The Best Deal Going

by Don Boudreaux on April 26, 2006

in Standard of Living

How to "solve" the "energy crisis"?

We could appoint experts, give them our collective blessing and lots of our tax dollars, and set them to work on finding a solution.  Or we could keep the process decentralized, letting the current high profits earned by many oil and gas producers attract entrepreneurs into the energy industry, each creatively exploring (both figuratively and literally) for new and less-expensive sources of fuel.

The latter process is certainly at work.  This story ran yesterday on NPR’s Morning Edition.  It reports on Andrew Perlman, a young entrepreneur in Illinois who is working feverishly to find ways to convert coal into clean natural gas.

Will Perlman succeed?  He certainly thinks so.  But no one really knows.  He might fail utterly.  Some other entrepreneur or company, pursuing hunches or visions or brand-spanking-new scientific insights might devise some entirely different means of making clean and abundant fuels.

My favorite line in this story is the one in which Perlman says that just a few years ago there were only three venture-capital firms focused on energy companies; today there are 76 such VC firms.  So much money seeking ways to find new sources of energy!

Those entrepreneurs and investors who succeed will become fabulously rich; those who fail will be poorer than they would have been had they not entered the quest.

And those of us who do nothing but freely choose which fuels to purchase will benefit enormously.

I love this market process.  People such as me — people who lack even a whiff of creativity, people who are terribly risk-averse, people who lazily prefer to read novels and work at secure jobs and spend our evenings at home dining and drinking with family and friends — just sit back and wait for profit-hungry hard-working anxiety-ridden creative entrepreneurs, each in competition with others, to find new ways to improve our lives.  And we don’t even have to accept what they devise.  If we like it, we buy it.  If not, we don’t buy it.

I almost feel like a free-rider, a lazy bum, a poacher.  I do nothing entrepreneurial, and yet my daily life is filled with the marvelous fruits of entrepreneurial creativity and effort.  It’s an incredibly good deal.

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Bret April 26, 2006 at 6:08 pm

Yeah, yeah, yeah. Don't rub it in. Those of us who are entrepreneurial and work around the clock often wonder "what the heck was I thinking when I started this venture? I'd shoulda just sat back and let other profit-hungry hard-working anxiety-ridden folk do the entrepreneurial thang!"

You ARE a free-rider, lazy bum, and poacher.

But at least you run an interesting blog.

JohnJ April 26, 2006 at 8:52 pm

Don't forget how you support the economy every time you buy something! Support Americam entrepreneurism; buy something! Anything!

ross williams April 26, 2006 at 9:06 pm

@JohnJ – Just becuase it is not produced in America does not mean its wasn't invented by one, as American produced could could also be invested by non-americans

Others may feel a sense of pride in buying American, but i just don't have that nationalist feeling. I almost prefer having my clothing made in an obscure location. It amazes me the connection I have to the Mariana Islands through my shirt, or my jeans from Mexico.

But all this lazy bum talk has got me thinking, an i need some help from a more seasoned economist: doesn't every trade have a positive externality, by the very fact that a person receiving a good values it more than he is giving up, yet i am not being paid that amount? Doesn't competition enlarge these externalities? If so, then because externalities reduce incentive, do not externalities bring about a 'perfect' or 'equilibrium' amount of externalities? Is this actually a good thing, as it signals to others that a certain market already has enough competition?
This seems to completely go against my micro teaching, but i know i'm onto something
…though i have a good feeling my logic is off also.

mike April 27, 2006 at 9:22 am

ross, i think your concept of externalities is a bit skewed. An externality is present any time an action you take confers a benefit or cost on someone else that is not captured by the price mechanism.

Also, there is never a signal that a market has enough or not enough competition. Even if markets are hypothetically perfectly competitive, if you can produce something more cheaply, you'll gain enormous market share for example.

Dom April 27, 2006 at 1:31 pm

You know what I like? When one and the same person tells us that Big Oil is killing us with high prices, and Walmart is killing us with low prices.

happyjuggler0 April 27, 2006 at 2:29 pm

What I like is when people are mad because they think we are emitting too much carbon (greenhouse gas), while at the same time they get mad because they think that carbon (oil) is priced too high. LMAO.

Mcwop April 27, 2006 at 2:47 pm

What I like is when self proclaimed environmentalist politicians kill the very solutions that they claim to support:

David Andrew Taylor April 27, 2006 at 8:31 pm

You never saw any of these politicians clamoring to solve the energy probelms when oil was trading at $11.00. But, capitalism seems to have worked to solve that problem and oil prices moderated. Same goes for prices at these levels. Entreprenuers are going to smell an opportunity. This could actually spell the end of our dependency on oil because of it.

Charlie Quidnunc April 27, 2006 at 9:27 pm

Go and listen to Nancy Pelosi rant for independence from foreign sources of energy. Them nasty foreign carbon molecules have to be done away with. Only American molecules allowed from 2016 on. It's on my podcast from this morning in the trackbacks above. Lot's of fun, including reading from Don's post and a clip from the NPR program he refers to.

WMCW April 28, 2006 at 10:21 am

I think you are not a free rider. It makes me think of a historian who admires great characters of the past. He must be a great historian too.
Free riders are looking at their sides, from lest to rigth. They do not look at the future neither the past.
Besides, as an entrepreneur I know many "colleagues" that are much worse for society than free riders, but this is other subject.

save_the_rustbelt April 28, 2006 at 11:31 am

So we can repeal the $14B welfare package for oil companies now?

Don is the first tenured professor I've heard who is honest about his absence from the real world, kudos for that.

Eric H April 28, 2006 at 1:19 pm

Re: Kennedy and the wind critics:

Andrew Perlman, forget the NIMBY crowd and beware of the BANANA crowd (Build Absolutely Nothing Anywhere Near Anything). Their likely counter-attack: "Where are you going to put this dangerous coal-conversion plant, which is only making it easier to create CO2?"

ipninja April 28, 2006 at 7:05 pm

I thought that professors were idea entreprenuers. Isn't that one of the motivations behind the tenure construct, to reduce conformity pressures and encourage more risky academic research?

jomama April 29, 2006 at 9:59 am

I'm also a poacher and agree with your assessment, Don.

But I would re-write this…

I have the great good fortune to live in a society that encourages truly creative people to share the fruits of their creativity with me.

…to this…

I have the great good fortune to live in a society that encourages truly creative people to profit from their creativity.

tom May 3, 2006 at 8:48 am

It IS an incredibly good deal, but don't feel so bad. Lazy people like you (and me) contribute by saving our money that is then invested in those entrepreneurs who improve our lives. An entrepreneurs idea is just an idea unless he or she has the funding and capital that can turn it in to reality. Consuming the finished product is only made possible if there is enough savings to fund those ideas.

mini September 30, 2007 at 4:58 pm

I haven't been up to anything. My mind is like an empty room, but such is life. Maybe tomorrow. Today was a loss, but eh.

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