With attention riveted on events in Europe, it’s easy to overlook the growing crisis of American helium. Luckily, Matt Yglesias of Slate and Brad Plumber of the Washington Post are on the case. Here’s Brad:
Back in the 1920s, when blimps and other airships seemed like a useful military technology, the United States set up a national helium program. In the 1960s, it opened the Federal Helium Reserve, an 11,000-acre site in the Hugoton-Panhandle Gas Field that spans Texas, Oklahoma and Kansas. The porous brown rock is one of the only geological formations on Earth that can hold huge quantities of helium. And the natural gas from the field itself was particularly rich in helium – a relative rarity in the world.
By 1996, however, the Helium Reserve looked like a waste. Blimps no longer seemed quite so vital to the nation’s defense and, more important, the reserve was $1.4 billion in debt after paying drillers to extract helium from natural gas. The Republican-led Congress, looking to save money, passed the Helium Privatization Act, ordering a sell-off by the end of 2014.
The problem is that instead of letting the market determine the price at which helium was sold from the reserve, the HPA required helium to be sold according to a flawed formula such that the gas can now be bought from the federal helium reserve for about half the open market price. This has undercut private incentives to find new sources of helium or to conserve existing sources.
While it’s hard not to take talk of an impending helium shortage lightly (pun intended), there are some important lessons that can be drawn here. The first involves government. The Federal Helium Reserve was original established to ensure an adequate supply of helium for use in dirigibles. Yet it still survives today. To quote Milton Friedman, “nothing is so permanent as a temporary government program.” And there is no reason to think that current government fascination with wind and solar energy is an any more accurate predictor of future energy use than the former government enthusiasm for airships.
Just as importantly, though, is a lesson about privatization. As the pricing mistakes in the Helium Privatization Act show, poorly designed privatization can be just as damaging as government intervention. And because it is packaged as being pro-market, botched privatization can be more damaging to the cause of liberty than can ordinary government screw ups. The classic case here is the California electrical deregulation, which deregulated wholesale electricity markets but keep price controls for retail markets (with predictable consequences). Advocates of privatization need to make sure that their proposals are properly crafted, rather than being half-measures that may well backfire and discredit the whole idea.