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Commentary

Energy Protectionism Is Not Good Policy


     
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U.S. policymakers and pundits continue to treat energy as a “strategic” commodity, which is just a way of justifying inefficient government meddling in the industry sector. Before the 1973 Middle East oil crisis, the federal government tried to keep oil prices high to subsidize the oil industry. Ever since the Arabs wrested control of their oil resources from the U.S.-dominated international oil cartel and formed an imitative cartel of their own, the U.S. government has decried high oil prices and spent hundreds of billions of dollars of taxpayer money to “protect” Saudi Arabia and other Middle East producers in exchange for their efforts to restrain oil prices.

Yet now talk of the government taking action to keep energy prices high is again afoot. Thomas Friedman, the dean of pundits advocating military-protected neo-mercantilism while at the same time pushing for energy protectionism, advocates a government price floor on any barrel of oil or gallon of gasoline sold or imported into America, taxing anything below that level. He argues that a higher oil price “benefits America as we rapidly become a bigger oil producer.” He concludes, “As our producers succeed, we would become increasingly energy self-sufficient, keep a lot more dollars at home for our Treasury, stimulate innovation on renewables, and drive down the global oil price that is the sole source sustaining Iran and other petro-dictators.”

Friedman pleads for government intervention to impose an oil-price floor because increased oil production from offshore wells and unconventional sources, as well as discoveries of natural gas all over America, have again made the United States a major oil and gas producer. Also, predicted lower domestic oil consumption because of George W. Bush’s subsidization of ethanol—by mandating fixed quantities of biofuels used in gasoline—and recently pledged higher fuel efficiency standards by the auto industry lead Friedman to foresee the export of more U.S. crude oil. Thus, Friedman implies that the United States should now join the OPEC cartel and other oil-exporting countries in keeping prices high.

Yet when Friedman says that a higher oil price “benefits America,” he really means the U.S. oil industry. An oil-price floor and more petroleum taxes certainly don’t help petroleum consumers—that is, the vast majority of Americans.

Friedman has always been a vociferous proponent of “energy independence.” He gleefully notes that with all of this new American gas and oil production and consequent increase in energy independence, domestic production accounted for 81 percent of U.S. energy demand through the first 10 months of 2011. In my new book, No War for Oil: U.S. Dependency and the Middle East, I refute the need for even worrying about American dependence on imported energy and note that if Americans want energy independence, they will pay through the nose for it. This principle is demonstrated by Friedman’s advocacy of a price floor to subsidize domestic oil production.

Such a price floor and tax, which would inefficiently reduce U.S. imports of oil, would only drive down the global oil price if the excess supply of “petro-dictators’ oil” were not soaked up by increased petroleum imports by the raging economies of the developing world, including China and India.

Besides, although some countries that produce oil are dictatorships, some are not—for example, Mexico, Canada, Britain, Norway, and Brazil. Even most of the oil-producing dictatorships don’t support anti-U.S. terrorism. In other words, the usual trumpeted link between oil profits and terrorism is a canard.

Protectionism and neo-mercantilism, the government subsidization of certain private businesses at the expense of consumers, are as inefficient in energy as they are in other products and commodities. One hidden subsidy for American oil companies and overseas oil-producing countries that my book exposes are the hundreds of billions of dollars spent “defending” U.S. oil interests abroad. Even if wars in the Middle East occur, oil is a valuable commodity, and exporting it generates handsome profits. Thus, oil is often exported around and sometimes, as in the example of the Iran-Iraq War in the 1980s, through wars. Guarding against the rare oil-supply disruption by stationing vast American military forces, whose expenses are not contingent, in the Middle East and other places is unnecessary to prevent oil price shocks to developed economies that have proven resistant to them. Even oil protectionists and neo-mercantilists, such as Friedman, apparently don’t put much credence in the theory that high oil prices damage developed economies. In fact, they usually support wars in the Middle East and economic sanctions on oil-producing nations—for example, against Saddam’s Iraq and currently against Iran—that artificially drive oil prices up.

In fact, stationing U.S. forces all over the Middle East may be done less for economic reasons and more for imperial ones. The motive may be less to guard American and allied economies oil-price-spike-induced harm, which is unlikely, and more to keep a finger on the juggler of petroleum supplies for important importing countries, such as China, India, Japan, South Korea, and Europe. But as explicated by the economists of the 18th an 19th centuries, empire does not pay financially.


Ivan Eland is Senior Fellow and Director of the Center on Peace & Liberty at The Independent Institute. Dr. Eland is a graduate of Iowa State University and received an M.B.A. in applied economics and Ph.D. in national security policy from George Washington University. He has been Director of Defense Policy Studies at the Cato Institute, and he spent 15 years working for Congress on national security issues, including stints as an investigator for the House Foreign Affairs Committee and Principal Defense Analyst at the Congressional Budget Office. He is author of the books Partitioning for Peace: An Exit Strategy for Iraq, and Recarving Rushmore.


  New from Ivan Eland!
RECARVING RUSHMORE (UPDATED EDITION): Ranking the Presidents on Peace, Prosperity, and Liberty
Taking a distinctly new approach, Ivan Eland profiles each U.S. president from Washington to Obama on the merits of his policies and whether those strategies contributed to peace, prosperity, and liberty. This ranking system is based on how effective each president was in fulfilling his oath to uphold the Constitution.






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