Ideas for Reducing Dependence on Foreign Oil

Homeschool students are debating a resolution calling for reducing dependence on foreign oil. I have spoke to at over a dozen Economic Thinking debate workshops designed to provid an introduction to economic concepts, and to the economics and history of energy policy. Students have asked what I think are the best affirmative cases for this topic. I briefly discuss two below.

Best mainstream case:

The resolution is less than ideal. Free trade benefits both parties whether in food, clothing, coffee or oil. Though in modern open societies we quickly become dependent on others for our food, clothing, coffee and oil, that is not a bad thing. Economists call it comparative advantage. We focus on producing things we are good at producing and purchase from others things they are good at producing. But… the homeschool debate topic was chosen and debaters spend half their time supporting the resolution. Given this, what policies might best support the resolution with the least loss of personal freedom?

One policy idea is a revenue-neutral gas tax (or fee) of 50 cents a gallon. Such a tax would reduce consumption (“dependence “) on foreign oil and encourage conservation and use of more fuel efficient cars in U.S.. But instead of just pouring new dollars into state and federal budgets, I recommend that students propose a revenue-neutral gas tax. State and federal government should keep none of this extra revenue. Instead, my suggestion is for states to eliminate sales taxes on new and used cars that have at least above-average mileage. Government doesn’t need to invest billions in new research. Instead higher mileage cars are already on new and used car lots. But to purchase one of these cars most Americans must pay 5% to 8% in sales taxes (taxes vary by state). By raising gas prices 50 cents a gallon and lowering prices on new, more fuel efficient cars, “dependence” on foreign oil is reduced with the least government intrusion. Plus people get to drive safer, quieter, and more comfortable cars. Not a perfect policy but one that uses one government intervention in the economy (a new gas tax) to reduce or eliminate another intervention (sales taxes on new and used cars).

Best more complicated case:

Think positive. Use this resolution to increase personal freedom in America and reduce the role of government. Attack the idea of dependence itself by calling for complete disengagement of the federal government from energy issues. America’s energy problems started when the federal government began intervening in the oil industry (as an example, OPEC was formed in response to U.S. tariffs on foreign oil). The oil crisis of the Carter years was caused by a combination of retail price controls (gas stations couldn’t raise prices when supplies were short), and supply constraints (oil producers in the U.S. could not charge high prices for supplying oil). Ronald Reagan ran for President calling for less socialism in America and for abolishing both the Department of Education and the Department of Energy (Reagan was elected but then shot, and many of his policy initiatives were slowed or blocked altogether). Neither government energy and education agencies nor their assigned tasks are mentioned in the U.S. Constitution, and neither agencies do things that are the proper role of government in a free society.

Just as welfare dependence is caused by government welfare policies, I would argue that energy and oil “dependence” in the political sense is caused by government energy policy. The idea of dependency is the idea that somehow the federal government is responsible to make sure Americans get enough oil from around the world at reasonable prices. Economists have argued, however, that Saudi Arabia needs U.S. dollars far more than the U.S. need Saudi oil. America would adjust to reduced supplies and higher oil prices (as we did earlier in the fall when oil priced jumped to $55 a barrel). Saudi Arabia, however, would collapse quickly without the huge stream of revenue from oil sales. (And, by the way, Islamic terrorists target America because of U.S. policy in the Middle East, which in turn follows government seeing its task as maintaining stability in the “vital” oil-rich Middle East. Government stability policy in the Middle East has contributed to vast instability there.)

Oil is just an energy source. There are many others. Government energy policy, though, has interfered with alternative energy in various ways. Federal energy research and operational grants have pumped billions into misguided alternative energy sources (ethanol, early wind-power, shale oil, fusion, waste-to-energy, etc), and at the same time the federal government regulates these and other energy sources in ways that slow and distort energy research and development. Government should have a very limited role. Federal politicians and bureaucrats have had little success and much failure trying to push technology ahead (for more, see some of the articles at www.EconomicThinking/energy and www.EconomicThinking.org/technology). Ron Bailey’s article on thirty years of failed government efforts to achieve energy independence provides a nice introduction to the recent history: http://www.reason.com/rb/rb072104.shtml

– Greg Rehmke