Energy conservation in the U.S.: A mixture of understanding and misunderstanding

Certain basic concepts are clarified and redefined. In particular a clear line is drawn between energy efficiency on the one hand and its thrifty use on the other, which is often confusingly referred to as energy conservation. It is axiomatic that the rapid increase of energy prices encourages installation of energy-efficient equipment. This is hampered, however, by the increase of the cost of capital. The combined result of these two simultaneous increases, in conjunction with the steady level of labor costs, results in an increase of labor content in the preferred capital-energy-labor mix of industrial production processes and therefore in a decrease of labor efficiency. The severity of the crisis in the American automobile industry is attributed primarily to its lack of perceptiveness and its shortage of vision, rather than to the energy situation. Government spending on energy policy was rapidly increasing, but its very existence is now endangered, as a result of President Reagan's firm belief that the interplay of marketplace forces will exert a powerful regulatory influence and will, by itself, take care of the energy problem. This view is challenged in the paper and arguments are advanced for the necessity of having a sustained government energy policy.