncover and alert his investors. 161 00:17:20.080 --> 00:17:25.080 We also see it in the intelligence work for 9-11 and Iraq. 162 00:17:25.080 --> 00:17:37.080 The market quickly punished Enron's owners while government prosecutors dragged the Enron investigation for so many years that Ken Lay was actually dead before he was convicted. 163 00:17:37.080 --> 00:17:47.080 By the way, I'd like to point out that Ken Lay was a mainstream PhD economist and was not a free market economist or Austrian at all. 164 00:17:47.080 --> 00:18:01.080 Therefore, my general message to you is that we do not want more government programs or subsidies or regulations in energy or forestry and that that is all to your economic advantage. Thank you very much.