Oil and Democracy

Ted Barlow tells you what you need to know about the economics of the 19th century whale oil industry. Speaking of which, someone desperately needs to teach Tom Friedman about the economics of the 21st century fossile oil industry before the ideas pimped in his latest column and many other recent writings become a mainstream staple of anti-Bush criticism. There are very good reasons not to like the Republican Party's energy policies, but virtually nothing about yesterday's argument makes sense.

For one thing, as Brad Plumer writes, this idea, like so many Friedman ideas, seems to suffer from an acute case of the "Friedman magic policy wand" syndrome. There's no real reason to think there's any way to accomplish what he thinks we should be accomplishing, and even if it could be accomplished, the time frame for getting it all done would be much longer than it would take to produce the sort of results he's looking for. More to the point, in many ways, if a crash conservation program succeeded in drastically reducing demand and lowering the price of crude, the result would be an increase in demand and a resumption of rising prices. This is roughly what happened during the 1980s and it's more-or-less written into the fabric of capitalism.

The assumption that impoverishment naturally leads autocratic governments to reform themselves in hopes of boosting economic growth, meanwhile, is strikingly lacking in empirical support. North Korea would be racing headlong toward freedom if this were right. And oil-poor Arab states like Egypt and Syria would be bastions of democracy rather than Egypt and Syria. Last but by no means least, in addition to the policy lag between the time when we implement our conservation program and we actually see $18 barrels of oil, the lag between when the Saudi and Kuwaiti governments start reforming their education system and when the newly-educated cadres take over the country would be enormous. The United States is currently governered primarily by people educated in the 1960s and looks set to continue to be so governered by quite some time now. Such is like. We Millenials will have our day, but it's going to be a long time off. The No Child Left Behind kids won't be running things until the 2040s.

And then there's the point that the dogmatic belief that an absence of secular education is a primary source of terrorist motivation seems to be way off base. Some jihadis went to madrassas (primarily in Southeast Asia) or were products of whatever it is they do in the Saudi school system, but many had technical educations of just the sort that a self-consciously modernizing regime would provide, often in the west. Now I think it would be equally silly to conclude from this that technical education leads to terrorism (though the MIT kids do have an affinity for pranks that involve blowing things up) but the lines of causation here are pretty confusing.

Back to oil. There's a very respectable case to be made that we ought to be trying to promote oil conservation in the United States and it doesn't involve any odd geopolitical theories. Oil causes a lot of pollution. It has, in other words, significant negative externalities. Right now, it's not taxed at a level commensurate with those externalities. If we did tax it proportionally to the real social cost of burning oil the price (to consumers) would rise, and with it interests in more fuel efficient vehicles (already, makers of hybrid cars are plausibly arguing that if you drive frequently it's worth it to shell out more up front in order to save on fuel) which will improve air quality. Better air quality would be an excellent thing. If it should happen to have some beneficial spillover effects on national security, so much the better, but I wouldn't count on it, and I certainly wouldn't go around promising it to people.