The “Fatal Conceit” of Federal Hydraulic Fracturing Regs

There is a push to implement federal regulations on hydraulic fracturing or “fracking.” There are plenty of problems with the specific regulations that proponents have in mind. However, we can also step back and realize that the very premise of federal regulations on hydraulic fracturing ignore the lessons in humility that Nobel laureate Friedrich Hayek tried to teach.

Whatever one thinks of the pros and cons of hydraulic fracturing, clearly the alleged dangers are local issues. In other words, even if we accept for the sake of argument that hydraulic fracturing cannot be economically justified because its total costs (all things considered) outweigh its total benefits, notice that these costs would be borne by the people living near the hydraulic fracturing. People in Hawaii have absolutely nothing on the line when it comes to the issue of hydraulic fracturing in (say) Pennsylvania. In fact, the people in Hawaii only stand to benefit from hydraulic fracturing, because the only way it can impact them is by providing lower energy prices.

Thus we see that hydraulic fracturing, by its very nature, confers benefits on the whole world (in the form of greater supplies of oil and natural gas) while any potential harms are concentrated primarily in the communities where the hydraulic fracturing actually occurs. Thus any federal regulations that hindered hydraulic fracturing would be nonsensical, and would amount to pure paternalism. It would effectively mean the representatives of the American people in general, were telling the people in Pennsylvania (say) that they are too stupid to make decisions about hydraulic fracturing that could harm only them, and therefore the rest of us will have to take that responsibility away from them.

Notice that the situation with hydraulic fracturing is very different from the claims made about greenhouse gas emissions. Here, if the warnings are accurate, we have a situation where businesses acting in their narrow self-interest would potentially impose great harm on other people, and so there is at least a theoretical case to be made for federal intervention. (In practice, there are problems with the proposals for a carbon tax and other related policies, but the point is that it’s at least plausible that someone might recommend federal measures to counteract a problem that affects everybody.

Ironically, because the benefits of hydraulic fracturing accrue to the whole world, while its potential problems would only affect the communities where the hydraulic fracturing actually takes place, the only federal regulations that would make sense on economic grounds would be to prohibit state or local governments from interfering with hydraulic fracturing. Yet this is hardly what the proponents of such regulations have in mind.

Economist Friedrich Hayek in his book The Fatal Conceit warned of the hubris of policymakers to believe they could levy one-size-fits-all regulations applying to large swathes of people, rather than allowing smaller communities to make on-the-ground decisions. Ignoring the lessons of history and economics, Hayek worried that these budding central planners would overturn customs and business practices that had evolved in response to local conditions.

Those who want to lay down blanket federal regulations on hydraulic fracturing should heed Hayek’s observation that “[t]he curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”