The political crisis in Egypt is being used by tools of the oil industry to – once again – put the scare into people about our dependence on “foreign oil”. Stephen Moore was on Fox News talking-up the old “drill baby, drill” sentiment on February 2, lamenting our lack of “energy independence”. I just wish Moore would restrict himself to a diet of Gulf shrimp. I doubt whether it would change his mind, although it might make him more fun to watch on television as the hydrocarbons gradually work their karmic magic.
The myth of “foreign oil” is one of my pet peeves for several reasons – not the least of which is the fact that the one foreign oil company, which has done the most harm to the United States is British Petroleum, rather than some enterprise from the Middle East.
Much as been written to dispel the myths of “foreign oil” and “energy independence”, although the spokestools of the oil industry do all they can to pretend as though such information does not exist. Take for example, the essay written by David Saied for the Ludwig von Mises Institute entitled “America’s Economic Myths”, wherein he debunked the myth of “dependence on foreign oil”:
This myth basically suggests that the problem with oil prices is due to America’s “dependence” on foreign oil. One of the worst economic myths, it plays on economic nationalism and on xenophobic feelings that are sometimes pervasive in the United States.
The high price of oil has nothing to do with its origin; the price of oil is determined in international markets. Even if the United States were to produce 100% of the oil it consumes, the price would be the same if the worldwide supply and demand of oil were to remain the same. Oil is a commodity, so the price of a barrel produced in the United States is basically the same as the price of a barrel of oil produced in any other country, but the costs of labor, land, and regulatory compliance are usually higher in the United States than in third-world countries. Lowering these costs would help increase supply. Increasing supply, whether in the United States or elsewhere, will push prices lower.
Importing a product does not mean you “depend” on it. This is like saying that when we “import” food from our local supermarket we “depend” on that supermarket. The opposite is usually true; exporters depend on us, since we are the customers. Also, importing a product usually means buying at lower prices, whereas producing in the United States often means consuming at higher prices. This point is proven when we see the cheap imports we can purchase from China and the higher prices of many of these same products manufactured in the United States. The amazing thing is that the protectionists claim, on the one hand, that America should be “protected” from cheap imports, but when it comes to oil, they say we should be “protected” from “expensive imported” oil.
Most, if not all, of the higher price of oil can be explained by the expansion of the money supply or the debasement of the dollar. The foreign producers are not at fault; our national central bank is the culprit.
As a fan of the Real Clear Markets section of the Real Clear Politics website, I was pleased to see this recent commentary by John Tamny, wherein he had a good laugh at T-Bone Pickings for accidentally revealing the absurdity of the “energy independence” meme:
As this column has shown more than once, the price of a barrel of crude tends to revert to 1/15th of an ounce of gold, and as of Tuesday, oil’s price increase merely brought it in line with its historical cost.
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Oil is oil is oil, and it’s a commodity whose price is discovered in deep world markets.
Canada is seemingly “energy independent”, but assuming ongoing Middle East uncertainty, its citizens will – like us – buy gasoline the price of which is based on the cost per barrel set in global markets. Much as we might like to naively fantasize about walling ourselves off from international market realities, we’ll never be immune to the activities around the world that impact oil’s price. Canada and its citizens won’t be either.
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So while we can expect lots of breathy commentary about the need for energy independence in the coming weeks, particularly if Middle East unrest spreads, cooler heads will hopefully prevail. The false God of independence will not wall us off from supply-driven increases, and more important, the waste of human and financial capital necessary to achieve the silly notion would be far more economically crippling than any presumed supply shock could ever hope to be.
My own dream of “energy independence” involves owning an electric car, which I can recharge with a “solar power station” similar to what we see advertised on television – along with another “solar power station” to provide my home electricity. “Energy independence” can only be achieved when American consumers are liberated from the tyranny of the oil companies and the power utilities.