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II

FIRinG LineGuest: James Schlesinger, Secretary of Energy

Subject: "JA~1ES SCHLESINGER: THE ENERGY CRISIS"

SOUTHERN EDUCATIONAL COMMUNICATIONS ASSOCIA TlON

HOST:Guest:

The FIRING LINE television series is a production of the Southern EducationalCommunications Association, 928 Woodrow St., P.O. 80x 5966, Columbia, S.C.,29250 and is transmitted through the facilities of the Public Broadcasting Service.Production of these programs is made possible through a grant from theCorporation for Public Broadcasting. FIRING LINE can be seen and heard eachweek through public television and radio stations throughout the country. Checkyour local newspapers for channel and time in your area.

SECA PRESENTS ®

FIRinG Lin

WILLIAM F. BUCKLEY, JR.James Schlesinger, Secretary of Energy

Examiner: Charles Corddry

Subject: "JAMES SCHLESINGER: THE ENERGY CRISIS"

FIRING LItlE is produced and directed by WARREN STEIBEL.

This is a transcript of the FIRING LINE program tapedin Washington, D. C., on March 21, 1978, and originallytelecast on PBS on March 31, 1978.

SOUTHERN EDUCATIONAL COMMUNICATIONS ASSOCIATION

© Board of Trustees of the L land Stanford Jr. University.

© 1978 SOUTHERN EDUCATIONAL

COMMUNICATIONS ASSOCIATION

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MR. BUCKLEY: When James Schlesinger was Secretary of Defense, the good newsis that there was no war. Now that he is Secretary of Energy, the bad newsis that there is no energy, or at least not enough of it, or more exactlya looming world scarcity of it. Meanwhile the cost to the United States ofour imported oil rises in inverse proportion with the falling prestige of thedollar. To grope with this mess soon after he was inaugurated, President~arter announced that he would formulate a comprehensive energy policy and indue course one such evolved. Admirers of Mr. Schlesinger like to think theproposals are mostly imposed upon him by bureaucrats who succumbed preciselyto those pressures Mr. Schlesinger, a trained economist, isolated in animportant essay published in 196B.

James Schlesinger has three degrees from Harvard University where helearned what economics is to be learned at Harvard, plus fortunately muchmore. He went to the University of Virginia to teach and in due coursedrifted into the government where he held a succession of important posts,not least relevant for the present purposes as head of the Atomic EnergyCommission. He had, of course, served with the Rand Corporation, with theBureau of the Budget, as Director of Central Intelligence, and as Secretaryof Defense, a position from which he was abruptly dismissed by PresidentFord because--or so it is accepted--Mr. Schlesinger was skeptical about someof the soapier bubbles of the policy of detente.

I should like to begin by asking Secretary Schlesinger whether theevents of the past few weeks revise the official estimates that we canincrease our annual production of coal by 400 million tons?MR. SCHLESINGER: We can increase the production of coal. I think theevents of recent weeks make it more difficult to sing the virtues of coalto American industry and the reliability of supply. But I think in thelonger run we must recognize that coal supply will be more reliable thanoil supplies from overseas for American industry.MR. BUCKLEY: Well, do you see happening in the coal extractive industry,especially in the eastern part, something of that reluctance to engage inthe industry of extraction that hit the British ten years earlier where theyreally found that the traditional material inducements didn't quite work,and if that is the case, is it a part of the energy policy thus farformulated to figure out a way of getting that stuff out of the ground thatdoesn't involve Emile Zola type labor?MR. SCHLESINGER: I think that it is evident that we shall have to haveinstitutional changes in the coal fields, that labor relations--industrialrelations--in the coal fields have historically been tense, and that if weare increasingly to shift to coal in the years ahead that we are going tohave to have stability in the coal field. In the recent negotiations--in thecontinuing negotiations--the attempt was made by the operators to solve someof these stability problems, but they're much too intractable to be solvedin the course of collective bargaining relationships.MR. BUCKLEY: Which argues what?MR. SCHLESINGER: Which, I think, indicates that we are going to have tohave legislation, that we will have to have the role of the Federalgovernment in an attempt to improve those industrial relations. I think thatwe will have to examine a variety of alternatives including the sort ofalternatives that exist on America's railroads.MR. BUCKLEY: Well, the alternatives are or are not translatable onto classiceconomic models? Is it a matter of extra payor is it a matter of differentworking conditions, a different kind of re-cycling? Is it a matter ofbringing in third generation labor, or what is actually involved?MR. SCHLESINGER: Well, I don't pretend to be an authority in this area. Ithink that the classic economic model does not apply to the inducements for

© Board of Trustees of the L land Stanford Jr. University.

the miners. I think that we recognize that it's the traditional matters ofcollective bargaining that have been deficient. The miners complain aboutthe grievance procedures. It's plain that all of those matters that havebecome accepted in other American industries still are a matter of disputein the coal fields and that we will have to change that.MR. BUCKLEY: Yes, but that really has to do with the pathology of theprofession, doesn't it?MR. SCHLESINGER: Yes.MR. BUCKLEY: Because if you are engaged in a profession that inducesirascibility, then grievance procedures are very, very hard to work up. For'instance, in 1968 at Columbia University there was really no such thingas a grievance procedure that would have satisfied the kind of people whoresponded to Mark Rudd. Now, is this a cultural development that you haven'tsufficiently assimilated in talking airily as some of your agents have doneabout 400 million extra tons of coal per year?MR. SCHLESINGER: I think that we have to have institutional changes. Nodoubt there are some miners who have the characteristic of irascibility, butthe bulk of the miners want to work. They want to work with workingconditions, with grievance procedures that they regard as fair. There is adeep suspicion of the operators. These are matters that we will have tocure. During the period after 1945 as America moved away from coal the waythat we solved the problems of labor relations was to diminish the importanceof coal in the coal fields, but we have no option but to go back towardscoal and consequently to solve these intractable problems of labor relations.MR. BUCKLEY: Because coal is central to our 13-year program, isn't it?MR. SCHLESINGER: Yes, sir.MR. BUCKLEY: That is to say if we don't increase our coal production by 50percent, we're in a jam.MR. SCHLESINGER: Yes, we have ways of living with that which include higherunemployment. Unless we are prepared to shift our stationary sources--ourutilities--increasingly towards coal and away from oil and natural gas, wewill not have sufficient oil for our transportation sector. If we are tomainta~n a standard of living and the characteristics of a free society, weare gOlng to have to shift in this way. Otherwise, we're in for a verydifficult period--protracted period--of tension in this country.MR. BUCKLEY: Let me put that in abeyance for a moment--the possibility ofalternatives to coal--and pick you up on something you said a while ago thati~trig~e~ me a great deal. ~ou said that Americans had had no experiencew1th f1n1teness. Now, the f1gures certainly seem to indicate that theAmericans--in respect of the consumption of fuel--are very self-indulgent-­338 million BTUs per capita compared to West Germany's 155 or Japan's 130.Now, I'd like your comments on the following. There are those who say thatwe return in productivity that which we use in energy. Does this check out?MR. SCHLESINGER: No. The energy input per unit of output is much lower inthe United States than it is in Western Europe or in Japan.MR. BUCKLEY: Why?MR. SCHLESINGER: In part because prices have always been low in the UnitedStates. Energy has been cheap. The American character is expansive. Ithas n~t recognized these limits, the question of finiteness. The onlyexper1ence that America has had with finiteness was the closing of thefrontier.MR. BUCKLEY: Well, why, since we've only had regulation of energy pricessince 1954, is there a differential in the cost of energy, a significantdifferential, in the cost of energy in Europe and in America, traditionally?MR. SCHLESINGER: Because relative to other prices energy has been cheap inthe United States. Your reference to regulation of energy prices since 1954has dealt only with the natural gas market and only the interstate component

of it.MR. BUCKLEY: Yes.MR. SCHLESINGER: Generally speakin9, we have not had such regulation of pricesin the United States. Coal, quite obviously, is cheaper in the United Statesthan it is overseas. Since the 1950s, there's tended to be some equalizationof prices worldwide.MR. BUCKLEY: So you are saying, if I understand you, that for reasons ofnatural endowment the United States has been able to give its working popula­tion cheap energy and that under the circumstances there is that disparity.I've seen the figure that we consume 31 percent of the world's energy andproduce 32 percent of the world's GNP. This would imply a correlation,wouldn't it?MR. SCHLESINGER: There is a close correlation between energy output-­MR. BUCKLEY: But it's coincidental?MR. SCHLESINGER: It's not coincidental. There is a reasonably close correla­tion particularly in the short run. What we have discovered is when we havedramatic changes in energy prices and availability as since 1973 that thatrelationship no longer remains that close. Indeed the very parties who ayear ago were suggesting that the administration was exaggerating thepossibilities of conservation now believe that the administration is under­estimating the possibilities of conservation and therefore there will be nooil crunch in the 1980s--a remarkable transition.MR. BUCKLEY: Underestimating in the sense that we are overprotecting our­selves against despoliation of the atmosphere? Is that what you mean?MR. SCHLESINGER: No, that was not what was meant. A year ago the fashionableview in American industry was that there was a lockstep relationship betweenthe gross national product and energy consumption--that for each one percentrise in the gross national product one would have a similar rise in energyrequirements. That struck me as an exaggeration at the time, to say theleast, because it would really apply only to the production side of energyuse--factories--rather than the consumption side. If one looks at Americanautomobiles, at American homes, we are energy inefficient compared to othercountries. But even so, if one looks at the rise in price of energy in thelast four years in particular, industry keeps a very sharp pencil and as aconsequence they have moved increasingly towards more energy efficient methodsof production, and they will continue to do so because of the operations ofthe price incentive.MR. BUCKLEY: But even so you project over the long term a conservation inthe use of energy of only 16 percent. Is this a figure that you arrive atmechanically, or is this a figure that takes into account your knowledge ofAmerican nature?MR. SCHLESINGER: I don't think that we are projecting a conservation of only16 percent. What we have done is to cut the traditional rate of growth ofenergy demand from about four and a half percent in the President's programto about two percent per annum and up til 1985 that will amount to somethinglike 16 percent. We expect to do better than that, and certainly in thelonger run the cumulative effects of more and more energy efficient methodsof production and methods of consumption for the American household willresult in an infinite--a virtually infinite--energy savings compared to thehypothetical case in which demand went on increasing in accordance with thetraditional pattern.MR. BUCKLEY: Well, now, the inducements to that efficiency will be left inpart to the free marketplace under your plan and in part to fiscal penalties,is that correct?MR. SCHLESINGER: I would put it a different way--that we rely in largedegree upon the price mechanism, price mechanism including either subsidy ortaxation which adds to the attractiveness of price. We cannot move towards

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2 © Board of Trustees of the L land Stanford Jr. University.

coal if o~l an~ natural gas are so cheap that industry finds it more attractiveto stay wlth 011 o~ natural gas. If we can make coal cheaper than oil andn~tural gas, then lndustry ha~ the financial inducement to move in that direc­tlon. One does not want to flght the market mechanism. If one does so thebest laid schemes will go agley. 'MR. BUCKLEY: I find this very reassuring but also inconsistent or so itwoul~ appear to me, with certain provisions of the President's ~nergy proposals.F~r lnstance, let's take gas which is selling at what--$1.47? A BTU conver­Slon of that into oil would suggest oil at $4.15, and yet there is thisreluctance to turn it over to the price mechanism. You've got this ratherFancy Dan inflation plus three and a half percent and so on and so forth Isthis a kind of political temporizing with the price mechanism that you findnecessary, desirable, or both?MR. SCHLESINGER: I think it's necessary and at least in the short term it isnot ~ndesirable. The prices of natural gas have increased dramatically inthe lnterstate market. In the last seven years, they have increased almost15 fold. Our number of wells being drilled in the United States has increasedtwo and a half fold since 1973. This industry is getting overheated as ithas expanded, so I think--in.t~e short run at least--there is a major incentiveto p~oduce once we hav~ ~tablllze~ the market and provided some legislation.I thlnk that you are cltlng what lS perhaps the unique element in the programa~d that re!le~ts a long and embittered history. One of the most controver­slal domestlc lssues in American life has always been natural gas pricingMR. BUCKLEY: Why? . .MR. SCHLESINGER: For the producers it's almost a form of theodicy If theyco~l~ eliminate t~e price controls on the natural gas market, they'would haveellmlnated the eVll that somehow or other has come into American life Forthose who believe in regulation they've invested their lives under th~ FPCmethod of regulation. To abandon price controls now, so it seems--MR. BUCKLEY: Is heretical.M~. SC~LESINGE~: --is heretical. It means also that they've wasted theirllves ln some lll-founded pursuit which few men are prepared to admit.MR. BUCK~E~: For mos~ of m~ life whenever anybody seeks to come through witha propos~t~on concernlng WhlCh all economists would agree, they almost alwayssay tW? th~ngs. Number one--all economists agree that the minimum wage is ahal~ucl~atlon, and then they say all economists agree that rent control isantlsoClal and economically unproductive. Now, practically all economistsS? far as I can see, seem.to be ~aying.that the control of gas makes very'~ltt~e s~nse at a moment ln Amerlcan hlstory when one seeks to increase thelncllnatlon of the supply graph, right? Now, that's why I mentioned it toyou. ~ou say t~at.you bac~ this r~luctance to deregulate gas because yourecognlze that lt l~ a ~oclal req~lrement. Does this require you to suppressthat part of you WhlCh lS professlonal as an economist?~R. SCHLESINGER: No, this is a very complicated market. In part no doubtlt would be more efficient simply to allow the markets to clear. 'On the 'other hand one does have a peculiarity in both the oil and the natural gasmarket..The normal .purpos~ of marke~ clearing ~rices and the theory ofmarket~ ls.that by lncreaslng the prlce that thlS creates profit marginst~at wlll lnduce.a mU~h greater flow of supply. Clearly that's inapplicablewlth regard to 011 WhlCh the future prospects for the United States to saythe least, are limited. '~R. BUCKLEY: Tell me'why--why you say it's "clearly" because I know, forlnstance, that the Wall Street Journal disputes you, so--MR. SCHLESINGER: On the question of oil supplies?MR. BUCKLEY: Yes.MR. SCHLESINGER: That would surprise me. I think that this is universallyagreed amongst those who are specialists in geology that you have a peaking

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poi nt.MR. BUCKLEY: I think that what a lot of them are saying is that you can't tapsome of the huge reservoirs in the Athabaska Sands or in the Rocky Mountainsat $14 and a half, but that since it is inevitable that the price of energy isgoing to rise, it is only by permitting it to rise that the market willestablish the price at which you can with marginal effectiveness bring inthis stuff. Is that correct?MR. SCHLESINGER: That's a very sound proposition.MR. BUCKLEY: Yes. Now, why aren't you willing to do it?MR. SCHLESINGER: We are. As a matter of fact, that's part of the President'sprogram.MR. BUCKLEY: Well, the President tends to shift. On the tenth of March hecame out for de-regulation.MR. SCHLESINGER: Now you were referring to oil. Oil does not have this longand embittered history behind it. What we expect to do is to raise the priceof oil and for natural gas so that we induce a flow of alternative technologies.We make coal to start off with attractive to industry so that stationarysources can shift, but there are a whole range of alternative technologiesthat become attractive, and the market mechanism works.MR. BUCKLEY: But how can the market mechanism fight its way through yourbureaucracy? This is not intended personally--through anybody's bureaucracy?What is it that gives you the ahistorical sense of confidence that you canhelp individual investors to deploy wisely their investment money as between,for instance, plutonium, 'solar energy, oil, or gas?MR. SCHLESINGER: Well, we are leaving it up to the investors to make thatchoice. What is clear is first that the long-run prospects for oil andnatural gas are such that it is unwise for industry now to invest on' the basisof current prices in capacity that will have a 30 or 35 year lifetime, that theywill be facing higher prices in the future, and that through the oil and gasusers tax we are going to raise the prices now so that there is an inducementto turn to alternative technologies. As to other technologies whether it benuclear power, solar, and so forth, they are all made more attractive by thisincrease in oil and natural gas price.MR. BUCKLEY: You mean to say that by artifically pegging the price up beyondwhat the market would normally sustain, you encourage the strategic investor.Now, why couldn't that argument be made in behalf of almost anything--publichousing, for instance, or just plain housing?MR. SCHLESINGER: Because we're not talking about alternatives. We're nowtalking about the shift away from oil and natural gas. There will not be thesupplies of oil and natural gas that will permit the continued expansion ofthe American economy. The energy supplies for new plants coming in the futureshould be something other than oil and patural gas. That will permit us toretain oil for the transportation sector, increasing the share of natural gasfor the household sector. We don't have to make use of such a mechanism.Indeed I cannot conceive of such a mechanism with regard to public housing.What we are doing is to anticipate what we know will come which are higheroil and natural gas prices in the futur~ as a way of inducing investmentinto all these alternative technologies. That will be beneficial. A problemwith the market mechanism is that it does not anticipate these longer-termphenomenon.MR. BUCKLEY: Why not?MR. SCHLESINGER: Because most peopl' in the market respond to short-termstimuli, and national policy ought not ~o be based upon these short-termmanifestations. ,MR. BUCKLEY: I can see where that will be correct insofar as you're talkingabout defense, but insofar as you're talking about an investor, isn't itpresumptuous to suppose that a think tank in Washington is necessarily going

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to come up with a shrewder decision as to whether a dollar is profitably in­vested in gas rather than in solar energy or something else?MR. SCHLESINGER: Well, I think that we want dollars to be invested in both.That is the reason that we have proposed not only higher natural gas pricesbut originally proposed that natural gas prices go up with the BTU equivalentof domestic crude--MR. BUCKLEY: Which would quadruple it.MR. SCHLESINGER: --which would ultimately increase the price about threefoldin relative terms, but I should point out that the BTU equivalent of crudeoil has been what the industry has always said is the long term equilibriumprice.MR. BUCKLEY: Yes.MR. SCHLESINGER: We also want to see major investments in solar energy andother alternative energy resources. We're not trying to make that judgment.MR. BUCKLEY: I guess this is a good moment to ask you why it is that so manyscientists are of the opinion that you have, in effect, an ideologicalresistance to the deyelopment of plutonium as a source of energy? A momentago you and I were talking about Bernard Cohen who takes the position that aroom this size can, in effect, contain the plutonium 290 necessary to give us$50 billion a year of electrical power at a cost significantly less than weare now paying for coal. Now, he believes that the important culturaldevelopment of the last four or five years is something with which you areintimately familiar and that is that the scientific dialogue that took placesubstantially under the aegis of the AEC which no longer exists has evaporatedso that all you have now is ladies with paraso~.talking about how dangerousplutonium is and how many billions of people will be killed by one leakwithout the kind of body of scientific opinion that sifts that kind of super­stition and gives a democratic people a solid judgment on the basis of whichto maneuver. Is there anything to that?MR. SCHLESINGER: Well, I think that there's a lot to that substantively, buthis analysis of the process is not quite correct. There is indeed that bodyof scientific opinion that continues to sift out the superstitions. It seemsto me that you're quite right that there is resistance to nuclear power onthe basis of preying on fears, fear of radiation which is partly irrelevant,fear of these newer forms of technology we have gone through in the lastdecade--a period which is anti-technological in which fashionable opinion hasbeen opposed to novelty, a neo-phobia if you will.MR. BUCKLEY: Have you struggled against that? I know you did in the DefenseDepartment.MR. SCHLESINGER: We have indeed.MR. BUCKLEY: But have you struggled in the Energy Department?MR. SCHLESINGER: We have indeed. We have just sent to the Hill a nuclearlicensing bill which has been opposed by those who do not recognize that wemust make use of nuclear energy if we are to solve the energy problems of theUnited States.MR. BUCKLEY: Which will cut from 11 to six years the starting period, right?MR. SCHLESINGER: We would hope so, and of course the administration ismaintaining a breeder technology program on the order of $400 million a yearwhich is not an insignificant sum.MR. BUCKLEY: On the other hand you put the quietus to the Clinch RiverProject, didn't you?MR. SCHLESINGER: That's right.MR. ~UCKLEY: Why?MR. SCHLESINGER: On the basis of cost effectiveness. This is an ill-designedplant. It's the wrong plant at the wrong time. I hesitate to say it's thewrong place, but we can build a more modern plant. We can design a moremodern plant that captures the technological advances of recent years. This

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plant at Clinch River went into the licensing process in 1966. QUi~e

obviously the plant has grown in cost. It is no longer cost effectlve. Asa matter of fact, even its proponents recognize that it's something of aturkey, but they want to keep it alive in order to get a breeder programmore to their satisfaction.MR. BUCKLEY: This isn't the time really to go into the constitutional issueof whether the executive has the right to estop the expenditure of.thosefunds but it might amuse you that on this program then Governor Jlmmy Carterfive ;ears ago gave me a stern lecture on the presumptions of Presid7nt N~xonin estopping funds that had been appropriated by Congress. But that.s neltherhere nor there. In 1985 you project that 23 percent of our energy wlll ~e

provided by nuclear power. Is that thinking big in American terms and glventhe current state of duress? Shouldn't it be a higher figure than 23 percent?This is impressionistic.MR. SCHLESINGER: Not for 1985. The problem that we hqve is that even withour licensing bill if it goes through the Congress--and I detect some measureof support on your part for that legislation--that by--MR. BUCKLEY: That may not prove critical in Congress. ..MR. SCHLESINGER: It will some people I'm sure. By 1985 the leglslatlon shouldhave little effect upon the number of nuclear plants ~he le~d ti~es a~e solong--six or seven years even if we achieve that. ThlS leglslatlon wlll affectthe number of nuclear plants in 1990, or 1995, but not 1985.MR. BUCKLEY: Do you foresee the possibility that we'll ~e buying ~u~lear

power from Canada because of their relatively less constlpated posltlon aboutnuclear development? Granted they shift violently, but right now they seem tobe pro nuclear development.MR. SCHLESINGER: I think that we may be importing some power from Canada, butit's likely to be surplus power from their hydro projects, but your fundamentalpoint is correct that we have in the United States in recent years come to theview that we can be against everything. No LNG ships. We don't want toimport oil because of balance of payments reason; we don't want to mine.orburn coal; nuclear power is unsatisfactory, and so ~n, that ~he only thlngthat is satisfactory is solar energy and that doesn t deal wlth a very.largepart of.the problem except in the realm of imaginat~on. Unl~ss we begln tocure ourselves of some of these ailments and recognlze that lf we want to .use energy we have to produce it, we are going to be in serious trouble durlngthe next decade. But I think we're in the process of cure.MR. BUCKLEY: When you say we're in the process of cure, may I ask you whetherit would be altogether human, if the answer is yes, you have been tempted bythat marvelous sense of power that goes to the architect of human appetites?We know that under your program it is actually contemplated that perhaps asmuch as a half a trillion dollars will be redistributed as a result of yourdecision to collect a wellhead tax here, an equalization tax here, gas taxhere, and give some to this guy and some to this guy a~d some to th~ otherguy. Is this integral to your program, or are these.slmply the soclal .auspices under which you think that you have to provlde cover for the prlcemechanism?MR. SCHLESINGER: I think that it involves elements of both, and I suggestquite respectfully that if you had been ~aced with similar prob~ems! youwould have come to similar conclusions wlth regard to the equallzat~on.tax,

for example. We are facing the peculiar circumstance that unde~ eXlstlnglegislation the United States was subsidizing ~very barrel of 011 that comesinto this country, and that seems to be a foollSh way to pur~ue energyindependence. Our first decisi?n.was.that we had to move ~rlce~ to t~e wo;ldprice level and cease this SUbsldlzatlon, a fundamental pOlnt wlth WhlCh I msure you would agree. We also had to--MR. BUCKLEY: Assuming that you acquiesce with the cartel price.

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MR. SCHLESINGER: I think that--MR. BUCKLEY: It is a political decision.MR. SCHLESINGER: I think that we have no choice but to accept the world price.We may be able to bring about adjustments, but we will never be able to effectthe cartel price until we exercise some discipline here in the United Stateswith regard to our own energy strategies rather than to allow, as we have inthe past, kind of a free-wheeling American spirit to increase consumption inaccordance with a rather voracious appetite. If America's demand for oil fromoverseas is increasing a million or more barrels a day each year, the conse­quence will be that the cartel has every reason to expect an increase indemand and no downward pressure on price, so we have to recognize that theworld price exists and that there is no reason to subsidize imports if that isour objective--either to have rational pricing in the United States or to putpressure on the cartel. Now, once you have made that decision that you had tomove the world oil prices, the next question is how do you deal with theexisting system of control over prices of old oil and what not under existinglegislation? And the answer was an equalization tax that would face everyrefinery with the same price so that refinery operations could be conductedin accordance with market forces, and we could get rid of a major Federalbureaucracy; to wit, the bureaucracy which is administering the EntitlementsProgram. The Entitlements Program is a nightmare, and we wanted to do awaywith it. I think that we are moving in the right direction. We want to getrid of regulation where we can get rid of regulation, gradually phase outsome of these controls, all of which I'm sure you will agree goes in the rightdirection.MR. BUCKLEY: Yes, it does go in the right direction. The question that, ofcourse, ·arises again and again is whether or not you are overpatient in yourchronology. For instance, what kjnd of chaos would ensue, and could we sur­vive it if tomorrow--assuming you had that power--you were simply to snuff outthose controls altogether?MR. SCHLESINGER: I think that if you talk to most of the people in the oilindustry--or at least the majors--that there would be reluctance in seeinginstantaneous death of controls. The consequence would be that the profitsof the major oil producers would increase from about $7 billion at the presenttime to about $21 billion.MR. BUCKLEY: Once.MR. SCHLESINGER: Once. A tripling of profits. The money that would beabsorbed in the wellhead tax essentially would go into corporate profits. Onthe one hand they would feel politically vulnerable. Indeed they do feelpolitically vulnerable and therefore all of them are in favor of a phasingout of controls rather than a sudden lifting of controls that would bringabout a swelling of profits in ways that even they would concede are windfallgains. On the other hand as I mentioned earlier--MR. BUCKLEY: This is not entirely admirable, is it? You're describing arealistic situation, but I take it, or may I take it, that you deplore it?MR. SCHLESINGER: No, I do not deplore that. I regard recognition of realityas a very important part of political life.MR. BUCKLEY: I know, but the fact that it is a reality is deplorable. Forinstance, if I were to suggest a Bill of Rights for the Soviet Union tomorrowand you said, "No, you simply cannot give Russians liberties tomorrow," Imight join you in saying that for realistic reasons we can't, but we woulddeplore the fact that we had to lead them to civil liberties gradually, wouldwe not, even as we deplore the fact that the majors cannot espouse thatwhich is strategically persuasive because of ulcers of ideological accretions.MR. SCHLESINGER: I think that there are two questions here. One is thequestion of equity. What we have as the result of cartel action is a suddenraising of prices in perspective gains. As a proponent of free market

principles, I am sure that you abhor the cartelization of this market and thatyou would question the advisibility of allowing American concerns to be benefi­ciaries of monopoly prices not in return for any productive contribution. Wehave in the irony in this country, if you take more than the majors--MR. BUCKLEY: Is that we're subsidizing the cartels. That's the irony.MR. SCHLESINGER: We are subsidizing the cartels, but we have other ironies.It was only 20 years ago that General Eisenhower imposed controls on theimportation of foreign crude at the behest of most of the firms in the oil andgas industry. They objected to free market forces. They talked about theinflux of cheap foreign crude and ruinous competition and the like. The samepeople who objected to those market phenomenon then have suddenly fallen inlove with what they regard as market phenomenon now that the internationalmarket has been cartelized. That is another irony.MR. BUCKLEY: I think if you want to talk about the hypocracy of the Americanbusinessman, we can simply take it as axiomatic. Whether it's sugar importquotas or oil import quotas or whatever, they rush to use the mechanisms ofgovernment to their own advantage, but we may be ambushed by them.MR. SCHLESINGER: You may take it as axiomatic. I regard it as a living,daily reality in my position.MR. BUCKLEY: Yes, you do, but the fact of the matter is that one must resistit in principle even as one does, for instance, the call for high tariffs,don't we? But some people see in your energy program a kind of an intellec­tual acquiescence in this rather than a return to the modei.MR. SCHLESINGER: No. I think that there has been some attempt to portrayit in that way. I think, in the longer term, use of the price mechanism isthe most efficient way and indeed the only practicable way for us to proceed.As a matter of reality, once again, one must recognize the major forces inWashington life have been advocates of rationing, of schemes of this sort ofdirect allocation. Working against the market, working against the pricemechanism in the long run--indeed in the fairly short run--is whollyineffective. Even in World War II rationing broke down after approximatelya year, and that was a period in which the patriotic motive was at itsstrongest. There is an illusion that we can operate against these pricemechanical factors. We can't. We must have them working for us, and oneof the reasons for the industrial users tax is to use the price mechanismmore effectively to get through a transition in which our fuels of choice-­oil and natural gas--will no longer be available in the quantity that weshould desire it.MR. BUCKLEY: But this presupposes that you abandon any hope of successfulpolitical action to break down the cartel price, right?MR. SCHLESINGER: I think that if you look at the longer run that marketforces will take over and will begin to push those prices up, irrespectiveof the existence of the cartel--that by the early 1980s, if one observespresent trends, perspective demand--MR. BUCKLEY: The importance of oil will justify the high prices.MR. SCHLESINGER: Justify it not in the moral sense but in the market clearingsense.MR. BUCKLEY: Mr. Charles Corddry from the Ba~timore Sun--whose militaryspecialist he is--is the examiner on this program. Mr. Corddry.MR. COROORY: Mr. Schlesinger, let's start with the Clinch River business andjust clear up one thing here. I must say from your description of it I gotthe impression that the administration would be barreling right ahead with abreeder reactor if only it were cost effective. Oid you mean to imply that?MR. SCHLESINGER: No. What we have said is that we must have a technologyprogram to see to it that the nuclear fission option remains available tothe United States, but at the present time we're not able to build lightwater plants from existing technologies. As Mr. Buckley indicated, there has

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been a fair amount of alarmism fostering on the question of nuclear techno­logies. As a result, there's been a slowdown--indeed a hiatus--in the con­struction of such plants. What we want to do is to get those pl~nts underwayand at that juncture, which will be around the year 2000 or posslbly la~er,

that we should turn to breeder technology if we have no better alternatlve--to have that technology available--but we're not in any rush. .MR. CORDDRY: Now, on the matter of stopping this plant. U~less I've mlssedsomething, the general accounting office has told you that lf you ~o stopit and don't spend the money, you're in bad trouble, or do I have lt back­wards? You are under injunction to keep going with Clinch River, are you

not? . . h . h t d' ff tMR. SCHLESINGER: Well, we are under exhortatlon WhlC lS somew a 1 erenfrom an injunction. The position of the general account~ng.office, ifunderstand it correctly, is that we cannot use the $80 mllllon from thesecond supplemental to terminate that project.MR. CORDDRY: And you cannot not spend it without Congressional approval.MR. SCHLESINGER: That is correct.MR. CORDDRY: I mean you have to go on with it, don't you? . .MR. SCHLESINGER: Monies should be expended in accordance wlth law. I thln~that that is a fundamental point. There is some difference about the legalltyof such expenditures and since the Department of Justice will enforce or no~

enforce any particular point, I think that it remains ~oot: We a:e attemptlngto arrive at a compromise with the Congress because thlS klnd of lmpasseserves neither the Congress nor the President. ., ,MR. CORDDRY: You spoke beguilingly of alternative technologles bU~ dldn ~get too deeply into them. What can you tell us about solar energy s realls­tic prospects?MR. SCHLESINGER: Solar energy is cost effective now for solar hot waterheating, for solar heating of homes~ to some ex~ent for ~lants. That is solarenergy from the sun and sometimes wlnd energy blomasses lncluded under theheading of solar. All of these have their applications. In ~he.longer ~ermsolar energy used to produce electric power may be here, but lt lS cer~alnlynot going to be here for another decade or so. But one must remember lf oneis going .to use solar energy for solar hot water heating or solar heatingof homes that that is a very small share of the energy marke~. For the t:ans­portation market, for the production of e1ectr~c power, for.lndustry we ~lllhave to have something e1se--natural gas and 011 for some tlme and coal lnthe longer run.MR. CORDDRY: But you spoke of major investments in solar energy. Are theynot so major that only the government, probably, in the end could afford themas with the SST or something?MR. BUCKLEY: Well, you intend to subsidize them for one thing, under thebill.MR. SCHLESINGER: We intend to subsidize them in a sense--tax rebate supportof such measures--to induce a fashion for the use of solar energy, and it isnot that solar energy fails to be cost effective. It is that there is nofashion, save in certain high income areas, for the use of sol~r energy.We have got to have architects and builders solar energy conSClOUS.MR. CORDDRY: Mr. Secretary, are there any signs that the expression "moralequivalent of war" means anything to the public out there when you speak ofit in terms of your energy program or when your President does?MR. BUCKLEY: That's not your phrasing hopefully.MR. SCHLESINGER: It's William James, but--MR. CORDDRY: Have you the slightest feeling that it has caught"on~ ~h~tpeople really believe what you're telling them about an energy crlsls?MR. SCHLESINGER: Some people do and some people don't. We have had a ..remarkable increase in the consciousness of the energy problem, a recognltlon

of its longer-term significance.MR. BUCKLEY: And in the consumption of gas.MR. SCHLESINGER: We had some greater degree of restraint in the use of gaso­line in the course of the last year, but let me underscore, with regard to themoral equivalent of war, that what the President meant by that phrase was notthat we had to go on a wartime footing or go to wartime measures. It meantthat we should try as a people to achieve the consensus--the coherence--thatnormally we have achieved only in times of war, and it is that search forconsensus which underlies what we are attempting to do. We need a sense ofcommon purpose in this country if we are effectively to get through thistransition.MR. BUCKLEY: Do you mind very much if I question that on philosophical groundsas well as on instrumental grounds? I do not think, for instance, that any­body in this room whose idea of personal satisfaction is to buy a gas guzzleris in any sense a moral enemy of mine or society. I would say in a sit~a~io~

where there is rationing in war and there is a shortage of bread or penlcllllnanybody who goes out and gets more than his share of either is definitely amoral enemy of the state or of mine, but it is incomprehensible to me thatthere should be this transmutation of this ethical vocabulary on over to aquestion of how does John Jones decide to spend his excess dollars if he wantsto spend them on his bloody Chris Craft, puffing up and down Long Island ..Sound, meaning that he has to do without a spare bedroom or whatever sacrlflces.I don't see that I'm entitled to question his judgment in the matter, but Ithink that something of this procrustean vocabulary of President Carter issaying that.MR. SCHLESINGER: I think if you look at the plan, and you have, and you havepointed out that we have chosen the right procedures with regard to gas .guzzlers which is to tax them, that if somebody wants a gas guzzler and lSprepared to pay that higher price, that that is the appropriate way to cut back.MR. BUCKLEY: Yes, but you're not doing that.MR. SCHLESINGER: Yes, we are.MR. BUCKLEY: Excuse me. Well, maybe that's your plan, but I guess it's truethat Congress turned down the President's plan which would have made iti 11 ega 1 to produce a 'car by 1980 that went 1ess than 23 mil es per gallon, orwhatever it was.MR. SCHLESINGER: No, the President did not propose that. That was proposedin the Senate by Senator Metzenbaum, and at the moment it seems unlikely thatthe conference will adopt that provision but instead will go with somethinglike a modified gas guzzler tax in which once again the price mechanism willbe the decisive element.MR. BUCKLEY: Why do you need to exaggerate the natural penalties of gasconsumption by adding to the price of the engine that consumes that gas? Inother words if you buy a car that only goes 15 miles per gallon, why do youhave to have a surcharge of a couple of thousand dollars to simply add to thealready heavy penalty of getting only 15 miles to the gallon? Why do youhave to help the market forces along? Is this a moral point you're makingor a conservationist point? .MR. SCHLESINGER: To salve the conscience of those who are disregarding thecall to the moral equivalent of war.MR. BUCKLEY: Then it is a matter, is it, of trying to p1ead a moral consensus?MR. SCHLESINGER: I think that that is correct. I think that we all recognizethat the nation's future is to a considerable extent at stake, thatsumptuary taxation of this sort--which is w~at we do ~o make consum:rs ?fliquor and cigarettes feel better about thelr small slns--also applles lnthis area.MR. BUCKLEY: Well, would you, by the same token, justify a progressive taxon the size of a newspaper causing, say, the New York Times to be required to

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pay a dollar in tax per Sunday edition because of the number of extra foreststhat are felled in order to indulge us in five pounds of newsprint perperson?MR. SCHLESINGER: I think that that idea should be put on the back burner.(laughter) If we look at supply and demand. there is no immediate pressure-­no clear and present danger--with regard to the supply of newsprint. Bycontrast. given our voracious appetite for oil and natural gas. ~iven thefiniteness as opposed to renewable resources in the area of newsprint. wehave a need for the one. and we do not have a need for the other. If we ranout of newsprint or ran shy of newsprint. it might make some sense.MR. BUCKLEY: Newsprint went up 600 percent.MR. SCHLESINGER: Ah. ha: That is the price mechanism imposing penalties.MR. BUCKLEY: That's right. That's right. And that's why you have to pay adollar for Time magazine where you paid 25 cents for it just a little whileago. Somebody pointed out the cost of gasoline per car is two cents less ifyou account for inflation. than it was in 1956.MR. SCHLESINGER: Quite right.MR. BUCKLEY: That being the case. we really haven't given the price mechanisma total chance. have we. to effect these conservationist measures?MR. SCHLESINGER: I think that that is correct, indeed. The situation isworse than that in a sense. By the conservation requirements we impose onmoving to more efficient automobiles. we are reducing the per mile cost ofdriving a car.MR. BUCKLEY: Thank you. Mr. Secretary. Thank you, Mr. Corddry. Thank you.ladies and gentlemen of Thomas Jefferson High School and of GeorgetownUniversity.

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© Board of Trustees of the Leland Stanford Jr. University.