For the video file of this lecture click here.

In an earlier comment on the fracturing of the U.S. Climate Action Partnership (USCAP), an industry-environmentalist coalition pushing for cap-and-trade carbon emission controls, Environmental Defense Fund president Fred Krupp repeated a commonly held misconception about government regulation when he said:  “It’s very unusual for big corporations to raise their hands and say, ‘We want to be regulated for something that we’re not regulated for now.”  Exelon, PG&E and PNW apparently make his point.

But as a matter of fact, industry support of regulation is not rare at all; indeed, it is the norm.  And in the United States it is as American as apple pie.

A somewhat casual investigation of business history reveals that it was the U.S. Chamber of Commerce, with the special assistance of General Electric president Gerard Swope, that supported passage of President Roosevelt’s 1933 National Industrial Recovery Act.  The Act, with its Blue Eagle codes affecting 2.3 million employers, attempted to place all American industry in a price-fixing cartel.  But while the Chamber and many large firms supported FDR’s cartel, many firms, including Ford Motor Company, did not.

Going back further, we are reminded by Howard Marvel, writing in the 1977 Journal of Law of Economics, that it was the owners of the newly built water-powered textile plants that supported the English Factory Acts (1802 and on), not the owners of older mills that used far more labor per unit of output.  The legislation limited child labor and hours and conditions of work, which raised the costs of labor-intensive producers.  The industrialists who joined with other crusaders to support the legislation are remembered as philanthropists.

In 1907 it was the electric utility industry led by Samuel Insull that lobbied for state regulation in the hopes of escaping a less predictable and intractable municipal control.  And it was in 1910 that American Telephone and Telegraph Company chairman Theodore Vail successfully called for federal regulation of long-distance telephone just when the Bell patents were expiring and new competition was, as he put it, “skimming the cream” from the market.  Even Magna Carta (line 35) specifies a standard width for all cloth sold in the kingdom — all in the name of consumer protection, scholars tell us.  The standard happened to be the width of looms operated by the London weavers.  The less fortunate Bristol weavers had to break and modify their looms to compete.

A focus on environmental regulation reveals a host of Bootleggers and Baptists who have coalesced, sometimes quietly, to support output restrictions.  In hearings before passage of the 1972 federal Water Pollution Control Act, industrialists located along the Ohio River argued for the law. They faced pollution controls imposed by the Ohio River Sanitation Commission and wanted a national level playing field.  Only federal regulation would solve their problem, and they supported it.  It was the coal interests in Ohio and West Virginia, along with environmentalists, that lobbied for the 1990 Clean Air Act amendments requiring scrubbers on newly built and modified coal-fired electric utilities.  As Bruce Ackerman and William Hassler famously noted in their 1981 book, Clean Coal/Dirty Air, the scrubber requirements eliminated the clean-burn advantage of western coal and kept the higher sulfur eastern coal producers happily operating.

Yes, industry support of legislation that imposes restrictions on output is commonplace, but one begins to understand this more fully after careful scrutiny of the lobbying process.  It is seldom the case that every firm in an industry supports restrictions.  When John Deere petitioned EPA (Environmental Protection Agency) to increase the stringency of the air-emission standard on small gasoline engines, it was because Deere had a patent on cleaner engines. When the Chicago meat packers lobbied Congress to pass the 1906 Meat Inspection Act, it was because of markets lost to consumer fear over Upton Sinclair’s The Jungle and Argentine beef producers who were invading the U.S. market with lower priced food.

And when nuclear-power producers Exelon, PC&E, PNM, and others lobby for a federal statute that would impose high costs on coal-fired competitors, there should be no question why.

My fellow Americans, we are going to provide sustainable energy and lots of jobs for you by junking the automobile and all other fossil-fueled engines and going back to animal power.  We also are going to make all coal-fired electric power plants illegal, so if you want electricity, you are going to have to depend on windmills or just live in the dark.

Needless to say, the speech would be greeted by something other than thunderous applause (except from Al Gore and the Sierra Club headquarters), and the Obama’s presidential career would be quite short.  However, the policies coming from Washington these days, while not quite as draconian as what I described, nonetheless are bad and are going to make us poorer.

For years we have been bombarded with the “clean energy” line, the idea being that electricity that comes from burning of fossil fuels is “dirty,” while electricity that comes from windmills, solar, or “geothermal” sources or anything else that meets with Gore’s approval is “clean.”

(Gore has a website that claims that in the next decade, the United States can switch entirely to what he calls “clean energy.”  This is sheer fantasy made worse only because the President seems to believe it, or at least wants that to be our energy future.)

Unfortunately, the government does seem to be pushing hard to force Americans to accept energy sources that are going to make us much poorer, retard (if not eliminate) the economic recovery, and make our lives much more difficult.  Let me count the ways.

First and most important, it is true that switching to windmills will “create” jobs in that particular industry.  No one is denying that.  However, there is this little problem that occurs whenever government destroys wealth: It also destroys meaningful employment opportunities.

What the government is going to do is to count every job in an “alternative energy” field as proof that its energy policies are “creating jobs.”  What the government won’t do, however, is report the employment opportunities that are lost because the authorities have artificially forced up the costs of efficient energy sources.  In other words, in net terms, this whole thing is a loser.

Second, the issue is not jobs per se but rather economic growth.  The government could give us all “jobs” tomorrow by telling us we had to scratch out a living by hand.  For that matter, one can argue that Pol Pot and the Khmer Rouge created “full employment” in Cambodia during their murderous regime three decades ago, but the “employment” was not particularly desirable.

The real problem is that the energy proposals this administration is demanding, from “clean” (and extremely inefficient and costly) energy to ramping up the corn-based ethanol fraud, will make fuel and electricity much more expensive, which is going to result in much slower – or even negative – economic growth.

To put it another way, this country cannot have both enactment of these energy proposals and a robust economic recovery.  They are mutually exclusive, and there is no way around this point, no matter how much rhetoric President Obama and his supporters may use.

The great Henry Hazlitt once wrote that each generation has to learn the economic lessons all over again because it is easily seduced by what he called (after Frederic Bastiat) the “broken window fallacy” — the failure to understand that in a world of scarcity, resources commandeered by government are diverted from the uses that consumers and entrepreneurs would have chosen. Indeed, if any fallacy can be applied to the notion that forcing this country into a “horse-and-buggy” energy future will be an economic plus, it is the fallacy of the broken window.