White House Crude

...Slogans and catch-phrases remain effective instruments of political gain...

...The commission first tried setting prices on gas from individual wells, and, as one would expect, the caseload quickly became immense, in fact unmanageable...

...There were, if you will recall, coroners' hearings in that country...

...The effect has been sharply to reduce domestic production of crude oil...

...Of course, the energy conservation of the 1960s did have one benefit: When prices rose in 1973, part of the adjustment had already been made...

...In how many other countries in the world...

...How, therefore, to come up with a renewed rationalization of Rhodesia's wickedness, and thus whip up sentiment against the country, while appearing to speak with the reasonable tongue of the constitutionalist...

...President Carter has recommended an increase in the price of 18 The American Spectator May 1978 natural gas that would stimulate production and limit consumption...

...Indeed, if our domestic producers had had that used-up supply, they could have offered OPEC quite a bit more competition...

...In effect, those refiners who originally benefited from the controlled price are forced to compensate those not so favored...

...Consumers and industry eagerly sought to buy natural gas at 1960 prices instead of petroleum at 1973 OPEC monopoly prices...

...The President says that he wants to reduce consumption and imports, to increase domestic production, and to do this fairly...

...Nuclear fission is probably the most promising new source of nonfossil-fuel energy, but the amount produced by fission is not likely to rise much above ten percent until after 1990, if then...

...Even more damaging, however, were price controls, which Nixon initiated throughout the economy in August 1971 and which remained on petroleum even after being lifted from most goods and services in 1972-1973...

...Consequently, refiners buy more foreign oil and increase their production of refined products—just as if they had received a subsidy from the government...

...One needs a steady flow of attention-grabbing cues and it is of lesser moment whether the indicated castles in Spain ever materialize...

...President Carter, however, depends on coal-producing states and labor unions such as the .544 United Mine Workers for political support, and his energy scheme reflects this...

...Until then the industry did not know how prices were going to be set, and lived under the threat of having to make refunds covering nearly a decade's output if the commission decided that interim price increases had been too great...

...A refiner who was buying a relatively large portion of his crude at about $5.00 per barrel from suppliers subject to controls suddenly had lower average costs of production than a refiner who was purchasing most of his crude from the Arabs...

...This price compares with a current regulated price of $1.47 for new gas, up from 52 cents just a few years ago...

...While the price of all forms of energy can be expected to rise, the relative abundance of coal implies that oil and natural-gas prices are likely to rise more rapidly than the prices of coal-based energy...

...Shortage, on the other hand, means that at prevailing prices the amount of an item people want is greater than the amount available, either because it isn't profitable to produce it, or because the owner would rather keep it for his own use...

...There is scant consolation in the fact that we still have the losses all to ourselves...

...But this is something to which our economy can, if allowed, adjust...

...Both policy changes made domestic crude-oil production less profitable...

...At the same time, price controls on domestic crude oil deprive its producers of approximately $14 billion per year...

...Competition for economic gain has shifted more and more from the marketplace to Capitol Hill...

...Although the demand for nuclear power is continually strengthened by rising prices of energy from fossil fuels, expansion of nuclear capacity is constrained by environmental and safety restrictions, whimsical political support, and an international uranium cartel...

...The $14 billion per year that is now transferred from petroleum producers via price controls would be collected directly by a federal tax on crude oil...

...Energy-intensive industries will be placed at a competitive disadvantage, while less energy-intensive industries can be expected to attract investment and expand...

...In addition, many absurd situations developed...

...While we can expect a shift toward coal-based energy, we can also expect energy users to attempt to reduce the absolute levels of all forms of energy consumption...

...Tom Bethell Capitol Ideas More and more these days, the New York Times reads as though it is being edited by and for people who are fundamentally sympathetic to the far political left but who, for the sake of respectability, would prefer that no one quite saw it that way...

...Many of the current predictions of doom are based on a confusion of the concepts of "scarcity" and "shortage...

...Needless to say, the owners of coal mines and the labor they hire enthusiastically support these provisions of the President's plan...

...That was the work of price controls...

...Lewis will inquire further into the structure of the Rhodesian government, he will also find that they don't have affirmative action or busing, either...

...Much like the market in natural gas, the petroleum market in the United States has been manipulated continuously since 1935...

...But are such policies necessary...

...Coal accounts for roughly three-fourths of domestic reserves of fossil fuels, but currently supplies only about 20 percent of all energy consumed...

...In the early 1970s, the political tide turned against crude-oil producers...

...But while the higher prices discouraged domestic consumption, the import quotas along with tax concessions to the industry encouraged domestic output, by making it profitable to produce crude from fields that otherwise would not have been exploited...

...I am sure that if Mr...

...majority rule," which was presumed to be safely beyond Smith's attainment...

...were then to get involved too, we might come in on the Soviet side...

...For years this tendency has been manifest on the editorial page...

...By itself each piece of favorable legislation may have proved valuable to its industry advocates, but the cumulative weight of years of seeking after privileges has greatly warped the traditional relationship between government and industry...

...Price controls are the sole cause of the limited supply of this clean and relatively plentiful fuel...

...Unfortunately, this is a very big "if," for the history of oil and natural gas over the last fifty years has been a quagmire of complex and irrational regulation, and President Carter's proposed national energy plan promises more of the same...

...Yet for this state of affairs corporations themselves cannot escape at least some of the responsibility...

...One of the President's main proposals is the extension of price controls on natural gas to the intrastate markets, which are now receiving nearly all new supplies of natural gas...

...the other $2.3 billion a year was wasted...

...We would have produced less energy domestically, spent less for oil, and consumed more in total...

...The astonishing principle enunciated here is that when the value of The American Spectator May 1978 19 an asset rises because of circumstances unrelated to the activities of its owner, the added value belongs to the government...

...In the late 1950s, the federal government added restrictions on imports of foreign crude...

...The administration would then have $14 billion a year to hand out—supposedly to energy users in the form of income-tax rebates...

...Rather than say that, people have chosen to shed crocodile tears over the absence of Tom Bethell is Washington editor of Harper' s and contributing editor of the Washington Monthly...

...In late 1973, the Arabs stopped selling oil to us during the Middle East war...

...He plans to meet this shortage by importing Algerian or Indonesian gas at a cost of $4.50 per thousand cubic feet—when domestic producers could supply it for about $2.50...

...Prices in the intrastate markets have now risen to three and four times the interstate price...

...To him the cost of imported oil is the price he pays less the addition to his entitlements receipts...

...It continues today, a mysterious hodgepodge...

...The "internal" gambit has been one way...

...For example, gas from a single well might be sold for several different prices if the companies distributing that gas had had different historical operating costs...

...Can one imagine the Times taking this position vis-a-vis, say, Mozambique—one of its favorite countries right now...

...The FPC did keep the price of natural gas sold in the interstate market fixed at about 1960 prices...

...In fact, the artificially high prices resulted in factories using less crude oil, houses receiving more insulation, etc...

...Though the Carter administration has been telling us most solemnly that we are running out of energy, that a grave crisis tantamount to war exists, that we all must suffer in combating the difficulties ahead, and that we can fend off a terrible catastrophe only through pervasive government action, in truth the "energy crisis" is largely a deception...

...Jimmy Carter is the first President of the United States openly to embrace this principle and to make it a central theme of an important domestic program...

...But it was unavailable...

...It is "almost all white now except in the bottom ranks...

...If the government permits unfettered adjustment to economic conditions by both industry and consumers, what can we expect over, say, the rest of this century...

...Similarly, a refiner already using a greater than average proportion of high-priced imported crude can increase his receipts of entitlements payments by buying more imported oil...

...In how many other countries in Africa do we get artists' renditions of courtrooms...

...This is not to say that we do not face an energy-resource problem, for we do...

...similar enough for the remaining differences to stick out a mile and offend such self-styled "liberals" as Anthony Lewis because they flout our regnant wisdom...

...Much of the regulatory legislation, especially in the pre-OPEC years, conferred substantial subsidies (depletion allowances and import quotas) on the petroleum industry, which sought each piece of legislation separately, as a momentary advantage...

...The detail that sticks in my mind is this: Shown on our television screens were artists' drawings of the courtroom where these proceedings were held...

...the suggestion that a political settlement can in some sense be denigrated because it was merely arrived at "internally" would, if made of any other country in the world (with the exception of South Africa), be considered a diplomatic scandal of the highest order...

...The number of entitlements equals the number of barrels of controlled crude oil that the refiner would use if he purchased the national average proportions of controlled and uncontrolled crude...

...For example, in a recent editorial (March 5, 1978) entitled "The Rhodesian Contrivance" the writer boldly suggested that if the Soviets were to intervene in Rhodesia, and the U.S...

...Aha...

...Although over the long run coal producers can be expected to benefit from the increasing price of petroleum and natural gas, federal energy policy has so far paid coal interests less attention than oil and gas producers...

...Another tack has been taken by Anthony Lewis, New York Times columnist and frequent apologist for the Left...

...But while the effective cartelization of Arab oil-producers immediately precipitated an energy shortage in the United States, it did not cause it...

...Until 1954 the commission used the principle of a "fair-rate-of-return" to regulate interstate prices...

...The FPC's avowed mission was to keep prices low for consumers...

...These very perceptive words were written nearly a decade ago by a man, then in his earlier incarnation as an economist, who is now Jimmy Carter's energy czar—James Schlesinger...

...Some of the domestic crude oil consumed in the 1950s and 1960s could have been used in the 1970s as a substitute for high-priced foreign oil...

...I remember thinking: They don't let the photographers in—just as in America...

...In fact, it is available because the price is higher...

...no doubt also a very low regard for America—not an uncommon attitude in Upper Media...

...Under the plan, virtually all electric utilities would be forced to convert oil- and gas-burning facilities to coal-burning ones...

...Domestic crude-oil producers earned about $2.7 billion a year in extra revenues...

...While -the Arab oil embargo and subsequent increases in the price of substitutes for natural gas have made us very much aware of the natural-gas shortage, it should be emphasized that these are separate phenomena—the current shortage would exist even if the OPEC cartel had never been formed...

...In 1938, the Federal Power Commission was created to keep natural-gas prices "just and reasonable" and "not unduly discriminatory" in the interstate market...

...producers the beneficiaries of those arbitrary price rises, and yield windfall profits from the increased value of oil and gas in existing fields...

...Twenty years of experience have proved them right...

...The Entitlements Program subsidizes as well the importation of foreign crude oil, for under the program the marginal cost of imported crude to any refiner is actually less than the price he pays...

...Mitgang's recent article in the Times read, as usual, like a brief for Hiss, with quotations only from Victor Navasky, whose recent article in the Nation on the case represents one more attempt, and surely not the last by the Left, to undermine truth...

...Price controls on oil originally were intended to be temporary, but now are administered by the newly created Department of Energy—which has over 20,000 employees, a $10 billion annual budget, and is about as likely to be disbanded as Congress itself...

...But the industry did not foresee the long-run consequences of trying to ensure for itself a privileged, predetermined outcome of the market process...

...If the FEA correctly sets the number of entitlements, it equalizes the average crude-oil price paid by all refiners and wipes out the impact of price controls on their profits...

...Notice, first of all, the use of "internal...

...It is this energy policy—the regulation of the petroleum industry—that is responsible for the "energy crisis" we face today...

...The continued opposition of the New York Times and like-minded fellow travellers to the settlement between Rhodesian Prime Minister Ian Smith and the moderate black leaders of that country is intriguing because it so plainly exposes the lie that at any point they had really wanted or cared about "majority rule...

...he says triumphantly...

...And it is anomalous that we have a shortage of a product in such potentially great supply...

...This would double the current wealth transfer to energy users...

...At the time, many thought the job impossible...

...As low prices in the interstate market discouraged production of natural gas, they also encouraged consumers to install gas-specific equipment...

...If there had been no quotas, more cheap foreign oil would have been imported, driving down prices and partially displacing high-cost domestic production...

...Translated: He wants to win votes from the coalition of groups which will benefit from his energy policy...

...Economists estimate that controls cost roughly $5 billion a year (in 1969 prices...

...Regulation stimulated demand but slowed delivery of new supplies to the interstate market, and it was not long before a serious shortage developed...

...Here is a statement that fairly sets forth the cynical process they are engaged in: The tool of politics, which frequently becomes its objective, is to extract resources from the general taxpayer with minimum offense, and to distribute the proceeds among innumerable claimants in such a way as to maximize the support at the polls...

...Shortages occur when prices are held below the market-clearing level by governmental controls—of the kind now exercised over the market in natural gas...

...The system of wide-area pricing evolved into a mix of the old well-by-well regulation and pricing schedules applied to entire areas...

...So now—horrors!—it looks as though they're going to have majority rule...

...In that year, the Supreme Court, in Philips v. Wisconsin, expanded the FPC's authority to regulation of the field prices of natural gas...

...Whoever wrote that editorial has a very low regard for democracy and decency...

...Politics, so far as mobilizing support is concerned, represents the art of calculated cheating—or more precisely, how to cheat without really being caught...

...To remedy this on behalf of the unlucky refiners, the Federal Energy Administration in November 1974 adopted a program under which it issues monthly "entitlements" of controlled crude oil to each refiner...

...Control of crude oil began during the Depression, as state regulatory commissions estimated the demand and then regulated the output of every well...

...The purpose of these "quotas" was to raise prices for domestic producers...

...For example, if a refiner is using large proportions of controlled crude, and thus forced to make entitlements payments to other refiners, he can reduce his required payments by using a larger proportion of uncontrolled, imported crude...

...yet the President's men and our legislators and bureaucrats are not stupid—on the contrary, they know exactly what they are after...

...As for the Times' editorial page, one had read a year or so ago that the appointment of Max Frankel as its editor was supposed to halt the leftward drift...

...Price controls also caused substantial differences in profits among refiners...

...Incidentally, the research The American Spectator May 1978 17 group at ERDA responsible for the report incurred the wrath of the White House and, consequently, no longer exists...

...Today regulations so distort production and consumption of natural gas that what was once a "pro-consumer" policy has backfired...

...They were successful...

...Similar thoughts crossed my mind when, a few months ago, there was a most unbelievable uproar in the news media about the death of Steven Biko in South Africa...

...Using this principle, our government is expropriating nearly $14 billion a year from the owners of domestic crude oil...

...As for the so-called "alternative" sources of energy—solar, wind, the internal heat of the earth, even ocean waves—despite their glamor, the faddish (almost fanatical) devotion of theirfollowers, and millions of dollars of subsidized research, such nonfossil energy sources are not likely to play a significant role in supplying energy over the next couple of decades...

...The producers have no equitable claim to that enhanced value because it is unrelated to their activities or economic contributions [italics added...

...The Times, of course, has long been a Hiss sympathizer and, as Reed Irvine of "Accuracy in Media" points out, has even been reluctant to mention that Hiss was convicted of perjury...

...In the absence of price controls, of course, the embargo and the subsequent increase in the price of crude oil (domestic as well as foreign) would have lowered the amount demanded and rationed the available supply among those who valued it the highest...

...President Nixon gave the crude-oil producers their first big reversal in 1971-1973 by eliminating oil-import quotas and depletion allowances...

...The backlog of cases awaiting decision is in the thousands, and there is no relief in sight...

...In fact, the Entitlements Program pays about one-fifth of the current $13 per barrel OPEC price...

...Oil and natural gas, which make up the other one-fourth of reserves, account for 75 percent of consumption...

...The wealth that would have accrued to domestic oil producers after the OPEC price increase went instead to these lucky refiners...

...Then the appeals started...

...In short, all refiners see the cost of imported oil as being less than the OPEC price...

...Long supported by the energy-poor Northeast, regulation now leaves that part of the country in terror each winter, and has been encouraging its industry to move to sunbelt states where natural gas can be bought at uncontrolled prices...

...In the 1970s, producers found they could sell their gas at substantially higher prices in the intrastate market, where the commission lacked regulatory power...

...First, coal will become an increasingly important source of primary energy...

...Such a good commands a very high price, but anyone with enough money can buy it...

...You can rest assured that he will not...

...Foreign sellers of crude oil receive increased revenues of about $7 billion per year (with OPEC getting about $5.5 billion...

...A remarkable illustration of this can be found in the President's own National Energy Plan: In 1973-74, the oil-producing countries raised the world oil prices fourfold...

...A refiner who uses a proportion of controlled crude larger than the national average receives negative entitlements, and has to buy entitlements from those refiners who use less than the average proportion...

...Carter's energy plan is unnecessary...

...Also "the judiciary" is imperfect, too...

...In the winter of 1976, the shortage was about nine to ten percent of promised deliveries...

...To be sure, the President's plan would eliminate the entitlements subsidy on imported crude oil, and thereby reduce part of our demand for imports...

...now we find more and more of it in the news columns...

...But it should be noted that the end of the entitlements subsidy and its $7 billion transfer to foreign oil producers would be accompanied by a purchase of $13.5 billion worth of OPEC crude for the purpose of creating a strategic petroleum stockpile as insurance against another embargo...

...Its first test case, in the Permian Basin of Texas, used up three years in hearings alone...

...The long-run tendency for coal to become relatively cheaper translates into direct substitution of coal for oil and gas in the industrial sector and into increased reliance on electricity generated by coal in the residential and commercial sectors...

...From his lofty vantage point in Boston, Lewis has discerned what is wrong with the "internal settlement...

...The Rhodesian "internal settlement" has, of course, thrown a lot of people into a tailspin...

...Consumption was especially encouraged after the price of oil rose in 1973, since natural gas is often an excellent substitute for oil...

...Because of growing demand and high-cost development technologies, the price of energy, particularly oil and natural gas, will inevitably rise more rapidly than other prices over the next two or three decades, inducing costly changes in our consumption patterns and production processes...

...When intrastate prices rose above interstate ones, new supplies of gas, and supplies not committed by long-term contract, were kept from the regulated market...

...Deregulation of oil and gas prices would make the U.S...

...J. Clayburn La Force is chairman of the department of economics at UCLA...

...A new political force in the Carter round of energy policy is the coal industry—particularly the eastern coal industry...

...But his price would fall short of satisfying the market...

...So the cost to him of imported oil is the price he pays less the reduction in his entitlements payments...

...Lewis going to write about the shortcomings of the civil service system, and of the judiciary, in the Soviet Union, in China, in Libya, Angola, Mozambique, Uganda...in any other country in the world...

...Since then both the consumer and OPEC have been remarkably successful in plundering the owners of domestic crude—just as the owners had earlier increased their wealth at the expense of foreign-oil sellers and domestic energy consumers...

...The only issue they care about—the only one—is whether blacks and whites are treated differently...

...Although prices are high compared to the regulated price, at least there gas is available...

...After five years the commission made its decision...

...At the time of the embargo, controls on refined petroleum prices artificially restrained the supply of gasoline and other products—refiners could not afford to pay the dramatically higher price for crude oil and still send as much gasoline to the market as customers demanded at the low controlled price...

...I am not aware that he has had the slightest success in this endeavor...

...Let me ask, then, when is Mr...

...Industrial use of oil and gas would be heavily taxed and the construction of new oil- or gas-burning industrial boilers would be banned...

...If in another country, 20 The American Spectator May 1978...

...Industry and utility conversion to coal would be subsidized by investment tax-credits...

...Those who describe the fifties and sixties as a time of wasteful and excessive use of petroleum are wrong, for during that period higher domestic petroleum prices actually discouraged consumption...

...During most of the 1970s, production has been falling at a rate of about four percent per year, making us especially vulnerable to any sharp curtailment in the world supply of crude...

...Not until 1968 was the commission sustained by the Supreme Court—eight years after the proceedings had begun...

...How's that for impudence...

...The President's plan also calls for continuation of crude-oil price controls—with some new wrinkles...

...Who knows what horrors remain to be uncovered in Salisbury...

...The "energy crisis" is a crisis created by government, which has apparently lost any way or intention of retracing its steps...

...He wishes to acknowledge the substantial assistance of Joseph Kalt and Harry Watson in the preparation of background material for this article...

...Scarcity simply means that there is not as much of something as we would like—for example, diamonds...

...Of course not...

...In so doing he is directing a profound and grievous change in our economic, social, and political arrangements...

...It was used to conserve energy in ways that were inefficient, given the existing low world price of energy...

...What they had wanted—and I think we all know this to be true even though no one will come out and say it—was a wholesale and bloody eradication of whites in Rhodesia...

...The President apparently intends to do whatever is necessary to keep United States producers from making "obscene" profits...

...If President Carter's plan is adopted, regulation would effectively reallocate natural gas from the producing states to the Northeast, hurting consumers in the producing states...

...But the "energy crisis" is ultimately a symptom of a far more serious problem, and that is the modern animus against private property...

...From a government which preaches energy independence come discouragements to domestic energy production and subsidies to the international oil cartel...

...To simplify matters, the commission decided in 1960 to adopt a wide-area pricing system...

...Along with favors from the government has come a quid pro quo in the form of controls—and it has become customary and acceptable for government to participate generally in the activity of markets...

...There are, of course, more votes in the Northeast than in Texas and Louisiana...

...It has within its ranks "some men regarded as cold-blooded racists...

...From a government which preaches demand restraint and conservation—a government which would tell us how to heat our homes and what kind of cars to drive—come subsidized prices for gasoline, heating oil, and other petroleum products...

...when business resumed, they demanded and received much higher prices...

...This strikes me as being among the most hypocritical and tendentious comments I have ever seen in a newspaper...

...From this it should be clear that much of Mr...

...In April 1977, the Energy Resources and Development Administration (ERDA) estimated that, at prices between $2 and $3 a thousand cubic feet, there is enough natural gas, known and unknown, to last for a thousand years at current rates of consumption...

...Price controls on natural gas possibly will be extended soon both in scope and duration...

...as though it were even remotely reasonable to suggest that one group can withdraw from the democratic proceedings of a country and then attack those proceedings on the grounds that this group could gain more power for itself by force of arms...

...Perhaps no Medicaid-abortion funding...

...Rhodesia has a less than ideal civil service system...

...resident Carter's national energy plan would continue the irrational policies we have had for the last forty years...

...The point is that the alleged "outrage" of South Africa and Rhodesia stems from the fact not that they are so different from us, but that they are so similar...

...One must, I'm afraid, put the word liberal into quotation marks when talking about people who have taken such an unfair view of Southern Africa, because they are undoubtedly very illiberal people...

...It is remarkable that our government has caused this "crisis," all the while pointing an accusing finger at the gas industry...

...As a result, there were long lines at gas stations as well as industrial shutdowns and layoffs...

...The greater availability of refined products, and the resulting lower prices, add about $7 billion per year to the wealth of consumers...

...So while foreign oil producers would continue to reap significant benefits, domestic producers would continue to receive little—either in the form of wealth gains or increased incentives to produce, both of which normally would have followed an increase in the world price of petroleum...

...By artificially stimulating production, the quotas on foreign crude oil and the oil-depletion allowances left us with smaller domestic oil reserves than we otherwise would have had when we entered the OPEC era...

...Today's paper, for example, brings a real shocker by Herbert Mitgang on the "Alger Hiss-Whittaker Chambers dispute," in which he manages to equate (as "the immediate cause of the revived dispute") Allen Weinstein's recent massive volume, Perjury, with a book published two years ago, and already thoroughly discredited, Alger Hiss: The True Story, by John Chabot Smith...