Conservatives, Fracking, and the Soft Bigotry of Low Expectations

Conservatives, Fracking, and the Soft Bigotry of Low Expectations
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Back in the 1970s, a decade in which the U.S. introduced to a world on the dollar standard its own version of currency mismanagement, “oil shocks” were common.  “Oil shocks” are placed in quotes simply because there weren’t any during the malaise decade, nor was there booming economic growth.  Commodities measured in shrunken dollars surged across the board in the ‘70s, as did an always unreliable GDP print that gave the false illusion of booming growth measured in those same weakened dollars.

Notable is that equity markets revealed an actual, slow-growth truth that commodities and GDP obscured.  While the Dow Jones Industrial Average reached a then all-time high of 1,000 in 1966, the U.S.’s commitment to good money wavered in the subsequent years, followed by the dollar’s decade-long plummet beginning in 1971 when President Nixon implicitly devalued the greenback with his explicit sever of its link to gold.  Investment in new ideas is the source of economic growth, but investors are less likely to put money to work when governments are busy devaluing it.  Stocks flatlined in the ‘70s to reflect a lousy investment environment fostered by a weak dollar.

But commodities like oil once again did very well during a bad decade for the U.S. economy overall.  While oil traded at roughly $2.50/barrel in 1971 (as it had consisently for decades before '71), it went on a wild ride upward after Nixon’s fateful decision.  Toward the end of the 70s it briefly surged above the then unheard of number of $40/barrel, yet by 1981 it had fallen back to around $32.  A confused commentariat then, similar to the one of the present, attributed the more nominally expensive oil to the doings of OPEC.  In truth, OPEC was a sideshow in the 70s much as it's been unimportant in the 2000s relative to a floating dollar in which oil is once again priced. 

You see, oil never became expensive during the 70s despite what we're told.  OPEC never succeeded in limiting supply of it, or anything like that.  The dollar was simply shrunken.  In the pre-August of 1971 environment when the dollar still had a definition of 1/35th of an ounce of gold, the price of oil was generally stable at the previously mentioned price of $2.50.  Fast forward to 1981, and the price of oil was still stable.  While it had surged to roughly $32, nothing much had changed.  Figure that by 1981 the dollar bought 1/480th of an ounce of gold versus 1/35th ten years prior.  Oil hadn’t become expensive; rather the dollar had simply become cheap.  In the 70s, OPEC didn’t assert its influence over the price of oil as is still commonly assumed, nor did a booming U.S. energy industry influence much of anything.  Oil was oil, and the dollar was the dollar.

Interesting about the 80s and 90s is that formerly expensive oil became rather cheap once again.  Was OPEC feeling generous then, or was the global economy in decline such that demand for oil fell with it? Let’s be serious.  Figure that it was in the 80s and 90s that economically enslaved parts of the world were freed from the shackles of murderous governments such that they were newly able to produce for a world that was increasingly free.  OPEC? A sideshow once again.  Its members still had their meetings, they still naively instituted production quotas to supposedly maintain an artificially high price of crude, but their actions achieved less than nothing.

Indeed, the price of oil plummeted in the 80s and 90s despite the efforts of OPEC, and despite the happy truth that more and more of the world’s inhabitants were increasingly tasting the fruits of freedom, personal and economic.  Despite growing prosperity that logically increased demand for economic inputs like oil, crude descended to a modern low of $10/barrel in 1998.  Unlike the 70s when equity markets mocked the presumption of economic health, they surged in the 80s and 90s.

Ok, so what happened.  What changed between the difficult 70s and roaring 80s and 90s?  The difference was that in the 80s and 90s Presidents Reagan and Clinton made a strong dollar their policy.  And with the dollar strong, oil priced in dollars fell.  There was no “fracking” revolution to speak of then (the U.S. energy industry was largely on its back, a fraction of its 1970s self), but there was most definitely a revolution in computer, software and internet technology alongside two booming decades for U.S. stock markets.  When the dollar is in good shape, investors can more comfortably put money to work in pursuit of new wealth creation. 

But then the 2000s happened.  Formerly cheap oil became rather expensive out of the blue.  Though crude had as previously mentioned fallen to $10/barrel in ’98, it surged throughout the 2000s; hitting an all-time nominal high of $145 in the summer of 2008, only for it to remain above $100/barrel until 2014.  Had OPEC discovered powers over the price of oil never before exhibited? Was the global economy booming such that supply didn’t keep up with demand? Let’s be serious. 

As even members of the right are slowly starting to acknowledge, Barack Obama didn’t invent 21st century economic weakness.  The economy was weak under George W. Bush; so weak by the end of his 2nd term that frustrated voters were actually willing to give the unproven Obama a chance.  And then with the arrival of Obama, the global economy was in a relative sense in the doldrums for several years after 2008’s financial meltdown wholly authored by global government intervention in what was healthy. 

Yet oil did very well during the time in question; staying above $100 until 2014 despite weak global growth, and despite the ongoing perfection of fracking extraction techniques in the U.S. Coincidence.  Random stuff?  Sun spots? Not at all.  Much like the 70s, the dollar was devalued.  Nothing more, nothing less.  There were no global supply problems, no supply shocks driven by OPEC mendacity; just a dollar that was in serious decline.  A dollar bought 1/260th of an ounce of gold in 2000, but by August of 2011 it purchased 1/1900th.  “Expensive oil” merely reflected a substantial change in the dollar measure.   

Alright, so at present the price of a barrel of oil sits at $50; well down from the triple-digit norm of a few years ago, but still extraordinarily high relative to the cheap energy days of the 80s and 90s.  Somewhat shockingly, the reaction from the right is a celebratory one defined by loud cheers for fracking advances achieved by the wise minds in the U.S. energy industry.  About those wise minds, there’s no dispute.  About the importance of oil to global growth, there’s similarly no dispute.  As for the weak-kneed hysteria from the reliably emotional left about how the planet will be destroyed by the consumption of oil that comes from the earth, let’s truly be serious

Still, are the fracking cheerleaders from the right much better? In their efforts to prove the importance of a U.S. energy industry to our economic health, they’re promoting “fake news” of the most embarrassing kind.  Supposedly oil at $50/barrel is some kind of fracking accomplishment, and it’s one that has vanquished the always oversold OPEC.  Let’s again be serious.  Ignored by the fracking cheerleaders is that a dollar which bought 1/1900th of an ounce of gold in 2011 now buys 1/1250th.  Oil is priced in dollars.  Of course oil is cheaper today than it was several years ago.

Beyond that, since when is $50 oil an accomplishment? In the 1990s such a number would have properly horrified the punditry, economic or otherwise.  And lest we forget, the U.S. energy industry was largely non-existent in the booming 1990s when oil once again fell to $10/barrel.  Based on the ridiculous twisting of reality and numbers by fracking’s cheering section, the rise of this extraction technique has been a boon for OPEC and a disaster for gasoline consumers.   

More than either side of the ideological divide is willing to admit, or comprehend, the price of oil is most driven by the value of the dollar.  When it’s weak oil is nominally expensive, when it’s strong, oil is nominally cheap.  When the dollar is stable, history is very clear that oil’s price is too.  $50 oil is a sure sign of economy-sapping dollar mismanagement and devaluation in the 21st century as opposed to evidence of a U.S. extraction technique having unclothed OPEC.  For conservatives who’ve gone head over hysterical heels for the same extraction technique that has achieved acclaim at a time of some of the highest oil prices in history is for those same conservatives to give new meaning to the phrase “soft bigotry of low expectations.” The right can do better.

John Tamny is editor of RealClearMarkets, Director of the Center for Economic Freedom at FreedomWorks, and a senior economic adviser to Toreador Research and Trading ( He's the author of Who Needs the Fed? (Encounter Books, 2016), along with Popular Economics (Regnery, 2015).  His next book, set for release in May of 2018, is titled The End of Work (Regnery).  It chronicles the exciting explosion of remunerative jobs that don't feel at all like work.  

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