Quote of the Day: Prices and the Myth of Energy Budgets

There is no "energy budget" any more than there is a lumber budget, coffee budget, iron budget or oatmeal budget. There are supplies of these products, which can increase or decrease depending upon prices, but to call these supplies "budgets," suggests A. a fixed amount and B. something that needs to be managed at some national level.

Anyone who understands free markets, would not for a minute be concerned with the amount of energy that is used by various consumer products. Prices will simply dictate limitations of use of products.. For example, gold is a perfectly functional metal that could be used in the construction of bridges. It is not because gold is valued more as jewelry and as a safe non-inflationary alternate medium of exchange. This is reflected in its price. There is no need for any thinking about a "gold budget." The price of gold provides the knowledge to bridge builders that gold should not be used in the building of bridges.

In the same way, it is economic ignorance to be thinking about an "energy budget." Prices will signal to us how energy sensitive our products need to be. That plenty of people use  full-sized HD television sets and X-Box Consoles + a TV, suggests that the energy used for these products is not prohibitive for most…concern about a "world energy budget" belongs up there with the concern for the "world jock strap" budget. It's a complete central planning notion that results from the failure to understand how prices signal uses and production.

This is from Robert Wenzel at the Economic Policy Journal. 

The point is to understand the essence of market price signals than to fall for political demagoguery.