Mises Daily Articles
Oil and the State: How Journalists Get it Wrong
In a recent article on "energy" problems in the United States, Time Magazine has managed to do what U.S. journalists have been doing for the last three decades when writing about matters of natural resources: displaying a wealth of factual knowledge while simultaneously demonstrating a profusion of economic ignorance.
The magazine's latest foray into the issues of oil, natural gas, and other fuels, "Why U.S. Is Running Out of Gas," shows that the country's "top" journalists in the energy field are as economically ignorant as their forbears were in the 1970s and 1980s when this country was gripped by a real live fuel crisis. If we can conclude anything, it is that economic illiteracy is a requirement of "elite" journalists in this country who cover the energy beat—and that government programs to "do something" about these crises only create more crises.
The article notes that some critical fuels shortages, especially in natural gas, already are here and that the prospects for the next few years could be grim, indeed:
…Americans are heading into their first big energy squeeze since the 1970s: a shortage of natural gas, the invisible resource used to heat homes, fuel kitchen appliances, generate electricity and manufacture many of the chemicals we use. The shortage has triggered a sharp rise in prices that is likely to exact a heavy toll on low- and middle-income Americans, especially those living on fixed incomes. Home heating bills last winter more than doubled in some areas, and they are expected to go up at least another 20% this winter. Electric bills also will spike because generating plants are increasingly gas-fueled. And in places like Louisiana, where the petrochemical industry makes up a big part of the local economy, the shortage is causing a loss of jobs, with at least 2,000 layoffs so far. The entire industry may be forced to move offshore over the next few years if there is no relief.
The reason for this situation, according to Time, however, is one that demonstrates that journalists on the energy beat still have not learned some basic lessons in economics:
For consumers, the second part of this one-two punch is exaggerated oil prices. While the world is swimming in crude oil, it already trades at an inflated price of $30 a bbl., a level essentially dictated by Saudi Arabia with the approval of the U.S. government. This translates into swollen prices for gasoline, home heating oil and other petroleum products. What's worse is that because of Congress's three decades of fumbled energy legislation, Americans have become more vulnerable than ever to an interruption in foreign supply that would truly send prices into orbit and cripple the U.S. economy. More than 53% of America's daily consumption of oil and petroleum products comes from foreign sources, compared with 35% in 1973.
To put it another way, the authors blame the current situation on (1) the fact that this country imports a large amount of petroleum and oil products, and (2) that Congress has lacked the political will to "solve" the problem by pursuing government-funded "energy alternatives." I first look at proposition (1), then tackle (2).
While Time's journalists might be good at demonstrating their skill with numbers, their ability to size up a situation is tainted by their incessant statism—and their simple failure to recognize that the myriad of "energy crises" that have hit this country in the past 30 years owe their origins to government intervention in the pricing, distribution, and extraction of fuels. In other words, the journalists decry Congress for not "solving" the problems that Congress, the courts, and the executive branch caused in the first place.
This is hardly the first time anyone has spoken about the "crisis" of importing oil. As one who was in college during the 1973 Arab oil embargo, I remember the gas lines, the accusations of near treason against "Big Oil," and the politicians clambering for "energy independence." Indeed, President Richard Nixon in 1974 called for a "Project Independence" that was supposed to create energy alternatives that would enable Americans to stop importing oil by 1990. This country, according to the pundits, was "addicted to foreign oil," and with our lives to be dominated seemingly forever by an "energy crisis," it was time to get serious and start conserving and looking elsewhere, including the development of vehicles fueled by hydrogen gas.
The issue of "foreign oil dependency" is one that is long on rhetoric and short on substance, as I pointed out in an earlier article on this subject. For example, no one speaks about "foreign caviar dependency" or "French wine dependency," or "Mercedes-Benz dependency" or "DVD dependency," despite the fact that we import those items in large numbers, too.
It is true that current U.S. demand for petroleum-related products cannot be met by the amount of oil pumped from sources within this country's borders. Also, much oil that is imported comes from countries where political life is volatile and much of the populace openly demonstrates hatred for the USA. (That people in those countries are willing to sell oil to U.S. firms despite their political proclivities demonstrates the power of trade as an instrument of peaceful coexistence between the peoples of the earth.
(However, since most politicians speak of trade in terms of violence like "trade war," "dumping," and "need for protection," it often is difficult to be able to effectively broadcast the message to the public that our buying oil from countries like Saudi Arabia might be a good thing, at least in part.)
The "solution" to such "dependency," according to policymakers and echoed in the statist mainstream press, is that government must engage in programs both of coerced conservation and coerced production of alternative fuels, since members of both of these groups contend that a free market not only cannot deal with the problems, but actually is the source of crisis. Thus, one reads editorials in the New York Times and Washington Post on a regular basis stating that Congress must increase "fuel efficiency" standards in automobiles, an idea that has been thoroughly debunked on these pages.
The thinking goes as such: (1) conservation will result in less fuel being consumed; (2) less fuel consumed means less "dependency" on foreign sources; therefore, (3) coerced conservation will lower U.S. oil imports. While such "reasoning" may make perfect sense to Times editorial writers, it ignores that little problem economists call opportunity cost.
Forcing conservation creates its own set of costs that often play out in the markets and always result in the overall loss of wealth and employment. (In forcing automobile manufacturers to downsize and make vehicles lighter in order to meet fuel economy standards, government has made many cars more dangerous and has caused the deaths of thousands of people, not to mention doing damage to the automobile industry.)
For all of the hue and cry about imports, the past 30 years have been some of the most volatile times in Middle East history since the Roman Empire, yet during that same time, crude oil prices have fallen precipitously in real terms. In other words, the wolf that supposedly lurks at the door has not attacked, despite every opportunity to do so.
The second focus of the Time article deals with the various federal "energy independence" programs that have been started by Congress but always seem to bog down. According to the authors, the problem is not necessarily with the ideas behind the programs—or even the programs themselves—but rather with the lack of political will in Congress. In other words, the authors claim that Congress refuses to take the necessary power to create an energy utopia—as though the 535 men and women making up that legislative body really had that ability in the first place.
Take the "SynFuels" program created in 1980 by President Jimmy Carter, for example. In decrying OPEC oil imports, Carter declared that there was an abundance of alternative fuels and energy sources within the U.S. borders and began a government program to extract those energy sources. From oil shale to ethanol to solar energy, the government doled out hundreds of millions of dollars in subsidies and tax credits only to see market realities play out in a destructive way.
According to Carter and his supporters, by offering subsidies and tax credits, the government would be able to create and expand an energy industry that would produce homegrown fuels, albeit at prices substantially higher than even the highest prices OPEC was able to receive for its own fuels. In other words, American taxpayers and consumers would be forced to pay extra for fuels that they could purchase more cheaply otherwise.
Ethanol production is an excellent case in point. A corn-based fuel, ethanol cannot be transported by pipeline, actually lowers fuel economy, and provides no measurable clean-air benefits. Furthermore, the program survives only because the government heavily subsidizes the whole thing.
To put it another way, taxpayers and consumers must pay at the pump and on their 1040s for a fuel program that given their own choices would not exist in the first place. (Once again, we see those pesky opportunity costs that government planners are unable to legislate out of existence. Not surprisingly, those mega-firms that receive these government doles also have close political relationships with Washington politicians and Archer-Daniels-Midland, one of the worse offenders, advertises heavily on shows such as ABC's "This Week" and NBC's "Meet the Press.")
For all the talk of "economic objectivity" in government programs, we are constantly reminded that, yes, government is a political entity. That means government largess will always be doled out according to the political benefits that accrue to those who give them. To imply otherwise is to say that legislators and bureaucrats have the psychic ability to engage in correct and accurate economic calculation even though they do not have any of the basic tools that economic calculation requires, according to Ludwig von Mises and Murray N. Rothbard. The Socialist Calculation Problem applies as much to government energy programs as it does to the central planners in GOSPLAN of the former Soviet Union.
The authors of the Time article are correct in that coming energy crises are brewing. However, they are wrong when they assume that such problems occur because of the ineptitude of capitalists and the lack of political will by members of Congress. Whether it be gasoline or the making of bread, the production of goods is best left to economic, not political entrepreneurship.