The Idiocy of Energy Independence

Townhall.com ^ | August 20, 2008 | John Stossel

[Kaslin]

It's amazing how ideas with no merit become popular merely because they sound good.

Most every politician and pundit says "energy independence" is a great idea. Presidents have promised it for 35 years. Wouldn't it be wonderful if we were self-sufficient, protected from high prices, supply disruptions and political machinations?

The hitch is that even if the United States were energy independent, it would be protected from none of those things. To think otherwise is to misunderstand basic economics and the global marketplace.

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".

Anyway, a "domestic energy only" policy (call it "Drain America First"?) is a fantasy. America's demand for oil is too great for us to supply ourselves. Electricity we could provide. Not with windmills and solar panels -- they are not yet close to providing enough -- but coal and nuclear power could produce America's electricity.

But cars need oil. We don't have nearly enough.

That doesn't keep the presidential candidates from preying on the public's economic ignorance.

"I have set before the American people an energy plan, the Lexington Project -- named for the town where Americans asserted their independence once before," John McCain said. "This nation will achieve strategic independence by 2025".

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 Obama is wrong when he implies that America imports most of its oil from the Mideast. Most of it comes from Canada and Mexico.

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.

[ChessExpert]

Excellent article!!

“Energy Independence” makes for a great bumper sticker, but poor policy. We don’t need 100% energy independence. Events of the last half century supports this.

We produced around 60% of our oil. Then we capped oil prices domestically (Nixon?). Oil producers brought less US oil to market. The difference was made up by greater imports. By the Carter years, we only produced 40% of our oil. This change (60% to 40%) allowed OPEC to flex their muscles. After they raised prices, Carter compounded our problems by capping gasoline prices. He later reversed himself.

Reagan came to office and decontrolled oil prices domestically. Problem solved. We worked our way back up to producing 60% of our oil. We seldom heard about OPEC. They kept the sign on the building but they had no clout, so who cared? OPEC was neutered.

Post Reagan, with environmentalist restrictions on US supplies and increased US demands, we are back to producing only 40% of our oil. We can beg the Saudis for oil on Monday and demand they stop funding radical Muslims on Tuesday. They listen politely but that’s it.

When we produce around 60% of our oil, consumers are well off. We are a major consuming nation and we are well off. But when we only produce around 40% of our oil, consumers and consumer nations are in a bind.

Producing 100%, or more, of our oil is not necessary. It this results from free markets that’s O.K. But if it requires government subsidies or freedom-limiting regulations, it is a mistake.

[Realism]

as long as the market is free

The only way a free market can exist (in my mind) is if:
1. I can make my own if I choose.
2. It's a luxury and I can choose to not purchase it if it's too costly.

A free market cannot exist if supply and demand can be manipulated to reach a desired consumer price

[ChessExpert]

“Coal liquefaction is already available, but it is blocked by environmental regulations.”

I don’t think Stoessel has a problem with repealing extreme environmental regulations. He may cover that in another article.

I think all we have to do is get rid of the extreme environmenal regulations (is there any other kind?) and our energy problems will go away. Americans will supply all the energy we need as a bi-product of freedom (free markets). As Reagan said, the government is the problem, not the solution.

[Kevmo]

Looks like a good article. BMFLR.

[markoman]

It seems to me that the price of oil would go down,whether it’s produced here in the U.S. or anywhere else simply because there is more of it.

[BroJoeK]

"You have to count more than crude oil to reach 20 MMBPD."

Thanks for the clarification.

I'm trying to do some quick math here to make a simple point. Check me out on this:

Wikipedia on US energy consumption

The US consumes the energy equivalent of 50 million barrels of oil per day -- 20 million of that from petroleum. Most of the rest comes from coal and natural gas, with only 14% of the total from all other sources -- i.e., wind, nuclear, hydro, etc.

Of the US total energy, about 5% comes from the Persian Gulf -- meaning Saudi Arabia, Iraq and Kuwait. Another 6% comes from Canada and Mexico.

[Mr. Blonde]

That was my thought as well. OK, maybe not total energy independence, but energy independence from the middle east. If all of the oil expected to come from Brazil actually happens I’m all for importing from there. Especially if we get to import women as well.

[PsyOp]

We cannot produce enough oil to become energy independent, but we can produce enough to offset what we purchase from the middle east and to collapse world wide prices back to at least $50 a barrel—provided we drill where we our know reserves are.

[thackney]

I would recommend using http://eia.doe.gov/ rather than wikipedia. Much of this is already separated out there.

[Rick.Donaldson]

I’ll make a deal with the government.....

You give me a solar and wind system for my house. Then leave me the hell alone. Then I will stop paying taxes.

How’s that? Sounds like a good deal.

I’ll be “energy independent” except for having to buy gas for my cars. Take the taxes off that, let us get gasoline cheaper and drill the hell out of the coastal waters, ANWR and dig up some shale here in Colorado... then we can say we’re “independent” to some degree.

Otherwise, it’s all like “Russian Bluster”. Hot air.

[oyez]

Politicians don’t have an answer for all this, but American know-how can produce an answer. All it takes is for the politicians to get out of the way. I get a sneaking feeling the politicians know this as well and that is what they are afraid of.

[xzins]

The 5% from MidEast hides the problem. It is the overall amount that is imported, and the total amount purchased from the market.

MidEast oil makes up a large percent of world oil and it is the world market that determines the price of oil. Energy independence make it hard for us to be extorted by those who can cut supplies off, but they can still affect world prices.

The good news is that we wouldn’t be sending our money to them. We would be keeping it at home for jobs here in the energy and transportation industries.

[Publius6961]

The hitch is that even if the United States were energy independent, it would be protected from none of those things. To think otherwise is to misunderstand basic economics and the global marketplace.

Can you spell s-o-p-h-i-s-t-r-y?
Understanding basic economics and the global marketplace is pretty much useless, if you choose to ignore little things like accepting the concept of 'cartels' into the mix.

How does that distort reality beyond redemption?
Think about it.

[Publius6961]

Don't Obama and Pickens realize that we get something useful for that money?

The exact same thing can be said about paying the Mafia "protection money".
The crucial difference being that the Mafia knows that greed can kill the Golden Goose and, so far, OPEC believes themselves immune to the same results.

Who is this clown Stossel?
Doesn't he know that spokesmen and lobbyists for foreign powers (this would include OPEC) are required to register with the State Department?
I have not seen such transparent and invalid arguments in a long long time.
Even if we weren't funding terrorism 100% through the muslim members of OPEC...

[Publius6961]

Unless we are willing to exert Russian-like military pressure on Mexico and Canada, they are free to sell their oil to the highest bidder, so pretending that Mideastern oil isn't our oil is silly.

No military pressure is required.
Can you imagine Mexico, Venezuela and Canada suddenly having to add the costs of transportation to consumers in China, India and Japan?

Take the US out of the game plan and it changes many things. I would buy into rationing if it upsets the world's crooks.

[HereInTheHeartland]

“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. “

He doesn't get it. Most of us who want energy independence completely understand free trade, and that we live in a world market.
There is another layer under the onion that Stossel doesn't try to unpeel.
By seeking energy independence for our nation, we will drive energy prices down worldwide which achieves the goal of sending less of our money overseas.
It also achieves the goal of protecting us, if world events make the transport of energy difficult across the ocean. (Say Russia decides to be extremely stupid, or China wants do something really dangerous)

[Lonesome in Massachussets]

If Mideast oil supplies were disrupted by, say, the Iranians nuking Saudi Arabia, the rest of the world would be more than willing to pay the freight to have Western Hemisphere oil shipped to them.

Oil is fungible, there is no such thing as “our” oil and “Europe’s” oil and “China’s” oil. It’s “oil” one big pool.

[mo]

Problem is....the politicians aren’t gonna get out of the way unless we remove them ...

[Publius6961]

Oil is fungible, there is no such thing as “our” oil and “Europe’s” oil and “China’s” oil. It’s “oil” one big pool.

Mindless focus on the word "fungible" only masks the need to think "outside the box".

Wish there were a valid computer simulation of taking the US out of the picture, together with a serious exploitation of all of our own resources to see the actual long term effects.

Who knows?
It might even revive a strong and healthy US: steel production, quality auto manufacturing and a renewed vigorous made-in-USA electronics industry...

[Lonesome in Massachussets]

I didn’t use the word “fungible” mindlessly. I tend towards the liberitarian side and favor free trade. However, if you read my first post, you’ll see that I perceive an unfair subsidy for imported oil in the U.S. Defense budget. The U.S. spends hundreds of billions a year to keep oil flowing to India, China, Europe and the U.S.