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Saturday, August 16, 2008

High Oil Prices and the Dangerous Security and Foreign Policy Spillovers: 2nd in a Series

Today's Subject 

At Carpe Diem, a new thread was started last week (mid-August) by Prof Mark Perry, its head, on the question of high oil prices and whether such interdependence on the international oil market is desirable or not . . . what with the choices facing us now and in the near future as far as energy sources go.  In particular, Perry started the thread with a quote from T. Boone Pickens --- the Texas oil-billionaire --- who has switched to supporting wind-power as a way to start digging us out from what he regards as a dangerous transfer of huge wealth to foreign states that we import from.

A libertarian, Prof Perry disagreed.  Not a libertarian, prof bug agreed with Pickens, though for other reasons.  In particular, as he argues in his three lengthy commentaries in that thread --- one of which takes issue with Perry's interpretation --- the buggy prof argues that virtually all cost/benefit analyses put out by economists about the international oil market are badly flawed. 

Four Such Flaws Stand Out

  1. The international oil market can't be analyzed as a competitive economic market.  Prices globally are set in large part by the OPEC cartel, through its production quotas.  And 60% of our imports, which amount to 10 million barrels a day, come from OPEC sources.
  2. Energy markets in the US --- whether based on oil, gasoline, natural gas, nuclear power, hydroelectric, coal, or more recently ethanol --- have all been heavily subsidized, and for decades. The 2005 energy bill passed by the Republican Party and signed by President Bush, for instance, committed $6 billion to the oil and gas industries, $12 billion to the nuclear power industry, and $9 billion to the coal industry, plus other kinds of windfalls, along with big support for ethanol production and wind and solar and electricity . . . a total of $85 billion.   Later, in the spring of 2008, President Bush asked for $18 billion worth of subsidies for the oil and gas industries alone.  And of course gasoline and heating oil are delivered to dealers by trucks that use tax-built freeways, highways, and streets.
  3. There are huge costs in military and foreign policy spillovers that follow from the US's growing dependence on foreign oil.  In particular, we have spent trillions of dollars and now thousands of American lives to protect oil-rich countries in the Persian Gulf whose importance have been way inflated because of our growing dependence on imported oil.  Meanwhile, almost all of the EU, Japan, Latin America, and Pacific Asia free-ride on our security efforts in that region.
  4. Extravagantly high oil and gas prices have fueled the militancy and aggressivity of Iran and Russia, whose economies would otherwise turn out to be basket-cases, just as those prices did for Saddam Hussein's Iraqi regime until our multilateral intervention there in 2003.  The same is true of the demagogic policies of Hugo Chavez's regime in Venezuela, both inside the country and toward the rest of Latin America.  And the double-dealing Wahhabi zealots who rule Saudi Arabia continue to peddle their outrageous Islamist propaganda world-wide --- which is markedly anti-Christian, anti-Jewish, anti-Hindu, and anti-Buddhist, not to forget misogynist to the core --- all the while relying on American protection against its own and foreign-based terrorists . . . not to forget Shiite Iran, its major rival in spreading Islamist fanaticism abroad.

What to Do

Prof bug argues in the thread that if we take into account all four of these factors --- remember, nearly always ignored in cost/benefit economic analyses and commentaries --- we would do well to adopt a national policy of switching to a basic energy source for all our energy uses: electricity, which has the big advantage of being produced by natural gas, coal (which can be produced cleanly at a cost), hydroelectric, nuclear, and solar and wind.  In a decade or so, we would be able with proper subsidies --- including once electric driven vehicles become mass produced in three years or so --- to both free ourselves from most of our oil imports, while reducing the significance of the Middle East as oil prices plunge.  An added benefit would be more environmentally benign forms of energy usage.

And, as prof bug also argues in one of his three commentaries in that Carpe Diem thread, electricity as one big benefit: electricity, once it's produced, cannot be hiked in price by foreign countries and companies seeking to import it from the United States.  Yes, some of the sources can be imported --- but aside from oil, we have vast coal and natural gas resources, and the same we be true of electricity generated by hydroelectric and nuclear-power production.