An excellent reminder from the real world of economics via
Best of the Web Today:
Several readers wrote to ask why, in an item yesterday, we dismissed George Packer's call for "energy independence" as an "utterly pointless dispute." Packer, who was urging a new Democratic agenda, didn't really explain what he meant by "energy independence," but our understanding of the liberal conception of it is as follows:
-The government should establish policies aimed at reducing the use of oil (fuel-economy standards, higher gasoline taxes, incentives or coercive measures to encourage use of public transit, etc.).
-This in turn would reduce our dependence on foreign oil, helping to starve the Arabs and thus reduce terrorism.
For the sake of argument, let's take the first part of this argument--that the government could reduce oil consumption, effectively a reduction in demand--as a given. Basic economics tells us that a reduction in the demand for a commodity will lower the price.
What happens when the price of oil goes down? High-cost oil production becomes uneconomical, which means that low-cost producers end up accounting for a greater share of the market. The lowest-cost producer of all is our friends the Saudis. Thus "energy independence," if effective at all, would actually make America more dependent on "foreign" (Arab) oil.
Any lowering of U.S. demand would temporarily depress prices, which would cause a global increase in consumption which would at least partially undermine any initial cost reductions. There are, however, some worthwhile steps that can be taken to lower the amount of petrodollars funnelled into terrorism:
1. Continue the Bush Arab Democracy project. A democratic Saudi Arabia would be unlikely to fund the export of Wahabism as aggressively.
2. Threaten the Saudis with regime change over the export of Wahabism issue.
3. Increase basic research funding for radical alternatives such as nuclear energy. Any shift in the supply curve would have a permanent benefit.
4. Fund increased oil exploration. Like #3, this would shift the supply curve.
5. Stop funding the Palestinians. As
this blog has thoroughly documented, the Palestinian Authority has become one of the leading terror incubators, with billions in funding from the West.
