Old foes admitted it was best to debate Milton Friedman when he was not in the room. And in this election year, fourteen years after his death, Joe Biden is doing just that with such statements as “Milton Friedman isn’t running the show anymore” and “When did Milton Friedman die and become king?”
But Biden should know that Friedman’s views for socially effective public policies were not partisan. The law of unintended consequences, and the truth that one intervention spawns ever more, are lessons for both Democrats and Republicans.
Milton Friedman died in 2006 at age 94. Born on this day 108 years ago, the renowned economist specialized in money and banking. But as a public intellectual, writing popular books and a biweekly Newsweek column, he became quite conversant in different fields, including energy.
Friedman understood how, for much of U.S. history, major energy regulation was sponsored by some segment of the industry. “Few U.S. industries sing the praises of free enterprise more loudly than the oil industry,” he stated in 1967. “Yet few industries rely so heavily on special government favors.”
That was then. Now, cronyism has shifted toward the market-problematic wind, (on-grid) solar, nuclear, ethanol, electric vehicles, and carbon-capture industries. All of these energy segments are government-enabled with special tax incentives and mandated markets. Oil and gas can survive and expand from underlying consumer demand; the six aforementioned rent-seeking segments cannot.
On top of this, public utilities distributing electricity have turned into tubs of political pork under their state regulatory commissions. Politically correct, economically incorrect energies and technologies have shelter under a franchise monopolist.
Friedman’s harsh reaction to federal wage and price controls implemented August 1971 is particularly important for the energy debate. Nixon’s unprecedented peacetime edict, not the Arab Embargo, spawned the oil shortages and a decade of spiraling regulation. The effects of a decade of federal price and allocation controls on energy were so perverse that like intervention has not been part of the policy debate ever since.
Friedman explained how a surplus of regulation caused a shortage of oil and gas. He did not buy the “running out of resources” argument presented in Harold Hotelling’s fixity/depletion model, as did so many economists—even those at Resources for the Future.
It took guts to deviate from the mainstream and say that oil and gas, and minerals more generally, were not special (depletable) with extraction and retail sale becoming ever more expensive. But in a 1978 lecture, Friedman opined that mineral energies are “producible … at more or less constant or indeed declining cost because of the improvements in the technology of drilling and exploring and so on.”
In this regard, there was not energy economics but only good and bad economics to Friedman. Ipso facto, oil, gas, and coal would thrive in free markets—and wither under price controls and nationalization. Same with wheat and sugar.
“The infant industry argument is a smoke screen,” Milton and Rose Friedman wrote in Free to Choose (1979). “The so-called infants never grow up. Once imposed, tariffs are seldom eliminated.”
Consider, in our day, the U.S. wind power industry. The Production Tax Credit, first enacted in 1992, has been extended twelve times: in 1999, 2002, 2004, 2005, 2006, 2008, 2009, 2012, 2014, 2015, 2016, and 2019. And the wind industry today wants still more subsidies and more time to be “competitive.”
Near the end of his long career, Friedman weighed in on the global warming debate with a blurb for Thomas Gale Moore’s Cato Institute book, Climate of Fear: Why We Shouldn’t Worry About Global Warming (1999): Friedman opined:
This encyclopedic and even-handed survey of the evidence of global warming is a welcome corrective to the raging hysteria about the alleged dangers of global warming. Moore demonstrates conclusively that global warming is more likely to benefit than to harm the general public.
And when modern-day carbon taxers tried to hijack Friedman’s views on climate, David Friedman set the record straight. “Of all my father’s accomplishments, I believe the one he was proudest of was his role in ending military conscription,” David wrote. “I do not think he would be happy to be conscripted, posthumously, for someone else’s cause [of a carbon tax].” He explained:
… warming can be expected to produce both negative externalities such as sea level rise and hotter summers and positive ones such as longer growing seasons and milder winters. The effects will be spread out over a long and uncertain future, making their size difficult to estimate. My own conclusion …is that the uncertainties are large enough so that one cannot sign the sum, cannot say whether the net effect will be positive or negative.
Every July 31st should be recognized as Milton Friedman Day. His insights were well premised, logically developed, and timeless. His was good economics, marrying theory and evidence to better understand the world. This foundation naturally carried over to political economy, where Friedman’s energy insights are as fresh today as when they were spoken or written.