The Case Against Energy Independence

...So the forthcoming OPEC increase is defended by pointing to our own proposed decontrol, which in turn is justified by Project Independence...

...Late this month the Arabs will raise their price, probably around $2 a barrel...

...The fir Transport Association, for example, estimates that the higher operating costs would put one out of every five commercial planes in mothballs and Compel the airlines to lay off one out of every seven employees...

...The widest choice of investment opportunity in the world exists in the United States...

...Yet this is really what should be done-and in doing so we would gain allies in convincing the Arabs that stability and reasonableness is in the interest of us all...

...It is one world, no longer merely in the sense that military aggression in one place will ultimately affect others, but in the sense that severe economic problems in any part of the world can set off shock waves that can reach all the rest of us...

...Charles Peters is editor-in-chief of The Washington Monthly...

...What they need is a long-term assurance of reasonable prices so that they won’t have to charge $1 1 today for fear they won’t be able to get 11 cents in 1985...

...Instead of taking on the Shah’s argument and turning it against him-his dollars are worth less because of the inflation his oil prices causedthe United States seems terribly fearful of offending Iran and Saudi Arabia...

...Of course, it is possible that this reasoning will not commend itself to the OPEC nations, that they and the other countries of the world will not want to join us in working out a fair system of prices for one another’s products...

...Focus on Economics There is another factor in America’s going along with the Shah...

...consumers need assurance of adequate supply at a reasonable price...

...A healthy world economy cannot be left to chance any longer...

...proceeded to encourage domestic sugar-beet production and erect tariff barriers and import quotas...

...This, of course, iS just in the pric of oil...

...Suppose angry mobs raise a howling radical to power who will use Radio Cairo to stir up revolution in Saudi Arabia...

...a barrel of American oil, anything from $2.50 to $10...

...of The New York Times...

...This is glaringly true of the raw material suppliers of the Third World, but it really applies to everyone...

...To this end each country erected high tariff barriers to foreign trade and attempted to produce internally as many of the goods it needed as possible...

...After all, says Farouk M. Akhdar, a leading Saudi official, “If the price of oil is too high, why do YOU increase the price in your own country...

...The nations of Europe at that time were obsessed with the idea of preserving their gold reserves by preventing imports...

...Assuming, however, that the oil companies would dutifully plow their profits into exploration and that higher prices would in fact stimulate more domestic production, the question remains: Do we want to pay the higher price and does it make any sense...

...This is the irony of ironies...

...A lot of princes would end up in unmarked graves...

...But shouldn’t we at least make a major effort to persuade them before we continue on the path to energy independence with all its terrible hazards for the economy and the environment...

...Or, as we pointed out in our February issue, the world-wide inflation-recession could have disastrous consequences for Egypt...

...But such weapons should be kept in the background, to be used only upon the recalcitrant...

...Much more stripmining, with its destruction of agricultural and timber lands and its pollution of streams...

...Recently Pravdu devoted a full page to a speech by Fyodor D. Kulakov, secretary in charge of agriculture for the Central Committee of the Communist Party, in which he repeatedly mentioned the inadequacy of return on Soviet agricultural investment...

...While the reasons for this are obscure, it is nevertheless so...

...It is in the Arab’s interest for the United States to have a stable, prospering economy in which the value of Arab investment will grow...

...Continued pursuit of the policy of energy independence will lead to continued inflation, recession, and environmental damage...

...But almost everyone, be he liberal or conservative, agrees that the United States should not be dependent on foreign energy...

...Wendell Willkie’s One World There is evidence-again, see our February issue-that nothing pains the Shah and at least some of the Arabs more than our playing around with the price of gold...

...The result was the widespread but uneconomic substitution of high-cost beet sugar for low-cost cane sugar...

...Another price increase might do the trick...

...The result is that for two years it has done nothing to prevent a repetition of the two major causes of our recent inflation-the 1972 Russian wheat deal and the 1973-74 increases in oil prices...

...The average barrel of Arabian oil costs 15 cents to produce...

...We were wrong...

...We disagree...

...But even if decontrol is stretched out over two years, the new Congressional Budget Office estimates that it could cost us an average of $21 billion annually in gross national product...

...Does It Make Sense...

...What else will convince the Arabs...

...Yet in the first quarter of 1975 the Arabs furnished only 7.6 per cent of the total oil requirements of the United States...

...Third, the Arabs need places to invest their wealth...

...The new truth is that if we don’t get together economically, we’ll all end up on the bread line with no one to hand out the bread...

...After the World War I sugar famine in Europe, consumer countries wanted to develop independence in sugar and *If the reason for decontrol is the goal of energy independence, the reason for energy independence is the fear of another Arab embargo...

...The old argument was that if we didn’t learn to live together, we would all end up naked and radiated in a nuclear desert...

...Since the only justification for the Ford decontrol policy that would produce these unsettling results is energy independence*-that the rising prices would stimulate greater domestic exploration and production-its interesting to note that as domestic oil prices have tripled in the last three years, domestic production has continued to decline...

...Congress has a similar distaste for economics...

...The Administration seems to assume that these governments will be threatened if oil prices don’t continue to go up...

...The catch here, of course, is that while the Arabs can produce oil at a low cost, they want to sell it at a high price...

...This point is made with special persuasiveness in an important new book, U. S. Energy: Policy, Alternatives for Security, by Douglas R. Bohi and Milton Russell (Johns Hopkins University Press...

...The goal of energy independence is also responsible for President Ford’s desire to decontrol the price of domestic oil...

...This result would not seem to serve our policy of protecting the present Saudi regime...

...In other words, the faster we move toward energy independence, the greater the Arabs’ interest in concentrating their profits now...

...And the Arabs, with the last price rise, came terribly close to destroying quite a few customers...

...The difference is dramatic and illustrates how, from the standpoint of an efficient world economy, both America’s independence policy and the Arab’s pricing policy border on insanity...

...It in turn causes a host of other prices to rise-everyting from synthetic textiles to air fares...

...The Shah of Iran says his country has lost 35 per cent of its purchasing power since the beginning of 1974 because of the world-wide inflation and decline in the value of the dollar...

...Glen Allerhand is studying political science at the University of Michigan and was a summer intern at The Washington Monthly...

...Mercantilism The Russians, then, may be learning one of the main lessons of Adam Smith, a man they have not heretofore honored as prophet...

...The world’s most efficient food producer prepares to tear up its farm lands to get coal, while the world’s most efficient energy producer charges prices that have absolutely no relationship to cost...

...Smith’s famous discussion of the division of labor was intended to show how mercantilism led to inefficiency and reduced prosperity for all nations...

...Consider the following results of such a policy: mMuch more use of coal, with a technology still inadequate to protect the quality of the air we breathe...

...Some favor attaining it by reducing consumption through conservation, rationing, or taxation...

...Much more off-shore oil drilling, with its threat to the life of the ocean and to coastal ecology...

...And it is not just a remote possibility...

...With decontrol and an increase in the price of imports, this could easily rise to about $15 by the end of the year, according to Edwin L. Dale, Jr...

...Others seek independence by increasing production through the incentive of higher prices...

...The basic argument is that anyone who has something to sell needs a customer...

...Of course the conventional argument is that the Arabs’ oil is a finite resource for which they need to get all they can while the getting’s good...

...Much more expense-$50 billion to $100 billion more per year to produce independence by the presidential target year of 1985...

...Publishing a monthly magazine means disciplining yourself not to write about things you think will become commonplaces of discussion in the daily newspapers and weekly magazines before your next issue appears...

...The shame of all this is that what we need most is a diplomacy that focuses on economics...

...Henry Kissinger cares little about economics and tends to avoid getting involved in economic policy-he leaves oil policy to an assistant named Thomas Enders, who believes in the high-price route to energy independence...

...In the long term, of course, the world does face exhaustion of its fossil fuels-which is good enough reason for energy research and conservation but not good enough reason for wrecking the economy and the environment in a head-long rush for energy independence...

...It seems more likely, however, that Ford, and his allies in the oil companies, will try to postpone the worst price increases until after the general election in 1976, just as Nixon did his best to control inflation in 1972...

...It does seem to make sense for a country to produce what it can produce more economically than others and to buy from others what they can produce more economically than it...

...With World-War-11-type rationing, we could even fight a World-War11-dimension war without going outside the Western Hemisphere for oil...

...The Budget Office also Predicts that Ford‘s energy Policy would cause a rise of $33 billion annually in domestic oil prices...

...In other words, there is no real short-term oil shortage...

...Here is a brief outline of our case...

...The primary argument is that Wendell Willkie turned out to be right...

...Russia appears to have learned the sugar-beet lesson and is having second thoughts about the cost-effectiveness of its own efforts to become selfsufficient in agriculture...

...Smith’s Wealth of Nations, first published in 1776, was a tract against “mercantilism”the 18th century’s name for Project Independence...

...The reason is that they want to get as much as they can in the next few years-before we and other nations develop alternate sources of energy...

...Almost nothing has been said, so we’ve decided to speak up...

...Ford’s sole justification for decontrol is that it will encourage development of domestic sources of energy and lead to energy independence...

...Decontrol will cost the average consumer a minimum of $200 a year, according to one of the Administration’s own experts, Eric Zausner, deputy to Frank Zarb at the Federal Energy Administration...

...The fact is that it’s not that finite-the Arabs have another 30 years’ worth of oil-and the getting might not be so good if prices soar so high that customers go bankrupt trying to pay them...

...Producers all over the world need assurance of stable prices...

...Much more nuclear power, with its dangers of terrorist hijacking and accidental holocaust...

...The latest figures available show only a 0.42ruble increase in production for every one ruble invested...

...The average price of oil-domestic and imported-is now between $9.50 and $10 a barrel...

...While the percentage of Arab oil in our total imports is rising, the fact remains that we get most of our oil imports from non-Arab countries and, with reasonable attention to maintaining an adequate stockpile (in April it was 780-days worth of Arab imports), we could ride out an Arab embargo with only the mildest hardship...

...And this OPEC increase, according to another of the Administration’s own, Gerald Parsky, an assistant secretary of the Treasury, “could pull down economic growth by as much as two to three per cent and around 600,000 workers could be forced out of their jobs...

...Ralph Nader thinks it will be more like $900...

...and the threat should be part of our psychological weaponry in dealing with them...

...The Shah, who is not lacking in chutzpah, uses this to justify another price increase...

...There have already been inflationinspired demonstrations in Cairo...

...Thus each month for the last six months or so, we have chosen not to make the case against energy independence because we thought it was obvious enough that it would soon appear in many other publications...

...Last April, at the international conference on energy in Paris, we parried Third World demands to broaden the agenda to include all raw materials...

...Indeed, our policy seems to be to protect those conservative regimes as a bulwark of stability in the Middle East...

...It’s also a little hard to see how the decontrol of old oil-which is all that is controlled-will encourage the discovery of new oil, which is already decontrolled...

...If we weren’t trying to develop energy independence, they would not have to hold us up now...

...Second, he who unleashes the tiger may get bit...