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September 14, 2008

Tom Friedman Being Stupid

"America Being Stupid" is the headline on Thomas Friedman's latest column in the New York Times. It's a rant against the possibility of offshore drilling.

"Why would Republicans, the party of business, want to focus our country on breathing life into a 19th-century technology — fossil fuels — rather than giving birth to a 21st-century technology — renewable energy? …

"Of course, we're going to need oil for many years, but instead of exalting that — with "drill, baby, drill" — why not throw all our energy into innovating a whole new industry of clean power with the mantra 'invent, baby, invent?'"

Forget the politics; that's not what this post is about.  Almost the whole political crew is way behind the public in the logic of this situation. McCain was against offshore drilling before he was for it (although changing your mind isn't always bad); he's still against more drilling in Alaska. Obama was against offshore drilling until he said he'd think about it (thinking isn't always bad but he ought to learn to change his mind more decisively). Nancy Pelosi wouldn't even allow a vote on offshore drilling until she saw the polls and heard from anguished House members up for reelection. Now she's hoping to uh.. put lipstick on a pig with a compromise which probably would mean no or very little drilling. But forget the politics.

Thomas Friedman wrote The Flattening of Almost Everything which was brilliant explanation of globalization. Sad to see him forgetting everything he seemed to know about economics and resorting to the rhetorical device of the false dichotomy.

Friedman writes as if we have to make a choice between drilling for more oil and innovating in energy creation and use. That might be true if there were a proposal to spend public money on drilling instead of, say, upgrading the power grid or doing basic research. But no one is proposing that we spend public money on drilling! We get public money from drilling twice, once when oil companies pay for the initial leases and once more when they pay royalties on the oil and gas they extract. Having more public money gives us more choices, not less.

What's more, American will pay less for oil products – no one knows how much less and when – if we have more domestic supplies. We will certainly send much less of our money to bad places abroad. If more of our money stays home, more money is available to spend on alternative energy without the government even guiding the investment into boondoggles like corny ethanol or bailouts for auto companies.

We don't even know how much offshore oil we have since we have forbidden ourselves to explore. A conservative estimate is 16 billion recoverable barrels – not counting Alaska. At $100/barrel that's $1.6 trillion dollars. Now here are some real dichotomies: do we want to keep that money here or do we want to send it away? Do we want the extraction jobs to be mainly American or do we want them somewhere else? Do we want to get this oil from an area we can relatively easily secure or would we rather get it from Iraq and Iran? Do we want the oil companies to invest their profits here or in Russia, for example?

Opponents of offshore drilling say that oil prices will soar even if we drill. They're probably right despite the current interruption in commodity inflation. Let's suppose oil is $400/barrel by the time any offshore wells can come online. Then that oil is worth $6.4 trillion dollars – probably half of which goes to the government and much of which stays in the US. Do we want $6.4 trillion dollars less than we want $1.6 trillion. The more we think prices'll go up, the more we should want to drill.

What's frightened an intelligent man like Friedman into false dichotomies and economic illiteracy? We're forgetting politics so I'll assume it's not that. What Friedman and other anti-drillers are really afraid of us is that, if we drill offshore, the price of oil and gasoline will continue to fall and therefore we won't invest in getting independent from it. History does show that, if prices are low enough, we (including me) buy SUVs and, if prices rise fast enough, we do cut back; so they have a point there.

If the price of oil falls far enough (unlikely given new demand but possible), then we should tax it back up and rebate the tax in reduced social security payments for low-income wage earners. Raising prices by reducing domestic supply (as we do by restricting drilling), give a windfall to foreign producers – many of whom are not our friends. Raising prices through taxation arguably reduces the take of the suppliers AND reduces demand. BTW, this is not an argument politicians are likely to make during the election season.

Related posts:

If I Can't Have a Magic Bullet, I Won't Shoot

The Price of Gasoline SHOULD Go Up (written before it DID go up)

 

 

 

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