Central Planning Never Works—Even in the Energy Industry
The Trump administration's invocation of the Defense Production Act (DPA) to boost fossil fuel production and grid-related infrastructure is a double-edged sword. While it may provide a temporary boost, it could make companies more skittish about entering the market in the long term. This approach relies on the same premises that were proven flawed for the Soviet states, with politicians operating with limited information and diverting resources from other potential investments. The DPA's use during the pandemic to increase ventilator production was a dud, as government workers who face no consequences for making bad investment decisions are more likely to make bad investment decisions than people with skin in the game. The repeated reliance on the DPA shifts business incentives away from producing utilizable goods and services, and instead toward becoming part of an elite political class that can secure Washington's blessings. This dynamic is why the DPA has been called the "Pandora's Box of bad policy."
The energy sector is a prime example of where central planning fails. When Biden was using the DPA for solar power, it was already the fastest-growing source of energy in the nation. Similarly, Trump's recent application of the law comes at a time when energy prices are extraordinarily high, making it unlikely that industries like petroleum or natural gas are having a hard time finding cash. The DPA's invocation relies on the same premises that were proven flawed for the Soviet states, with politicians operating with limited information and diverting resources from other potential investments. In a nutshell, central planning exercises like those the DPA facilitates have a poor track record both within and outside the United States. And there is also evidence that reliance on government interventions in industries is empowering rent-seekers, as demonstrated by rising lobbying expenditures.
Ultimately, if the U.S. wants to lower energy costs, it needs to let investors either find the best ways to increase production or let consumers find ways to use less energy. Doing either requires the political discipline to let price signals and the market do their thing. Alternatively, concentrating production decisions within a political class and empowering central planning never ends well.
