Prices at the pump are (for the most part) an elegant demonstration of market forces at work. It should come as no surprise then that they tend to raise the ire of those who distrust markets and favor their manipulation. Whether it’s because the prices are so prominently displayed or because so many of us so often pay them, fuel prices are a tempting target for the command-and-control set.

Economies (and Psychologies) of Taxation

The keen attention we Americans pay to fuel prices is both a blessing and a curse. It’s a blessing in that it helps hone the system to a remarkable degree of efficiency. Nature abhors a vacuum, and economies abhor waste. The cumulative cost-whittling by thousands and thousands of fuel-sector vendors, each doing his best to minimize wasted resources, delivers fuel as cheaply as physically possible. The collective price-consciousness is a curse, however, because large groups of people can fall victim to what James Surowiecki, in the Wisdom of Crowds, calls an “information cascade.” Information cascades are circumstances in which bad information or poorly perceived reality is passed from one individual to another without reasoned inquiry. These examples — stock market bubbles and crashes, riot dynamics, and most of higher education these days — inevitably lead to disturbingly close-minded groupthink.

I have always found it remarkable for instance that people (self included) will drive around the block to hit a gas station priced a penny lower, but couldn’t be troubled to pick up the same penny off the oil-stained parking lot (or even 25 of them on an average fill-up). It won’t soothe the psyches of dollar-conscious cross-town navigators to discover that the increase in ambient temperature during their “economizing” commute cost them a buck or two more than they saved.

BTU density and opportunity costs aside, perhaps one of the most egregious examples of delusional groupthink is our collective ignorance of the role of taxes in fuel prices. Americans pay an average of 49.5 cents on every gallon they purchase in federal and state taxes, environmental remediation, and local surcharges. Can you imagine your local filling station suddenly increasing (or decreasing) its price by 50 cents a gallon? It would certainly be attention-getting behavior.

Since taxes represent more than double the per-gallon share garnered by truckers and station-owners combined, you would think they would get more attention. But when it comes to complaints of “gouging,” guess who ends up in the crosshairs? It is always the local station owner who is called up on charges of “excessive” prices, or distributors who are investigated by state attorneys general. Yet for some reason taxes slide quietly under our combined radar, only coming into question when a forward-thinking activist suggests they ought to be higher, à la Europe (home to vehicles that would conveniently fit in my backseat).

Room for Leviathan

So on which side of the fuel pump should the State stand? First, government ought to stay out of pricing altogether. Jefferson is often quoted as saying government should leave a behavior alone “if it neither picks my pocket nor breaks my leg.” There is a perception among many that price gouging is a form of theft, an artificial and unilateral activity undertaken by profiteering capitalists. This perception justifies demands that government get involved when prices become “unfairly high.” But there is simply no way to logically argue that people are being robbed if they have the ability to choose to not pay. However painful it may be to leave the car in the garage and find an alternative means of getting where you need to go, there is no instance (in a free market) where a high price could be considered theft. Attorneys general therefore should never engage in investigations of price alone.

However, there are instances of theft at the pump where I would advocate for the power of regulation. If a designing station-owner tinkers with his fuel dispensers to provide less fuel than indicated, he has engaged in behavior that clearly “picks my pocket.” While a completely unregulated market would theoretically purge this actor from the system (as information leaked to purchasers), it ought to be one of the limited powers granted to government to deter this kind of willful thievery. Requiring every pump to be registered with a department of weights and measures is excessive, but an authority ought to be given power to investigate and fine miscalibration and short dispensing.

Finally, government ought to make its own role in fuel pricing abundantly clear. Since every state (right or wrong) requires pumps to post a weights-and-measures tag, they ought also to require that the cumulative taxes be marked. Arizona does this with its state taxes (18 cents/gallon), but that only begins to hint at the overall tax burden. If consumers were clearly informed of the toll that government takes on each gallon of fuel, perhaps some of the clamoring against gouging would find vent in other places.

Going it Alone

This may not be for everyone, but wouldn’t it be wonderful to declare fuel independence? And I don’t mean through government programs for “green energy” or an ethanol tax credit. I mean at an individual level, where independence is most interesting. For instance, we make some of our own diesel out of beef tallow from our packinghouse at about half the cost of the commercial alternative. We’ve turned a “waste” product with complex disposal fees into a valuable resource, reducing one of our largest overhead costs. Call me old-fashioned, but this kind of entrepreneurial response to market signals is an awful lot more constructive than lobbying for “affordable” diesel.

We all live, despite misgivings, in an economy greased with energy-dense fossil fuels. It would be a fallacy to imagine an immediate turn away from this dependence, especially if you think that government manipulations of behavior will get us there. It is equally fallacious to imagine our collective dependence to last forever. Very few foresaw the rapid transition from fodder-based to hydrocarbon power in the mid-nineteenth century (though interestingly enough, Abraham Lincoln publicly advocated the radical idea of a “steam plow” in 1859, a reality we see every day in modern agriculture).

By promoting the individual development and harnessing of fuel, we can avoid the pitfalls posed by centralized control. Jefferson, who by all rights ought to be called the “Great Diffusor,” would readily agree. By putting both the political power to decide and the technical power to move in the hands of individual citizens, the temptation to control these citizens will run out of gas.

As a student of Austrian economics I know I cannot foresee what the domestic energy market would look like or what the relative prices would be if all U.S. regulations, taxes, and privileges were abolished. But I submit that those who think the United States would be energy self-sufficient have the same knowledge limitations. It seems highly unlikely that Americans would import no oil from the Middle East or elsewhere. (More on this below.)

Unwise and Unnecessary

But even if things should work out that way, it is not something to be sought. Making self-sufficiency a goal would only promote protectionism—to the benefit of privileged interests—and encourage interventionists. Let’s not give them a helping hand.

What if freeing the domestic market did not produce energy independence? Should the government give it a nudge? Do banning imports, subsidizing alternative forms of energy, and mandating conservation sound like good ideas? Have we forgotten all that we know about bureaucratic ignorance, perverse incentives, and naked corruption? When one considers how pervasive energy is economically, one realizes that a serious comprehensive energy policy would require squaring or cubing the current corporate state. No thank you.

Concerns about Middle East oil—which persist although only 24 percent of U.S. crude-oil imports come from that region—center largely on fears that an unfriendly ruler might cut off shipments. But these concerns are baseless. Any oil-producing country will want to sell to someone. What else is there to do with crude oil? The opportunity cost of leaving it all in the ground would be enormous (unless prices were expected to rise dramatically). And even if a ruler tried to embargo the United States, the additional oil he sold to other countries (at necessarily lower prices) would find its way here. Economic interest and the market process—despite all the impediments—guarantee it.

I’ve previously discussed the misconceptions about the 1970s OPEC oil embargo. I pointed out that the hardship of that period was strictly the result of the U.S. government’s price controls and other interventions in the oil and gasoline industries, which discouraged producers from bringing supply to market. Even so, “[d]espite the embargo,” economist Donald Losman wrote, “U.S. oil stockpiles fell only slightly, and, by March 1974, they were growing again.” (“Trading for Security,” December 2010)

In other words, the embargo failed. As the Saudi oil minister put it later, “[T]he embargo was more symbolic than anything else. . . . [T]he world is really just one market.” Bingo.

Another fear is that Middle Eastern turmoil could disrupt oil shipments, and this is surely possible. The answer to that is diversification, which a freed entrepreneurial market would encourage and permit. We need not refuse oil from the region because someday it might not be available. That’s Karl Pilkington logic.

That should dispel the fears of energy dependence. Indeed, as Freeman columnist David Henderson points out (“Let’s Not Be Energy Independent,” October 2008), the case for the market is all about dependence. We gain from exchange through lower costs thanks to the division of labor and comparative advantage, which deliver the benefits of specialization. Self-sufficiency would be expensive and thus reduce our standard of living, harming the least well-off among us. How in the world can we account for apparently pro-market people looking to the government to “reduce our dependence on foreign oil”?

Let It Take Its Course

I don’t wish to underestimate the distortions government intervention has wrought in the energy market or how it encourages consumption of Middle Eastern oil. Imagine that the oil companies could not count on the U.S. departments of defense and state or the CIA to protect their access to and transport of that oil—at hidden taxpayer expense. Imagine that they had to foot that cost themselves and charge prices for their products that reflected those costs in competition with alternatives that did not have to recoup those expenses. Consumers would then make choices with their eyes wide open. Maybe oil from halfway around the world wouldn’t look so attractive. As I said at the outset, I don’t know what a freed energy market would look like. But nothing in this uncertainty supports a policy of energy self-sufficiency. Free the market of all impediments and privileges—and let it take its course.

Whether there are many years remaining of low-cost oil underground or not, the case for freeing the market is the same. As that Saudi oil minister also said, the Stone Age ended, but not because mankind ran out of stones. Likewise, the Oil Age will end, but not because mankind has run out of oil. I would only add: if the market is really freed.

Events in Egypt and neighboring countries are only the beginning of a spreading resistance to dictatorship throughout the region. As inhabitants of a land born in rebellion against tyranny, we should view this with hope. Freedom will enable us to weather any turmoil as best as can be expected. There is no reason to wish for the unnatural state of self-sufficiency.

A final point: One way to help eliminate the need for uprisings such as we saw in Egypt would be for the U.S. government to stop supporting dictators.

In late February gasoline prices across America were surpassing $3 a gallon. Forecasters are advising us to expect $4 by summer, maybe higher. So be prepared for something else with it all: the broken-record rhetoric of anti-market types about “gouging.” It’ll be coming from a lot of the same people who block the drilling for oil just about anywhere and who think it’s always better to be gouged by the taxman to subsidize noneconomic “green energy” than to pay a price for gasoline that might reflect real market conditions.

Economist Thomas Sowell, speaking of big-government “liberals,” put it well when he said that asking them where wages and prices come from is “like asking six-year-olds where babies come from.” You’ll certainly never hear them admit that even at $4 a gallon, gasoline is cheaper today (in inflation-adjusted terms) than it was when President Reagan decontrolled oil 30 years ago.

If you’re expecting me to offer the economic argument for government to get out and stay out of energy markets, you’ll have to wait. There’s a moral argument that takes precedence.

Suppose someone offers to buy my house for twice what I paid for it a year ago and I refuse. It’s my house, and I really don’t want to move, but I announce that if someone wants to give me ten times what I paid, I’ll take it.

Am I “gouging” somebody? Most people would say no, but they would be hard put to explain what the difference is between my action and that of those unpopular villains who produce and sell gasoline.

It’s true that my house is private property, but so is gasoline. When it’s in the underground tank at the gas station, it’s the private property of that station until somebody else buys it. It’s not public property. It certainly doesn’t belong to people who never took a risk and invested a nickel in it—and that includes all the bellyaching demagogues who will try to further their careers by bashing wealth-creators.

If it’s wrong to sell gas at $3 or $4 a gallon, what if the owner of a gas station decided not to sell it at any price? Wouldn’t that be even more wrong? Only if one distorts the concept of private property to mean that it’s really not yours if somebody else wants it.

There are plenty of people in the world who will scoff at any defense of oil companies or gas-station owners on the basis of the “antiquated” notion of property rights. But of course those same scoffers will defend their own property without hesitation; it’s only other people’s property about which they can afford to be cavalier.

So if it’s not yours, don’t claim it. If it doesn’t belong to the politicians, don’t demand that they jigger its price. This is a moral issue; people of moral fiber should rise to the occasion and resist the temptation to steal.

Stockpiling and “Gouging”

Now a little economics, rooted in experiences of a decade ago. When news spread on September 11, 2001, of the terrorist attacks in New York and Washington, many people panicked. Not knowing whether this was the start of something much bigger, they did what seemed to make sense given the extraordinary situation—they began to “stockpile” gasoline because a world crisis could easily disrupt fuel supplies. Long lines formed at gas stations all over the nation by mid-afternoon. Demand, in other words, soared. Just like Econ 101 was supposed to teach us, prices rose.

If the crisis had indeed slashed world fuel supplies, then the initial reaction of the public would have been both smart and prescient. Buying more would have pushed up prices. As prices rose they would have encouraged people to restrict their use of gas to their most important purposes, leaving more for others.

And the higher prices would have sent a powerful signal for somebody to find new supplies quickly. This is the way a free price system works—in gasoline, coffee, or anything else.

It became apparent within a day or two that the events in New York and Washington had not produced disruptions in the flow of oil or in the production of gasoline. Then the market effectively worked its magic. People shopped elsewhere or found ways to do with less while prices were high. Folks eventually calmed down, and the lines at the gas stations evaporated. Suppliers rounded up more supplies. Prices fell. The upward spike set into motion the market forces that solved the “problem.”

Saber-Rattling and Bad Laws

Nonetheless, politicians ignorant of marketplace economics rattled their sabers and piled bad law on top of previous bad law. State officials cried foul and threatened “price gougers” with prosecution.

Ohio’s attorney general went after 27 retailers that charged $4 or more, decrying the price hikes as “unconscionable acts.” He forced the culprits to give refunds to customers and make donations to the American Red Cross or face fines of up to $25,000 per violation.

Any stations in Wisconsin that simply changed prices more than once in a 24-hour period were threatened with fines of up to $200 for each customer they “overcharged.”

In Florida, authorities declared that stations which raised prices by more than a dime a gallon were in violation of the Sunshine State’s emergency rules and could face penalties of $25,000 per day. Two weeks after the terrorist attacks, Missouri’s attorney general sent letters to 48 gasoline retailers telling them that if they had boosted prices for any grade of gas above $2.49 after September 11, they would have to pay fines of “triple any gas-gouging profits, or $750, whichever was greater, plus investigative costs of $250.”

My home was in Midland, Michigan, at the time. A woman there named Sonja Sturgeon managed Bobbie’s Point Citgo, a gas station targeted by the state’s attorney general for gouging. Sturgeon readily admitted to the local paper that the store boosted prices to $3 at about 8:30 p.m. on September 11 because she wasn’t expecting a new supply until later in the week. “The whole point of raising the prices was to send customers down the road to buy gas,” she said. “It had nothing to do with gouging the customers.”

Perhaps the attorney general would have advised Bobbie’s Point Citgo to behave as though nothing had changed in the wake of September 11. Keep prices the same or raise them no more than 10 percent. Would that have done anyone a favor? Surely, the lines would have been many blocks longer, and station after station would have run out, leaving people at the back of many lines without any hope of getting a drop.

Let’s see, which is better? Gas at $3 after a 15-minute wait, or no gas at $2 after sitting in line for an hour? This is not rocket science.

Brace yourself for another round of gasoline price hysteria. It’s going to be déjà vu all over again.

Curious about what is so bad about gasoline that it was necessary to warn children, I bought it and found myself in an alternative universe of dreary ecological disasters. This was a far cry from the world of the classic picture books, such as what is undoubtedly today considered the criminally polluting tale of Mike Mulligan and His Steam Shovel by Virginia Lee Burton. Nor did it resemble the brightly colored and fantastic world in the books I read to my kids in the early 1990s. Even more depressing, when I dug further it turned out that What’s So Bad About Gasoline? is part of a series of “science” books aimed at elementary school kids that tell a tale of ecological catastrophe. These include Oil Spill! by Melvin Berger and Where Does the Garbage Go? by Paul Showers.

If these books are what kids grow up with today, we should hope they spend their time on video games instead of reading. The books are troubling because by ignoring economics and by focusing on eco-politics, they get the solutions to environmental problems wrong.

Worse, in the world these books present things don’t get better. We must always do more to repent for our environmental sins. As economist Robert Nelson observes, environmentalism in America has evolved into “environmental Calvinism.” Even worse, Nelson notes, it is “Calvinism without God,” as bleak a vision as one can imagine since we’re left only with an impersonal environment as the object of veneration. (Nelson’s The New Holy Wars: Economic vs. Environmental Religion is a great read.) Presenting consumption as ecological sin without showing the vast improvements in people’s lives produced by growing wealth ignores the great success of market economies and entrepreneurs.

Finally, the vision of the world these books present lacks human agency as anything other than motivating the mindless consumption that leads to ecological catastrophes. Not only is this a world missing entrepreneurs and inventors, there’s also no excitement to its vision of the future. Although I am still waiting for my personal jetpack, the world of the The Jetsons promised a future of excitement and fun rather than a grim time in which we merely replace our cars with hybrids. The optimism that prompted Julian Simon to term humanity “the ultimate resource” is missing from this literature.

Oil Spill! was first published after the Exxon Valdez event. It opens with a dramatic scene of the tanker hitting the reef in Prince William Sound. Missing from the story are the broken sonar system that should have alerted the crew to the impending collision, the overtired third mate in the wheelhouse because the union-protected captain was sleeping off a drinking binge, and the lack of sufficient crew. The spill just happens. Indeed, humans are a minor presence in the book—appearing on just eight of 29 pages of illustrations, only as a cleanup crew hosing down a beach, a family on a beach, people using energy, and a child writing her congressman. Oil Spill!’s solution to the devastation of nature is political action.

Kids reading Oil Spill! aren’t likely to be ready for a fact-heavy discussion of oil-transportation risks versus the benefits of energy consumption, the natural underwater oil seeps that could be reduced by offshore drilling, or whether using less electricity will really reduce oil spills, as the book suggests (oil-fueled sources account for under 2 percent of U.S. electrical generation).

Children do not learn that the profit motive is what drives inventors and manufacturers to improve products to reduce energy consumption. The U.S. economy has steadily become more energy-efficient: Per dollar of real GDP, energy use dropped by more than a third from the late 1970s to 2000. Compared to 1900 each unit of energy input in 2000 could provide four times as much useful heat, move a person 550 times farther, provide 50 times more illumination, and produce 12 times as much electricity. Moreover, oil spills like the Exxon Valdez or the BP disaster are exceptions rather than the rule and are more likely due to failures in regulatory schemes than to a lack of laws.

Where Does the Garbage Go? isn’t a new book, first appearing in 1974. Comparing the 1974 and 1994 editions reveals an interesting shift in environmental thinking. Originally, Where Does the Garbage Go? centered on a girl who went through her own trash to see what her family threw away. She found worn sneakers, potato peels, cans, bottles, and her old yoyo. She then visited her uncle on a farm, discovering that food scraps could be fed to pigs. The book generalized to the collection of garbage and its disposal in the ocean (showing children swimming in a polluted ocean), incinerators (children grimacing and rubbing their eyes from the smoke), and dumps (“a dirty place,” “a great big mess” with rats and “millions of flies”). After explaining recycling and showing crowds making more trash, the 1974 book concluded with the child narrator asking what the reader thought “we should do” about trash as she took her old yoyo from the trash and fixed it.

By 1994, however, the narrator was gone and the story was now presented as a school lesson. Dumps and ocean dumping were history. But, just as in 1974, “Waste never stops piling up.” Recycling and waste-to-energy plants could handle some of our trash, but “we must do more. We must stop throwing so many things away.” By the end children are depicted walking home from the grocery store holding string bags that “we never throw away” and use “over and over again.”

Set aside whether or not recycling makes economic sense, particularly in the forms advocated in Where Does the Garbage Go? No second-grader wants to read a cost-benefit analysis of curbside recycling programs. Let’s even forget whether there is a market for recycled products large enough to absorb our trash. The big problem in this book—and in the others as well—is the focus on making people feel bad about consuming goods because it creates “waste.”

Conspicuous Underconsumption

Consumption isn’t bad—it is how we are made better off by the goods and services we purchase. The great success of market societies is precisely that they make it possible for virtually everyone in them to consume at a rate greater than even kings and emperors did in even the recent past. It was Boris Yeltsin’s 1989 visit to a Houston supermarket, not a visit to a recycling center, that convinced him of the superiority of free markets.

Moreover, the bounty of a market economy is a relatively recent discovery. There was little change in consumption of calories anywhere in the world until about 1800 in western Europe. Only after the Industrial Revolution did the human condition experience a dramatic change for the better. The world’s most pressing problem is that there is too little consumption not too much. People living in poverty in societies that lack basic market institutions across the developing world need to increase their consumption not reduce it.

Simultaneously the worst and best thing about What’s So Bad About Gasoline? and its ilk is that they are excruciatingly boring. Boring is bad because energy isn’t a boring topic, and making it boring turns kids off to thinking about science and technology. To their credit the book’s author and illustrator try hard to make it interesting. The pictures are lively: glaciers melt and houses tumble into the ocean. But they aren’t enough because the eco-catastrophist version of energy is one in which people are passive and events inevitable.

That’s not how the world actually works, of course. Energy isn’t boring even for elementary school kids because it is crammed full of interesting discoveries, larger-than-life characters, and exciting events. The transformation of gasoline from a waste product into a valuable commodity is a series of exciting discoveries made by entrepreneurs and scientists who raised our standards of living and health. In transforming oil into gasoline, scientists repeatedly accomplished tasks no one believed they could—turning crude oil into hundreds of different products. Brilliant and interesting characters abound.

Unfortunately What’s So Bad About Gasoline? misses all this. There are no individuals in the story. A cast of anonymous people from the Middle East to China to the United States finds things to do with petroleum and gasoline, and then bad things happen because we’re using too much carbon-based fuel.

Presumably HarperCollins publishes books like Where Does the Garbage Go?, Oil Spill!, and What’s So Bad About Gasoline? because earnest parents want their kids to grow up with green values. They are just a small part of a large series from one publisher, and my search for these books soon had Amazon recommending dozens of other similar titles. Worse, it is not just in these books that a future of ecological gloom and doom is being taught. Michael Sanera and Jane Shaw’s Facts Not Fear: A Parent’s Guide to Teaching Children About the Environment documented the extent of the problem of teaching children to fear the future environmental catastrophe. For kids between kindergarten and 12th grade the dominant message in schools is: “The earth is badly polluted, the rain forest is about to disappear, and global warming will submerge New York City with floods—to name a few of the imminent catastrophes,” all problems caused by their parents, who “have brought the earth to the edge of doom.” Scientists and engineers are not problem solvers who make life better but evil exploiters of the environment. Congressmen solve problems.

How do people who believe humanity is indeed the ultimate resource rescue the future? We’ve got two key advantages over the prophets of doom. First, our stories are more interesting. Free societies have room for people to do things—to discover new ideas and invent new products. Children are engaged in a process of discovery about the world around them and the narrative of discovery is more exciting than one of catastrophes. Active beats passive for almost everyone, and free markets are active. Freedom and free enterprise are just much more interesting than the alternatives.

Second, “environmental Calvinism” is even less fun than the original Swiss version. Given a choice, kids’ dreams are not going to be about sorting trash into recycling bins but about personal jetpacks. Because we’ve got a more interesting story, we’ve got a chance to capture young people’s attention. If you spot a neighbor’s or relative’s young kids glumly reading Oil Spill!, slip them a life of Thomas Edison or a even Mike Mulligan and His Steam Shovel (still in print!) and most will opt for the excitement of markets, invention, and action over the gloom of environmental pessimism. If parents read stories of action, invention, and excitement, they might even think twice about their own gloomy outlooks.

For example, a 1992 book Hollander edited, The Energy-Environment Connection, featured scientists such as Stephen Schneider, a well-known proponent of government control to slow down global warming, and John Holdren, who expressed alarm about the “folly of failing to stabilize world population.” Although it avoided inflammatory rhetoric, the book treated global warming as a severe problem and expressed pessimism about acid rain and air pollution.

Hollander has not repudiated his past work, but has shifted gears. It’s as though he sat down one day and completely rethought, without bias, the seriousness and extent of environmental problems. However it happened, he has come to the conclusion that poor people in developing countries suffer from the worst environmental problems: hunger, disease, and dangerously unsanitary water. Environmental problems in Europe and North American simply pale in comparison. “Reducing poverty throughout the world should be a top priority for environmentalists,” he writes.

The environmental crisis of poverty is the theme of the book, but another theme is inextricably entwined and almost more dominant. That is Hollander’s reassessment of the severity of environmental issues. For example, he doesn’t call global warming an imminent catastrophe. He says there are still many scientific uncertainties, and “if it turns out that human activity is adding to the natural warming, the amount will probably be small, and society can adjust to that as well, at relatively low cost or even net benefit.” In some circles, this is heresy.

Hollander is optimistic about reducing pollution from automobiles too. Already on the decline, this pollution is likely to disappear entirely, he says, as competition develops between the hybrids (electric and gasoline-powered cars) and cars powered by hydrogen fuel cells. He predicts that the “worldwide deterioration of air quality that accompanied the rise of the automobile culture will be permanently reversed, and the world’s dependence on petroleum will probably be drastically reduced, as well.”

Nor does Hollander blindly support alternative energy, such as solar or wind power. He concludes that much effort to jump-start these alternatives is misplaced. The governments of such wealthy nations as the United States are subsidizing “large-scale renewable technologies for which there is little need,” yet ignoring solar applications that could help poor people in rural regions lacking electricity. He says that “poor countries have tremendous need for renewable energy sources, and a number of ingenious yet affordable technologies have been available for years.”

As these examples illustrate, Hollander has written a book that, like Bjørn Lomborg’s The Skeptical Environmentalist, offers upbeat views about issues usually treated as crises. Unlike Lomborg, Hollander doesn’t seem to be challenging the establishment. He is an insider telling it the way he sees it. Perhaps his moderate stance is one reason why this book hasn’t received as much attention as has the Danish statistician’s.

Hollander has made an effort to consider literature from both the doomsday and skeptical sides. I was, however, dismayed by his selection of a passage from Dickens’s novel Hard Times to illustrate air pollution in the nineteenth century. (“It was a town of red brick, or of brick that would have been red if the smoke and ashes had allowed it,” the passage begins). Dickens, a master of fictional exaggeration, is hardly a reliable authority on air pollution. I’m also a little surprised that Hollander is unaware of the growing literature (started by economists) surrounding the environmental Kuznets curve. This correlation between income and pollution shows that as countries become more wealthy their environments initially deteriorate but then become cleaner. Discussion of this would have underscored his point.

These are minor criticisms. Although it comes as no surprise to many of us that poverty is the environment’s number one enemy, at long last, thanks to Hollander, others may find it out too.

And just how important are fossil fuels relative to so-called renewable energies? Oil, gas, or coal generates the electricity needed to fill in for intermittent wind and solar power and ensure moment-to-moment reliability. So renewable energy, ironically, is codependent on nonrenewable energy short of (currently) prohibitively expensive battery technology firming the flow of electricity.

As a component of all products and services, energy needs to be affordable, convenient, and reliable. To this end, public policy should respect consumer preference and allow energy producers to meet the demands of the marketplace. This requires a respect for private property rights and voluntary exchange to facilitate the global exchange of energy and its innumerable subcomponents.

Global energy supplies are primarily the product of government, unfortunately, not the free market. In state-run economies political elites make the decisions that otherwise would be made by the multitude. Win-win exchanges are supplanted by government-dictated win-lose transactions. Wealth is redistributed. Pure waste results from the intervention of (political) third parties into what otherwise would be mutually advantageous self-interested exchange.

For example, electric utilities may be forced to buy wind power, solar power, or another politically correct energy under state law. A mandate is required because a free marketplace would not support such expensive, unreliable—noncompetitive—supply.

Oil and gas producers may be unable to access offshore properties because of government constraint. In such cases, supply is not produced and higher-cost substitutes elsewhere pick up some of the slack. Consumers are left with less supply and higher prices. Economists have a name for this: inefficiency.

Government intervention may also give life to uneconomic projects. Such ventures may include carbon capture and storage, a “smart” electricity grid, or even a nuclear plant that requires a federal loan guarantee. Resources that go to these projects do not go to other, more economical projects (which may or may not be in the energy sector) as judged by the marketplace. Resources are again misallocated.

Proponents of government intervention cite “market failure” as the reason for regulating or subsidizing energy projects. Negative externalities created by self-interested exchange require the government to modify transactions in ways ranging from a prohibition to a tax, they say.

Nonmarket Failures

But there are two other types of failure that also must be considered before rushing to policy judgment.

One is analytic failure, in which the outside evaluator’s prescription for intervention (such as a per-barrel “energy security” tax on oil imports or a per-ton “climate change” tax on carbon dioxide emissions) overcorrects or undercorrects for the “real” problem. The error might be purely intellectual—or it might reflect the personal prejudice of the analyst. Fallible self-interest in the marketplace has a counterpart in the ivory tower.

Second, there is government failure, whereby even the “correct” analytical blueprint is altered and violated in the political process. Special-interest tinkering adds to or subtracts from the core proposal, and political actors resort to “logrolling,” where extraneous issues are added to the legislation just to win votes.

House passage of a cap-and-trade energy bill last year and health insurance legislation enacted this year are stark evidence of sausage-making in Washington, D.C.—and something scarcely recognizable in “we the people” textbooks.

Thus “market failure” does not automatically require a government correction. This suggests a different approach. Knowing that political solutions are likely to be as bad as or worse than the problems, alleged market failures should be scrutinized to see if they are really serious problems. And if so, can the real problems be addressed by novel voluntary approaches and reforms rather than by government dictates?

Intellectual and political debates over energy have revolved around four “sustainability” issues: depletion, pollution, security, and climate change. Whole books address these issues, most from the market-failure viewpoint, concluding that mankind is on a perilous path and government-engineered energy transformation is necessary.

But students of energy history and energy policy must ask: Has a political makeover of any industry ever worked well for consumers and taxpayers? Or has it had the opposite effect? Creative destruction—a market makeover from shifting consumer demand—is one thing; having government pick winners with carrots and sticks is quite another.

Free-Market Sustainability

The arguments for allowing free markets, rather than government planning, to address the four sustainability issues can be summarized as follows:

1. Estimated quantities of recoverable oil, gas, and coal have been increasing over time, according to the statistical record. Human ingenuity in market settings has and will continue to overcome nature’s limits, leaving in its wake errant forecasts of resource exhaustion. The resource challenge is political: restricting access and perverting incentives prevents the ultimate resource—human innovation and entrepreneurship—from expanding energy supplies and multiplying energy’s productive utilization.
2. Statistics of air and water quality in the United States show dramatic environmental improvement and, in fact, indicate a positive correlation between energy usage and environmental improvement. While improvements have been achieved by politicized, command-and-control environmental regulation, the results could have been achieved at lower cost through market methods.
3. Energy security in the electricity market is assured by abundant domestic coal and the fact that almost all U.S. gas imports come from Canada. Most of the oil needed for transportation comes from domestic supplies supplemented by imports from a variety of countries led by Canada and Mexico. Oil imports from unstable or unfriendly nations, such as Venezuela and those in the Middle East, can be more effectively addressed by privatizing U.S. oil and gas resources than by government penalties against oil imports that cannot distinguish between “good” and “bad” barrels. Even if the United States were to use the powers of government to pare domestic oil consumption, the resulting drop in world oil prices would encourage non-U.S. demand and subsidize foreign industry. The world oil market will continue to exist and thrive even with reduced U.S. participation, and this will become more true over time.
4. The global warming scare is plagued by open scientific questions, economic tradeoffs, and the reality that carbon-based energy is necessary for economic growth. Carbon rationing (via the Kyoto Protocol) is a failed policy for the developed world and a nonstarter for the developing world. Not only have targeted reductions proved to be elusive, the economic costs of carbon rationing are not unlike those from (postulated) deleterious climate change.

The recent oil spill in the Gulf of Mexico raises an additional sustainability issue: unexpected setbacks that cause massive property damage and even fatalities. Short-run problems, however, can result in longer-term gains so long as the firm faces full liability and pays restitution to the victims. Accountability in private property settings encourages companies to square profits, people, and the environment—and avoid the financial losses that come from performance failure. Currently companies have their liability for damages capped by law at $75 million, though politics could potentially nullify the cap in any given case, as it apparently will in the BP Deepwater Horizon incident.

Rather than expand government, public policy should end preferential subsidies for politically favored energies and privatize such assets as public-land resources and the Strategic Petroleum Reserve. Multibillion-dollar energy programs at the U.S. Department of Energy should be eliminated. Such policy reform can simultaneously increase energy supply, improve energy security, reduce energy costs, and increase the size of the private sector relative to the public sector.

To Al Gore the “planetary emergency” is five billion to six billion people using oil, gas, or coal for most of their energy needs. But the real energy problem is that nearly one and a half billion people do not use modern forms of energy. Rampant statism in place of private property, voluntary exchange, and the rule of law is behind this problem.

Energy-impoverished people use dried dung and primitive biomass to stay warm and cook their meals, destroying their health and shortening their lives. Without electricity or machines, they do not have clean water, reliable lighting, or other means for comfortable, sanitary living. This here-and-now problem demands energy freedom and an end to debilitating energy statism.

The free-market vision stresses that these impoverished people should not be subject to energy rationing by government. Solar panels and industrial wind turbines can only generate a fraction of the energy produced by diesel generators or a conventional power plant—and are much less reliable. Energy brawn is needed, not inferior but politically correct energies that appeal to energy planners.

Property Rights vs. the Resource Curse

More fundamentally, these victims of statism need private property rights to in-ground minerals and ownership title to energy infrastructure. In this way, they can overcome the so-called resource curse whereby siphoned energy wealth underwrites government control and bad economic policy.

Countries worldwide should reject energy planning from a politically endowed elite. Government planners suffer from a “fatal conceit” that their knowledge and goals must override those of the masses. But on-the-spot energy consumers and energy producers, guided by prices and profit/loss, have much more collective wisdom than faceless bureaucrats commanding from on high. Top-down planning misdirects and destroys despite the best efforts of even well-educated, well-meaning bureaucrats.

Freedom—the use of reason and persuasion in place of coercion—is a worthy goal. In the U.S. energy sector, market reliance, though compromised by both pro-business and anti-business government intervention, has produced economic coordination, fostered economic growth, and democratized wealth. Government intervention, on the other hand, such as occurred in the 1970s with U.S. oil and gas price controls, has produced shortages, civil strife, and bureaucratic waste.

Markets are not perfect, inspiring some to devise and champion government intervention. But political solutions must contend with analytic failure, implementation problems, and public-sector (taxpayer) costs. Imperfect markets, in other words, may well be better than “perfect” regulation in the real world. The burden of proof, therefore, should be on government intervention, rather than on voluntary transactions premised on private property and governed by the rule of law.

But that doesn’t mean federal loan guarantees are in order.

Government should not be trying to pick winners and losers in the energy industry. If one company has its loans backed by the government, other companies without guarantees will have trouble borrowing capital. Bureaucrats don’t know and can’t know whether (or in what combination) nuclear energy, biodiesel, ethanol, solar energy, hydroelectricity, fuel cells, or any other alternatives are “best” for meeting our energy needs. This information can only emerge through market competition.

This is not just about energy. We don’t know—once and for all—the best way to build a computer chip. We don’t know the ingredients for the next tasty trend in food. We’re ignorant about a lot of things we would like to know. Markets—and competition—produce the information that allows us to make decisions. But governments distort it by intervening in the capital markets, by doing things like guaranteeing loans to particular firms.

In other words, we do not find the best way to build a computer chip by having the government offer loan guarantees to firms that use particular production processes. We let firms compete for customers, and in a free market without government interference, firms earn profits when they use resources wisely and produce things people want at prices they are willing to pay.

Solving these problems—what to produce and how—requires information embodied in prices. Few of us buy golden faucets, because they’re too expensive. Prices help producers decide whether to use gold or steel, or try to come up with something better. F. A. Hayek called competition a “discovery procedure.” As they compete with one another for profits, firms discover the best way to produce things. The firms that can maximize the difference between the price of what they produce and the cost of producing it will survive and thrive; those that cannot must change or perish.

Energy prices might not reflect the full costs of production and consumption. There are additional costs—the harm caused by air pollution or climate change (if that’s what’s going on)—that producers do not pay but are imposed on the public generally. Therefore they produce too much energy from dirty sources like coal and too little energy from clean sources like nuclear power. It is intuitively appealing, therefore, to have the government simply pick a cleaner energy source and subsidize it. But this is a mistake that leaves too many questions unanswered. It is a mistake for the same reason that it would be a mistake to order all chip manufacturers to use a 32-nanometer process, or subsidize cake makers that use margarine: The government is in no position to know if these are the best processes to produce the desired results. A 32-nanometer process would be expensive overkill for a pocket calculator, and many people prefer cakes made with butter. The market reaches these conclusions by punishing firms that ignore them.

Similarly, we do not know how much more nuclear power to use, how many more plants to build, and at what point we should start using other energy sources instead.

Firms competing in truly free markets will find the best ways to get desired results. Competition forces the answers on them.

What About Externalities?

But what about those costs that aren’t reflected in prices, the ones from so-called externalities like pollution?

In principle there are better alternatives to government interventions that choose winners and losers. While far from ideal, pollution could be taxed or tradable permits to emit certain pollutants could be established. Power companies with dirtier plants would suddenly find themselves at a disadvantage versus other companies with cleaner plants and would have an incentive to shift toward cleaner energy. Pollution-reduction mechanisms we haven’t even imagined could emerge as firms search for ways to reduce their pollution costs. Maybe nuclear power would make huge gains in the resulting competition; maybe it would not. We cannot know, but we can say that the resulting victors in that competition will be the energy providers that found ways to reduce pollution at the lowest cost.

These are superior, more market-oriented alternatives, but their effective implementation rests on similarly implausible assumptions about the policymakers’ knowledge and incentives. They assume we know (or can know) all the relevant external costs of pollution. They further assume we know (or can know) the socially optimal level of emissions that would prevail in the absence of externalities. They also assume that people acting through the political process are immune to the perverse incentives the programs create. At various times and places environmental initiatives have been co-opted by special interests. Thus we should keep in mind that even more market-oriented regulations will be difficult to get right. There’s no real substitute for the free market.

We can take other actions in addition to those designed to internalize the externalities. For example, government-granted advantages for other forms of energy production should be repealed—the special tax treatment for oil exploration, wind, and ethanol should be eliminated. Instead of targeted favors, taxes should be cut across the board. We should remove regulatory barriers that make it hard to start new power plants but easy to keep innovative competitors out. And, importantly, special limited tort liability must not be permitted for nuclear power or anyone else; thus the Price-Anderson Act, which was passed in 1957 to encourage civilian nuclear power, should be repealed.

The government should stop trying to pick winners and let the competitive process sort things out.

Moore argues that the nuclear plants will create jobs, but this is a canard. When the government assumes a company’s risks, it does not create net new economic activity. It merely reallocates it from one line of production to another. Having government-guaranteed loans for a nuclear power company means other businesses go without loans. Without undistorted prices, profits, and losses, there is no way to know whether value has been created or destroyed.

An online dictionary defines “addiction” as “the state of being enslaved to a habit or practice or to something that is psychologically or physically habit-forming, as narcotics, to such an extent that its cessation causes severe trauma.”

Many commentators see oil usage in our economy in the same manner. Jim Wallis, who runs the leftist religious site Sojourners, writes:

[O]ur oil addiction is making things not work. The list of consequences is long — from critical climate changes, to the loss of jobs, to supplying money for terrorists, to sacrificing the lives of our young people in wars over oil, to watching an oil spill that nobody seems to know how to stop pour hundreds of thousands of gallons each day into the Gulf of Mexico.

At a deep level, what’s not working in the U.S. is our lifestyle — particularly the consumerist energy habits we showcase to the rest of the world. Moving toward a “clean energy economy” will require more than just a re-wiring of the energy grid; it will also take a re-wiring of ourselves — a conversion, really, of our habits of the heart. We must adjust our expectations, demands, and values.

Are we addicted to oil, or is oil a vital resource that helps advance civilization? I believe it is the latter. Furthermore, is “addiction” an appropriate way to describe the use of petroleum-based products?

It is one thing to engage in such rhetoric, but another to examine Wallis’s message: It is immoral to use petroleum-based fuels and other products. Furthermore, his “solution” of expanded State power to force us to use alternative energy forms provides a sort of “salvation” for all of us.

Much of the harm Wallis claims results from using oil (his publication Sojourners also devotes part of the current issue to the “evils” of coal) is speculative. However, I don’t believe it is a given that oil use is “changing the climate” (and always for the worse, according to Wallis), nor does he explain just how oil use leads to a “loss of jobs.” He just makes the statement, and we are supposed to accept it at face value.

However, we do know that rising standards of living also lead to longer life spans and a higher quality of life. Wallis is forever going on about poverty in the Third World (for which he blames Americans, of course), yet we forget that before entrepreneurs harnessed the power of oil and coal, Americans and Europeans were very poor.

Entrepreneurs found ways to use these resources to create products that consumers willingly purchased. From the advent of kerosene, which allowed ordinary people to have artificial light in their homes, to the development of the internal combustion engine, which helped provide the means of large-scale transportation, oil- and coal-based fuels have changed the lives of individuals.

Unfortunately, the same people who decry poverty elsewhere want the government to make us poorer. Yes, there are some side-effects to extracting and using these fuels, but consumers have made it clear they want to continue using them and are willing to pay for their continued production, for they do not want to be forced into lifestyles they find undesirable.

Markets themselves are neither moral nor immoral. Rather, they reflect our own choices and priorities. One can claim, for example, that we are addicted to food and make the same set of arguments that critics make against oil. Moreover, alternative forms of energy also have their own problems. For example, the “food for fuels” movement drives up the cost of food, which means poor people go hungry.

The critics cannot have it both ways. If they wish to reduce poverty, then oil and coal are an important part of that equation. If they want everyone to be poorer, then they have to admit that poverty has consequences.

Given the euphoria over ethanol, it is hard to imagine that there could be a downside. Unfortunately, ethanol has numerous and significant problems.

For starters, ethanol is an inferior energy source. Ethanol has 35 percent less energy by volume than regular unleaded gasoline. One gallon of E-10 gasoline (which contains 10 percent ethanol) is 3.6 percent less efficient than pure gasoline (ethanol-free, E-0). In other words, as the percentage of ethanol in a gallon of gas goes up, the realized miles per gallon go down. As a result, E-15 is 5 percent less efficient than E-0 gasoline and E-20 is 7.7 percent less efficient. E-85 gas is between 25 and 30 percent less efficient than pure E-0 gasoline.

On average, E-10 gas is 10 cents per gallon cheaper at the pump than regular E-0 gas. E-85 is even cheaper—70 cents per gallon less. This cost-per-gallon comparison is, unfortunately, very deceptive. A more telling measure would be to compare the cost per mile driven for each fuel type. Craig Clough notes that a “flex-fuel” 2007 Chevy Tahoe (capable of handling any ethanol-blend fuel) averages 14 MPG on regular E-0 gas and 10 MPG on E-85 gas. What would it cost to go on a thousand-mile trip using these two different types of gas? The cost of the trip using regular E-0 gasoline (at $3.70 per gallon) would be $264.29. Using the cheaper E-85 gas (at $3 per gallon), the same thousand-mile trip would cost $300—that’s $35.71, or 13.5 percent, more. Translation: Because of the lower energy content in ethanol, consumers actually pay more because they will need more gallons to go the same distance. So if a gallon of ethanol burns cleaner than a gallon of regular E-0 gasoline, but you need to burn more gallons of the ethanol-blended gasoline to go the same distance, how does this result in less pollution? Or does it? Ethanol has another pollution problem. It is more volatile than gasoline (meaning it evaporates far more rapidly), making it a major contributor to smog.

Ethanol also has some nasty properties that politicians and the Big Corn lobby would rather not talk about. For starters, ethanol is corrosive to some metals, rubber, fiberglass, and plastic. This leads to higher maintenance costs and the need to replace parts sooner than would otherwise be the case. Older car engines, boat engines, motorcycles, snowmobiles, and small gas-powered tools (chain saws, snow blowers, lawn mowers, and weed whackers) are especially vulnerable to ethanol corrosion. Fine particles of rubber, plastic, or metal flow through the fuel system. These particles eventually clog the engine’s fuel lines, fuel filter, carburetor, and fuel injector. Ethanol can also cause an engine to burn out because it runs hotter.

Later-model cars and trucks were supposed to have been re-engineered to mitigate the corrosive properties of the E-10 ethanol-laced fuel. Ed Wallace, writing in Business Week, finds that this is not necessarily true. “Not only is ethanol proving to be a dud as a fuel substitute, but there is increasing evidence that it is destroying engines in large numbers.” He goes on: “It now appears that in just a few years since the government forced ethanol use on the country, engine and fuel system failures caused by ethanol are causing major damage to more and more new and used vehicles.” Wallace concludes: “Sadly, when a truly bad idea is exposed today, Washington’s answer is to double-down on the bet, mandate more of the same, and make the problem worse. Only this time around motorists will be able to gauge the real cost of ethanol when it comes time to fix their personal cars.”

Ethanol has two other properties that further complicate the process. Ethanol and gasoline do not bond chemically. They simply coexist in the fuel system in an “oil and vinegar” relationship. While ethanol may hate gasoline, it loves water. The term to describe this is “hygroscopic,” or “water soluble.” Ethanol attracts and absorbs water. As long as the amount of water in the fuel system is small, this can be a good thing: In the winter it limits the possibility of a fuel line freeze-up. However, as the water content gets higher, the new ethanol/water compound sinks to the bottom of the fuel tank. This process is called “phase separation.”

If we continually drive our cars (or cut our grass every week or so) these ethanol-unique characteristics will not normally be an issue. But after about 90 days (the shelf life of E-10 gasoline), problems begin to manifest. The result: “bad gas.” The engine won’t start or there will be “missing” or “sputtering” problems. This is the reason you don’t want to leave gas containing ethanol in the lawn mower over the winter.

Because of the separation and corrosion problems, ethanol cannot be transported through pipelines. It requires its own separate and costly distribution channel dominated by rail and trucks to keep it apart from the gasoline as long as possible before retail.

Unconscionable Burning of Food

Ethanol’s biggest problem is largely ignored. Burning food as an energy source is unconscionable in these circumstances. Using corn to feed humans and livestock, and to fuel cars, is having obvious negative implications. In 2007 we burned 15 percent of our corn crop as ethanol. According to the Investor’s Business Daily (IBD), “Ethanol and its subsidies amount to a hidden and nefarious tax on food. The higher use of ethanol accounted for up to 15 percent of the rise in food prices between April 2007 and April 2008.” Congressional mandates to increase the use of ethanol even more will only exacerbate this problem. To meet the massive artificial demand for corn created by this government energy program, we can either: 1) switch crops (soy to corn) and keep the cropland acreage the same (which will cause all food prices to skyrocket) or 2) increase the amount of acreage available through large-scale pristine habitat destruction. Neither is satisfactory.

According to IBD, “[I]t takes about 1,700 gallons of water to produce one gallon of ethanol. Each acre of corn requires about 130 pounds of nitrogen and 55 pounds of phosphorous. Increased acreage means increased agricultural runoff, which is creating aquatic ‘dead zones’ in our rivers, bays, and coastal areas.”

Ironically, a case could be made that ethanol is not really “renewable green power” at all but rather a “fossil fuel” in disguise. You don’t just squeeze corn to make ethanol. The distilling process to convert corn starch to ethyl alcohol is energy intensive. According to Matthew Wald in the January 2007 Scientific American, to create 100 units of ethanol energy in the distillation process, you need 45 units of fossil-fuel (coal or natural gas) energy. Michael Wang, an environmental scientist at the Argonne Laboratory, calculated that the amount of fossil fuels is even greater if you look at the whole process (planting, fertilizing, harvesting, and distillation). According to Wang, to produce 100 units of ethanol energy, you need 74 units of fossil fuels.

Hide the True Cost

Given all these expenses—energy to make energy and a separate logistic system—how does the ethanol industry make any money? It doesn’t.

Were it not for the massive government tax preferences (a 51-cent-per-gallon tax break) and government protection (a 54-cent tariff on imported ethanol), this industry could not survive. That’s in part because countries like Brazil—the world’s largest ethanol producer—can produce it more efficiently using sugar cane. On a yield-per-acre basis, the amount of ethanol produced from Brazilian sugar cane is nearly double that derived from U.S. corn.

Even with all this help, the industry asks for still more. Last year the ethanol producers’ association, Growth Energy, petitioned the EPA to allow ethanol blends as high as 15 percent. For the majority of the cars and trucks in the United States, the highest ethanol level allowed by the EPA is the 10 percent blend. Anything above that could void existing car warranties. The exceptions are flex-fuel/dual-fuel vehicles, which can use E-85 gas because they have special stainless-steel fuel tanks and other upgraded fuel system parts. Besides the overused environmental and energy independence angle, Growth Energy claims that this change will create thousands of new jobs.

Revealingly, there is always one reason missing from the case for ethanol. We always hear that it is good for the environment, or it’s good for family farmers, or it creates jobs. But no one ever says that ethanol is good for the consumer. That’s because it isn’t. At the pump the consumer pays more to get fewer miles per gallon than with gasoline. Behind the scenes the consumers’ tax dollars are used to shore up a failing industry that drives up the cost of food and of maintenance of all engines that ethanol touches. It is time to admit that promoting ethanol as a fuel source has been a catastrophic mistake. We need to cut our losses and let the free market, not the government, determine winners and losers in the energy sector.

Bradley, who worked for 16 years at Enron, becoming a confidant of CEO and Chairman Ken Lay, devotes many pages to the company, perhaps the most spectacular business failure in American history. Many readers will be surprised to learn that Enron was extraordinarily dependent on political favors, a perfect example of crony capitalism. Bradley digs deep to expose the real causes of Enron’s demise, but he goes much further, showing that Enron was but one instance of the ruinous relationship between government and business.

Bradley makes his case in three parts: Heroic Capitalism, Political Opportunism, and Energy and Sustainability.

Each chapter in Part I is devoted to an individual whom Bradley considers a heroic, as opposed to a political, capitalist—that is, an advocate of free markets. Readers of The Freeman will be familiar with Adam Smith and Ayn Rand, but most likely will be unfamiliar with the Scottish moralist Samuel Smiles, whom Bradley calls “the father of the self-improvement movement.” Bradley’s profiles help delineate the positive moral ground of capitalism: self-reliance, respect for the rights and property of others, cooperation, abiding by one’s contracts, and so on.

In Part II Bradley drives home the point that political capitalism is the “intersection of business opportunity and political opportunism.” Here he vividly contrasts the positive features of free markets with the grubby, furtive nature of political capitalism, which hinges on “connections,” favoritism, and secret deals to make profits, injure competitors, and pin losses on taxpayers.

Bradley throws a wider net than we usually see in the pro-market literature. In chapter 4, for example, he discusses the influence of business writers such as Gary Hamel, Peter Drucker, and Jim Collins. He even includes a well-informed section on accounting principles, where he warns against the “invited manipulation” of fair-value accounting. And chapter 6, “U.S. Political Capitalism,” includes numerous examples of industry representatives scheming with politicians to establish government rules and regulations (and entire agencies) to limit competition for the benefit of the current members of the industry at the expense of new competitors, consumers, and taxpayers. The alarming truth is that political capitalism is slowly strangling heroic capitalism.

In Part III Bradley enlightens the reader on many issues relating to the production of energy. “The Dark Decade,” for example, focuses on the foolish governmental meddling in energy from Nixon to Carter. It’s an especially timely topic, given the Obama administration’s infatuation with “green energy” schemes that require government financial support.

At the end of the book Bradley turns to Enron. He describes its founder, Ken Lay, as a “Ph.D. economist, interested in the big picture and the ways of political power. His résumé was top-heavy with Washington experience, acquired at three federal jobs, the last two regulating the energy industry.” As Enron’s CEO he was the master of the government-favor game.

Bradley gives examples of how Enron played both sides of the political aisle and how it “politicized” its tax and accounting systems to create the illusion of profitability. Bradley states that Enron “was a logical, albeit grotesque, outcome of the mixed economy writ large.” Most Americans think that Enron’s collapse shows some inherent weakness in capitalism, but what Bradley shows is that it rose only because Lay and others in the firm knew how to game the political system. Equally important, Enron’s collapse came about because investors in the world of real capitalism finally discovered that the company was a hollow shell and dumped its stock.

Bradley’s Capitalism at Work is actually the first book in a planned trilogy called Political Capitalism. The forthcoming volumes are titled Edison to Enron and Enron and Ken Lay: An American Tragedy. I’m looking forward to both of them.