Does a Federal Open Fuel Standard Violate Free Market Principles?

Tuesday, June 7, 2011

The purpose of the Open Fuel Standard is to counteract the detrimental impact of OPEC's non-competitive practices. It is analogous to monopoly busting.

In his seminal work The Wealth of Nations, economist Adam Smith description of monopolists bears a striking similarity to OPEC and its anti-free market practices: "The monopolists, by keeping the market constantly under-stocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate."

In the face of such practices, economists, including Arthur T. Hadley, have long argued the necessity of government action for the difficult task of controlling "the abuses of monopolies without destroying the industries." The Open Fuel Standard will not hurt the fuel industry. Rather, by lowering the barrier of entry into the energy market, it will stimulate research and development for numerous forms of fuel. Furthermore, the Open Fuel Standard will encourage American entrepreneurship and drive innovation to create wealth, jobs, and opportunity.

Over the years, the U.S. government has taken action to break monopolies and generate freer markets within industries. In 1982, President Ronald Reagan ordered the break-up of telecommunications monopolist AT&T. It was eventually bought by one of its spin-off firms, each of whom went on to succeed within the industry. The result for the consumer was a major increase in competition (some 800 new companies entered the $82 billion marketplace), lower prices for long-distance service, and a steep increase in innovation.

The Open Fuel Standard will simply establish that new cars in America be capable of running on flex fuels. American consumers will be free to choose whatever source of fuel they wish to use. Unlike today, where the oil monopoly limits our choices to one fuel source, the Open Fuel Standard will open up the market to multiple options. Far from violating the principles of a free market, the Open Fuel Standard will facilitate the development of one in America’s transportation industry.

Quoted from SetAmericaFree.org.

Read more:

Shouldn't We Keep Government Out of This and Let Market Forces Determine What Happens?

Why You Should Support the Open Fuel Standard Even if You Are Against Mandates in Principle

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