How is a Government Mandate Pro Market Freedom?

President Reagan’s national security advisor, Robert C McFarlane, recently offered some thoughts on a government mandate he considered would actually support a free market.   First, he lays out some background:

  • Petroleum products drive 97% of all air, sea and land transportation in our country. Oil is truly the lifeblood of every industrial economy.
  • The price of oil is set by a foreign cartel. The Organization of Petroleum Exporting Countries (OPEC) owns almost]80% of global oil reserves yet produces only 36% of daily global supply.
  • [I[ncreasing domestic production of oil or increasing fuel efficiency can reduce our trade deficit and the $400 billion (at current oil prices) we send overseas annually, but they won’t change the price we pay at the pump.

And thus, he says,

To outmaneuver OPEC we need to eliminate oil’s monopoly as the only transportation fuel.

His alternative fuel is natural gas from all those vast deposits embedded in shale, primarily in Pennsylvania, New York, Texas and Oklahoma.  Cleaned up and compressed, CNG (compressed natural gas), or with some processing, methanol, would make a fine fuel for our cars and truck, McFarlane says.  And he’s not far wrong on this, albeit NG has a considerably lower energy density than does gasoline.

Then he gets to his point:

Let’s open our market to good old American competition. …. Bills are now pending in both houses of the Congress…that seek to do exactly that by requiring car makers to enable fuel competition in their own product lines—adding flex-fuel, all electric, hybrid electric, or any other way auto makers choose to implement the law.

But this misses the point of a free market, capitalist economy with its inherent competition.  If the product is viable in the market place—IFF the product is something folks actually want and would buy—then a mandate to produce is unnecessary.  That natural market demand will drive production.

It’s true enough that some products have high barriers to entry, high initial costs to guts up a market; however, the automobile industry demonstrated that these need not prevent a market from developing: the car companies built their expensive factories, got their expensive distribution networks set up, and they did it all in a cutthroat competition environment.  So it is with flex fuel vehicles.  If there is a market for flex fuel cars and trucks, it’ll develop without need of mandates.

These bills don’t represent competition; they are government interfering in business decisions and in the market place.  The mandate contained in the bills is no different than a mandate that all of us must buy, oh, say, health insurance or contraceptives, whether or not we want or would use them.  Furthermore, mandates to produce (methanol) are mandates to buy (methanol); buying and selling are inseparable from each other—so such mandates limit both parties’ freedom of choice.

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