Wednesday, August 27, 2008

John Stossel: The idiocy of "energy independence"

At one time, I also believed that the USA was just too darn dependent upon foreign oil, and needed a policy of "energy independence". But John Stossel raises some common sense objections here and here:

Barack Obama, promising to "set America on path to energy independence," is upset that we send millions to other countries. "They get our money because we need their oil".

His concern that "they get our money" is echoed in commercials funded by Republican businessman T. Boone Pickens, who wants government subsidies for alternative energy. He tries to scare us by saying, "$700 billion are leaving this country to foreign nations every year — the largest transfer of wealth in the history of mankind."

Don't Obama and Pickens realize that we get something useful for that money? It's not a "transfer"; it's a win-win transaction, like all voluntary trade. Who cares if the sellers live in a foreign country? When two parties trade, each is better off — or the exchange would never have been made. We want the oil more than the money. They want the money more than the oil. They need us as much as we need them.
And if their domestic government program ends up costing us much more than importing the oil, are we really better off? No. And given the government's track record with programs like "Synfuels", are you really optimistic that a governmental "energy independence" program won't just make us poorer and no less dependent upon foreign supplies?
McCain and Obama talk constantly about how much they will "invest" — with money taken from the taxpayers, of course — to achieve energy independence. "[W]e can provide loan guarantees and venture capital to those with the best plans to develop and sell biofuels on a commercial market," Obama said.

What makes Obama think he's qualified to pick the "best plans"? It's the robust competition of the free market that reveals what's best. Obama's program would preempt the only good method we have for learning which form of energy is best.

Has he learned nothing from the conceits of his predecessors? Jimmy Carter, saying that achieving energy independence was the "moral equivalent of war," called for "the most massive peacetime commitment of funds ... to develop America's own alternative". Then he wasted billions of our tax dollars on the utterly failed "synfuel" program.

McCain promises a $300-million prize to whoever develops a battery for an electric car. But the free market already provides plenty of incentive to invent a better battery. As George Mason University economist Donald Boudreaux writes, "Anyone who develops such a device will earn profits dwarfing $300 million simply by selling it on the market. There's absolutely no need for any such taxpayer-funded prize" (

Central energy planning and government-funded prizes are economic idiocy.
The government energy policy should not be to achieve "energy independence", which cannot be done short of economic autarky, and that would cause more poverty and economic problems than it would ever solve.
To be for "energy independence" is to be against trade. But trade makes us as safe. Crop destruction from this summer's floods in the Midwest should remind us of the folly of depending only on ourselves. Achieving "energy independence" would expose us to unnecessary risks — such as storms that knock out oil refineries or droughts that create corn — and ethanol — shortages.

Trade also saves us money. "We import energy for a reason," says the Cato Institute's energy expert, Jerry Taylor, "It's cheaper than producing it here at home. A governmental war on energy imports will, by definition, raise energy prices". 
The problem with fuel supplies is NOT that they are often imported. The real problem is at what price, and what quantity is vulnerable to supply shock by hostile foreign forces. 

And anyway, if the economics of oil production favor foreign over domestic producers, it still makes sense to buy the cheaper product. It wouldn't matter how much shale oil we have in the United States, if foreign light sweet crude (no kidding, that's what they call it) is so much cheaper to buy than shale is to break apart.
Readers correctly point out that because governments control much oil production, there is no global free market. But it does not follow that market forces don't work. There are many sources of oil in the world and many buyers. Supply and demand still set the price globally. It is foolish not to buy at the lowest price.
Many readers agreed with the one who said: "The short-term goal here is not complete energy independence. ... The goal is partial independence from those countries, many of whose citizens hate us and would do us harm."

"Partial independence" sounds like partial pregnancy. People don't have to like each other to benefit from trade. Those who sell us oil need the money so they can turn it into food, automobiles and other things. Refusing to sell because they don't like us would be self-destructive. Anyway, all the world's oil ends up in the same global market. If one foreign source stopped selling oil to the United States, it would sell to someone else, and that buyer would then have an incentive to turn around and sell to us.

Several readers argued that "Energy independence doesn't mean opposition to trade. If we ever become energy independent, we'll still have the option of buying energy on the world market."

Of course. But this misses the bigger point. To even attempt to achieve energy independence, the government will have to plan the energy sector. Considering how pervasive energy is throughout the economy, this is a recipe for full central planning and a step toward poverty and tyranny. 

"Why not keep all that $720 billion [we spend to import oil] in the United States of America?" was a sentiment expressed by many. But that reveals a poor understanding of world trade. When we trade dollars to foreigners for oil, they have to do something with those dollars. They don't stuff them in mattresses. (If they did, it would mean we got free oil.) They buy American products. (U.S. exports are soaring.) Or they invest in businesses here. Or they sell the dollars to someone else who buys American products or invests in the United States.

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