More on Oil, Economics and Government

On April 24 a reader commented on a posting from way back in August. It is quite lengthy, as is my reply. But since much of my reply may be of interest to current readers, I am posting an abbreviated version below. Anyone interested in the reader’s comments as well as my complete reply should click on “August” in the Archives to get to the August 29 posting “Government Versus Economic Reality.” Then click on “Comments” at the end of that article. Here’s my abbreviated version:

I do not agree that “reliance on unreliable foreign sources of fuel poses a hazard to the security of the United States.” Over 80 percent of our total consumption comes from North America. The U.S. itself is our largest source of petroleum, and Canada is by far our largest source of petroleum imports, followed by Mexico. Canada and Mexico are not “unreliable” sources. Saudi Arabia, the kingpin of Mid-East oil, provides less than seven percent of our imports, and the rest of the Middle East another 7 percent.

On the evening news recently, a reporter was interviewing some Mexicans trying to cross into the U.S. He asked why they were risking their lives crossing the desert. They replied that, like thousands of others, they knew the risk of dying in trying to enter the U.S. but could not stay in Mexico because they had no money, no jobs, no food. With so many of its own people unemployed and lacking basic necessities, do you think the Mexican government is going to stop selling oil to the U.S.? Of course not. That would only make the plight of its own people even worse. The Mexican government cannot afford to stop selling oil to the U.S.

Our imports of Mid-East oil are far lower than the public realizes—and could be even lower but for government policies inimical to domestic oil and gas production. If Mid-East oil imports were disrupted or reduced, undoubtedly the price would go up. This, in turn, would stimulate U.S. production through capital investment, exploration, improved technology, and pressure to reduce government regulations and policies that “transcend” economic reality and are obstacles to petroleum production.

What are some of these “transcendent” obstacles in the form of “political/policy considerations”? One is the federal moratorium on offshore drilling —maintained since 1981 to appease the environmental lobby. This has put 85 percent of the Outer Contintental Shelf (OCS) bordering our entire Atlantic and Pacific coasts off limits. It has also put the eastern half of the Gulf of Mexico off limits, which is why the oil and gas industry was centered around New Orleans, where it was vulnerable to the Hurricanes Katrina and Rita. According to Minerals Management Services, the Gulf of Mexico is sitting on 50 percent more oil reserves than Alaska (which has more than the lower 48 states), but they are off limits. And you know, of course, that Congress voted not to allow drilling in any of the 19 million acres in ANWR in Alaska.

Further, government regulations are the reason not a single oil refinery has been built in the United States for 29 years. (One company has been trying for 16 years to get the necessary permits.) The oil industry has spent $47 billion on refineries in the past decade—but it has all gone to meet environmental requirements, not to increase the availability of fuels. The constant apocalyptic pronouncements that we are running out of oil and government must “do something” to prevent catastrophic shortages invariably ignore the fact that past government actions that “transcend” economic realities are largely responsible for today’s precarious supplies—as well as for the prevention of measures for expanding those supplies.

The doomsayers always view petroleum or any other resource as a static quantity, without relevance to technology or economics. But it is technology and economics that make resources available for human use—and those are the fields which government policies prevent, inhibit or misdirect. There is a long history of predictions of shortages that never occurred, because the prophets of doom failed to account for changes in technology or comparative economics. And there is a long history of shortages caused by government policies inhibiting technological advances and forcing political “solutions” upon economic problems.

In the late 19th century there was a great scare that the industrial age would soon grind to a halt because of a shortage of coal. Today coal is superabundant. In 1914 the U.S. Department of Interior said there was only a ten-year supply of oil left. In 1952 it warned that oil wells would run dry by the mid-1960s. And in the 1970s President Jimmy Carter solemnly told us that “we could use up all of the proven reserves of oil in the entire world by the end of the next decade.” (For more on the current abundance of oil, see our posting on this blog of November 30, 2005.)

Scarcely a half century ago the idea of drilling for oil deep beneath the oceans seemed technologically impossible and economically infeasible even if it were possible. Yet now deep-sea rigs drill the ground beneath 10,000 feet of water—and the cost of doing so is approaching the cost of drilling 100 feet down on lands in the riches fields of Texas or Saudi Arabia 40 years ago!

The U.S. Dept. of Energy now predicts that carbon sequestration technologies—an innovation of industry, not government—could soon add 89 billion barrels of oil (BBO) to our existing total of 21.4, and eventually add 430 BBO, giving us a total approaching that of Saudi Arabia. Max Schulz of the Manhattan Institute says new discoveries and production methods will raise Saudi Arabia’s reserves to 461 BBO compared to 261at present. Then there is Canada’s Athabasca tar sands, where 180 BBO—a fraction of the deposit—are already economic at today’s price of oil, making Canada’s reserves second only to Saudi Arabia’s current reserves of 261. The Canadian sands are now said to contain between 1 and 4 TBO—that’s TRILLION barrels of oil. And oil shale, which is widely distributed across the globe but not yet economic to develop, can meet our needs for 40,000 years at the current rate of oil consumption. Still we hear the same old economic garbage almost every day about how the world is running out of oil and how we have to reduce our dependence on oil from the Middle East. And so more government programs are proposed by the idiots in Washington and the voting public, neither of whom have learned anything from the past. Or from free-market theory, i.e., economic reality.

An increase in the gas tax—300 percent was mentioned—would be terrible. It would increase the role of government, which is largely responsible for the problem, and do nothing to solve it. A “windfall profits tax” on the oil companies is another stupid idea. Both would do nothing to increase the supply of oil. Instead of increasing taxes, the government should eliminate the gas tax and forget about the windfall profits tax. The higher prices would lead to conservation of supplies and, more importantly, would provide huge incentive for oil companies to increase production—which would lower prices. And industry would have the additional funds needed for exploration, devising innovative technologies, and building refineries. So there would be no need for subsidies or other favors from Washington.

Who knows more about increasing oil production?—the industry or the government? So why funnel money to the government? How would it use the money to increase supplies? Through subsidies? How would it know which companies to subsidize? Is the government better at choosing which company to support through subsidies than the marketplace is in “choosing” which company will be best supported through profits from the buying public?

Would government even subsidize the oil industry?—or would it instead funnel the money to build windmills and subsidize ethanol or other uneconomic energy sources? In a free market, the best product, the most efficient producer, the company that best provides what the buying public wants is the most successful. But government subsidies go to those with the most effective lobbyists, those who make political contributions, and to causes most likely to ensure a politician’s re-election. Which of these funding patterns is more likely to increase oil availability and be more beneficial to the economy? Government should have as little to do as possible with the economy. And if we had a free economy, one where government can offer no economic handouts, there would be no incentive for companies to try to curry favor and influence policy; they would have nothing to gain. Rewards would be determined by the marketplace, not by politicians for political reasons having nothing to do with economic realities.

A free economy is the only economy appropriate to a free society. The dirty little secret of the economic interventionists is that they really don’t want a free society, one where economic choices are determined freely by individuals in the marketplace instead of by collectivist solutions forced upon some people by others, namely, those possessing political power. They want a controlled society, the kind that has failed throughout history to advance either living standards or individual rights. The two go together.

Fossil Confounds Global Warming Alarms

You probably heard about the recent discovery of a fossil that is an important missing link between fish and land animals. The creature was a fish with a crocodile-like head and fins that had begun evolving into limbs, enabling it to lift itself out of shallow water. The fins show arm joints and the beginnings of a wrist.

The find was made on Ellesmere Island, at the uppermost reaches of the North American continent, hundreds of miles north of the Arctic Circle and only 887 miles from the North Pole. Due to the extreme weather at that remote location, fossil excavations were limited to the month of July.

Now, this creature, like all fish and reptiles, was cold-blooded. So it could not have survived were it lived unless the earth was VERY much warmer at that time. Which shows that the earth has been subject to VERY large temperature variations over a long time without human activities. In fact, perfectly natural climate changes in the past dwarf the one degree temperature rise of the past century that the public has been panicked into believing is a cause for alarm.

The effect of human activities on climate is trivial compared to the scale of changes wrought by nature all by itself. In the last 10 million years there have been 17 ice ages, which alternately formed and melted ice sheets hundreds of feet thick and covering much of the continents. Most centuries have had climate changes of a degree or more, either warmer or colder. And there have been centuries when atmospheric carbon dioxide increased at least three times faster the current rate. At the time of the dinosaurs, the carbon dioxide content of the atmosphere was 3 to 5 times what it is today. 500 million years ago, it was twenty times what it is today.

The long range threat to life on earth is not from too much carbon dioxide but from too little. The earth’s atmosphere has been gradually losing its carbon dioxide as the carbon has become tied up in fossil fuels. If this continues, eventually plants will be unable to reproduce and the earth will become as barren as mars. We should be glad if we can recycle some carbon from fossil fuels back into the atmosphere!

For more on global warming, see my 3,000 word booklet “What Global Warming”? available from American Liberty Publishers (www.amlibpub.com).

Cancer, Health, Government and Markets

At a recent policy forum sponsored by the Independent Institute, world-renowned cancer researcher Dr. Bruce Ames explained that the public has a distorted view of what causes cancer, thanks largely to media “scare” stories. He said the leading cause of cancer was bad diets (about 35 %), followed by smoking (about 30 %), chronic infection and hormonal disorders (about 20 % each), occupational hazards (about 2 percent), and pollution—less than 1 percent!

The media scare stories invariably carry the message that people need government to protect them from occupational hazards and pollution, that these are consequences of capitalism and people being left free. The message: people can’t be left free!—their activities must be controlled by Big Government—and capitalism inherently creates conditions harmful to people and environment and, therefore, must be controlled. But if, instead, these cancer hazards are really very small, then we don’t need massive programs financed by massive government spending (and the politicians and bureaucrats promoting them would be out of a job.) Big Government simply channels the resources of society into programs that are of less benefit to the people who pay for them than the alternative allocation of human resources that would occur in a free market.

The allocation of financial and other resources that occurs under capitalism provides not only unequaled economic benefits but health and environmental benefits—as a consequence! Economic growth is not the enemy of human health and the environment but works silently—and automatically—to achieve them, just like Adam Smith’s “invisible hand” works in the economic sense. Here are some facts documented in my book MAKERS AND TAKERS (American Liberty Publishers, www.amlibpub.com), which shows the progress made in healthful conditions by the free market, before the federal government decided to protect us, and the consequences of government intervention:

In the half century before OSHA, accidental worker deaths dropped 67 percent. Fewer workers lost their lives in 1971 than in 1912, even though there were twice as many worker and they produced seven times as much. Two full years after OSHA regulations were introduced, job-related injuries and illnesses had INCREASED from 5.6 million to 5.9 million and lost workdays in manufacturing increased 7.1 percent. The U.S. Labor Department reported a 14 percent increase in job injuries and illnesses from 1975 to 1988.

Cars were becoming safer, not more dangerous, as Ralph Nader and others championing auto safety regulations claimed. There were actually fewer total highway deaths in 1960 than in 1939, even though in 1960 there were 3 times as many vehicles, traveling 3 times the mileage and at much higher speeds. Highway deaths per number of registered vehicles decreased steadily from 1913, when the government first began keeping track, until 1960. The 1960s, when we got the first federal auto safety regulations, became the first decade in history when auto accidents FAILED to decrease, whether measured by accidents per registered vehicle or mileage traveled.

Prior to the Federal Coal Mine Health and Safety Act of 1969, mining accidents had been steadily decreasing for decades. Because of the regulations imposed by that act, hundreds of coal mines were forced to close, thousands of workers lost their jobs, and coal was more expensive for the consumer. And coal mining wasn’t any safer. In 1980 there were 32 percent more accidents in coal mining than in 1970 even though less than half as much coal per worker was being produced, due to the regulations.

On the environmental side, automobile exhausts were reduced more in the 20 years before passage of the Clean Air Act than in the 30 years following that legislation. The automakers didn’t make cleaner-burning cars because of concern about the environment; that was simply a byproduct of their capitalistic desire to sell more cars. They achieved that by devising more efficient engines that provided better mileage and faster cars by burning fuel more efficiently, which incidentally meant sending less of the fuel components out the exhaust pipe. This economic incentive of the marketplace proved to be far more effecting in reducing auto emissions than all the laws that have been passed. When advocates of the regulations credit them with reducing air pollution, it should be remembered that automotive air pollution was being reduced faster before the regulations, simply as a consequence of the marketplace.