If you’re like most Americans, you’re enjoying the fact that it costs a lot less to fill up your car’s gas tank these days. If you’re a fan of big government, you may feel a bit ambivalent, though.

Why? Because one of the biggest drivers behind the drop in gas prices is the rise in directional drilling and hydraulic fracturing (“fracking”) here at home. While the government is busy micromanaging the energy industry — trying to saddle it with more regulations while showering favors on so-called “green” companies — the free market is showing how to actually get things done.

Indeed, the country is in the midst of its own oil boom. Drilling and fracking has supported millions of new jobs, including geologists, engineers, rig workers, truck drivers, pipe welders and others. And not just in the energy industry itself: In states with increased production, there’s more demand for restaurants, repair shops, hardware stores, hotels, box stores and laundromats, among other things.

Then we have what government is doing: trying to pick winners and losers itself — and doing a very bad job of it.

Take Solyndra. “The future is here,” President Obama said of this solar-cell manufacturing firm. Perhaps his rosy prediction had something to do with the fact that Solyndra was backed by George Kaiser, a major campaign contributor to the Democrats. Whatever the reason, Solyndra received a $535 million loan guarantee as part of the president’s 2009 stimulus package, and the administration promised thousands of jobs would result.

Solyndra closed its doors in 2011.

“The situation was a microcosm of the worst of government favoritism,” writes energy expert Nicolas Loris in “Opportunity for All, Favoritism to None,” a new policy guidebook. “The well-connected navigate the regulatory process with remarkable ease and socialize the risk of their private endeavors.”

Better transparency would help protect taxpayer dollars from this kind of waste, but we need more. These cozy relationships between lobbyists and the federal government shouldn’t exist in the first place, but we can’t end them without ending the bad policies that fostered them in the first place.

Take the Renewable Fuel Standard. It requires refiners to blend billions of gallons of ethanol into fuel each year. Most of that ethanol comes from corn. That helps inflate gas prices, but it costs us in more ways than that.

Ethanol, after all, is less efficient and causes long-term damage in small engines. Worse, because corn is a staple in diets around the world, the Renewable Fuel Standard drives up food prices, both here and abroad.

Such unintended consequences help illustrate why we need to oppose bad policies so strenuously. As former Vice President Al Gore himself once said, “It’s hard once such a program is put in place to deal with the lobbies that keep it going.”

It’s clear that we need to limit government involvement in the energy sector. Among the many steps that Mr. Loris recommends:

End energy handouts. Congress should ensure that no taxpayer dollars go directly to energy production, storage, efficiency, infrastructure, or transportation for nongovernment consumers. And no special tax treatment, either.

Widen access to domestic and foreign markets. Open federal lands and waters that are currently off-limits to exploration and development.

Repeal the Renewable Fuel Standard. Stand up to big agribusiness.

Prevent new efficiency mandates and restructure existing ones. Consumers can make those choices by themselves, and the government should not override their choices by nudging them toward its preferred outcome.

Prohibit regulations that drive out energy sources for little to no environmental benefit. For instance, the Environmental Protection Agency has set greenhouse gas emission regulations so stringent that they effectively prohibit construction of new coal-fired power plants. This will needlessly drive up energy costs for American families.

There are other ways to improve our energy policy, but they boil down to one thing: letting the market work with minimal interference from Washington. As the price at the pump has been proving, we all stand to win when we decide — not bureaucrats.