"You can tell them what to do. But not how to do it."
That's good advice for parents of teenagers. It's better advice for presidents talking to the nation.
Yet it's guidance that President Obama disregarded in his State of the Union address, at least when it came to energy. With energy, the president declined to step toward the center. He may praise free enterprise in general. But when it comes to the nation's fuel and electricity, the president still insists on directing, commanding, and controlling. It's a terrible mistake.
Suppose your goal is to burn less oil. This is a broadly agreed national goal supported by every president since Richard Nixon.
(Despite Jon Stewart's mockery, it's a goal toward which we have made substantial progress. As compared to 1973, the U.S. population has grown by 50 percent. Adjusting for inflation, U.S. economic output has soared 300 percent. Yet even before the recession, the United States was using just 20 percent more oil than in 1973. In 2009, we used only 8 percent more oil than in 1973.)
Now we want to burn even less. Fine! How might that goal be achieved? How to decide? Two possibilities.
The first is market competition. Apply a tax on oil that makes all forms of petroleum energy more expensive. Then stand back. As gasoline rises in price, people will alter their consumption patterns. They might choose homes closer to work, or buy smaller cars, or opt for train travel over a plane. Manufacturers will adjust, offering vehicles with more fuel economy. Possibly somebody will develop a whole new technology that will become more competitive under new market conditions. Or, alternatively, an accumulation of small incremental changes will add up to a big change, like the kind we experienced between 1978 and 1985, when America’s oil use dropped by 3 million barrels a day.
Second, the powers in Washington could decree how the country must change. Investment capital must flow to this emerging technology rather than that. One million electric cars must be manufactured. Ethanol must be added to the fuel mix in a certain percentage. And so on.
This command-and-control method has been tried and tried again, always with conspicuous lack of success, and for all the obvious reasons: Because government favors big "imagination-capturing" technologies over incremental adjustments. Because government makes a bad venture capitalist. Because democratic governments (rightly) cannot decree the kinds of lifestyle changes that price signals will induce voluntarily. What government will order empty nesters to move from the exurbs to downtown? But a 60-minute commute and $5 gas will persuade people to do what no bureaucrat would dare command.
The people in the Obama energy command bunker must know this. So why do they choose command-and-control anyway?
Number one, command-and-control may be costly and inefficient, but those costs are hidden from view. Taxation may be cost-effective, but the congressional representatives who vote in favor of taxes put their careers on the line.
Number two, the jobs created by command-and-control are conspicuous and readily credited to the politicians who ordered them up. By contrast, it’s hard for a politician to take credit when empty nesters move downtown, buy condos, and create a market for a new Shakespeare theater, which then hires a new stage manager.
Number three, politicians often have strong ideas about the "right" answer to a problem: It's high-speed rail not interurban buses! It’s electric cars not biodiesel! (Or the other way around.) Command-and-control allows those politicians to impose their preferred solution, while markets often deliver solutions that may work but lack the "cool" factor. We’ve saved a lot of oil since 1978 as freight rail has displaced trucking, but no president ever hailed freight rail as a bridge to the 21st century.
And so we have the president of the United States from his rostrum telling us what to drive and by when. It would be silly if not so outrageous; it would be outrageous if it were not so doomed to fail. Here's my counter-suggestion in my own personal Republican response to the State of the Union: Mr. Obama, if you are so sure electric cars are the wave of the future you should quit your present job, take over at GM, and build and sell them yourself.
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