Today’s Investor’s Business Daily includes two articles about the current high price of oil. The articles are promoted as being from opposing left and right perspectives, but if you were to read each article without this preconditioning (and without knowing anything about the authors); you’d be hard pressed to see where they disagree.
Indeed, Robert Samuelson (on the left) and Victor Davis Hanson (on the right) both agree that we are entering “a new geopolitical era,” as Samuelson puts it. In fact, reading the articles, I’m not sure the two authors substantially disagree about anything. They each highlight different perspectives about the oil economy, but their views seem quite compatible with each other.
Both writers note the substantial increase in demand for oil from China, India, and developing nations. Samuelson notes that, despite plentiful reserves, the capacity to exploit those reserves began to be outstripped by demand in 2004 for the first time in two generations. He discusses how higher prices make negotiations with suppliers more difficult. Hanson mentions our alliances with “creepy suppliers” and rips on domestic oil firms for charging the international rate for oil that is produced domestically at about the same cost as it was being produced 20 years ago. Both writers are upset about long-term inaction on dealing with a problem that was readily foreseeable.
Hanson’s solution leaves me a little flat. He writes, “It is past time to demand from our presidential candidates, as well as the current government, exactly when and how they plan to slay this many-headed oil monster.” Samuelson suggests that we “Raise fuel economy standards for new cars and trucks; gradually increase the gas tax (possibly offset with tax cuts) to induce people to buy those vehicles; expand oil and natural gas production in Alaska, the Gulf of Mexico and off the Atlantic and Pacific coasts.”
In other words, both of these guys are calling upon the great savior of the almighty federal government to come down and rescue us from ourselves. Samuelson, at least, acknowledges how politically unlikely it is that his suggestions will gain any traction. Hanson’s solution would surely produce a lot of hot wind, but little else.
I think both of these distinguished gentlemen are barking up the wrong tree. And while each is well educated on economic issues, they both seem to have forgotten some of the basic rules of economics. Although Samuelson notes that “higher prices will [eventually] dampen demand,” neither he nor Hanson seems to have any inkling that higher prices will eventually spur market-based solutions — provided that the government doesn’t thwart them.
Government should get out of the way. It should quit oil subsidies and other oil-friendly policies that raise barriers to entry into the energy market. Likewise, it should scrap subsidies and policies that support specific types of alternative fuels. For all the cash poured into these policies over the years, we have very little to show for it. And some of the results are actually harmful.
When the market actually demands solutions, the market will supply those solutions. History shows us that the form these solutions may take simply cannot be predicted very far in advance. Government tends to work counter to real innovation. Even if the government doesn’t get out of the way, innovation will still come. It will just take longer and be more expensive. The tide cannot be held back forever.