Story Stream
recent articles

When it comes to soaring living standards and progress of all kinds, oil’s role is massive. Imagine how staggeringly poor we would be absent all the mechanization and subsequent productive leaps born of oil’s discovery as a crucial source of fuel. A life without crude would reduce us to an extraordinarily primitive existence, one that would include a lack of electric vehicles. Really, did you honestly believe we’d be advanced enough, have the time, or the increasingly inexpensive resources necessary to manufacture electric cars sans oil? 

Still, making the obvious point that oil is an essential driver of progress is not the same as saying that “energy independence” is necessary for progress. Not at all. Switzerland is the picture of rich despite being “energy dependent,” so is Hong Kong, and if we’re realistic, so is New York City. When you’re productive, the whole world produces for you. This includes providing oil and its byproducts to you.

It brings to mind a forgotten truth that the U.S. was most “energy dependent” during Ronald Reagan’s presidency. This is one of those historical realities either lost on conservatives who properly venerate Reagan, or not understood by them. During Reagan’s presidency we didn’t have a domestic energy industry for the most part. That we didn’t was a major driver of soaring prosperity under Reagan.

Quite unlike presidents with last names like Bush (W.), Obama (Barack), Trump (Donald), and Biden (Joe), Reagan was rhetorically in favor of a strong dollar. So was Bill Clinton. With the dollar strong, and mostly stable (the ideal dollar would be one the value of which never changes), commodities measured in dollars like oil were very cheap. The price of a barrel sank as low as $7 under Reagan, and $10 under Clinton.

The above explains why the U.S. didn’t have much of a domestic oil industry in the 1980s and 90s. With barrels of oil so nominally inexpensive, it wasn’t economic to extract crude in the U.S. To be clear about this state of affairs, we were hardly worse off. In reality, we were much better off. Gasoline prices per gallon were frequently below $1, including in high tax states like California. The dollar was strong, hence oil and byproducts like gasoline were cheap.

And like Switzerland, Hong Kong and New York City now, that the U.S. had no energy industry was of no negative consequence. When you’re productive, the world once again lines up to serve you. Cheap oil from around the world made its way to the U.S.

It’s something to keep in mind given this odd conservative obsession with energy independence. In a recent piece for The Hill, Benjamin Zycher of the American Enterprise Institute wrote that “Fossil energy resources are a form of national wealth. Policies designed to constrain domestic output artificially while expanding overseas production create an explicit transfer of wealth from Americans to such overseas producers as Venezuela, Iran, and Russia.” In which case, Zycher must really have thought little of Reagan. His policies made domestic extraction a non-starter…Huge losses of "national wealth"? No, not at all. 

Zycher leaves out some basics. Every activity under the sun is a tradeoff. Zycher is focused on the seen; as in the oil that surely exists in the U.S. and that he wants extracted and brought to market. What he glosses over, however, is the unseen. What wealth isn’t being created as we direct such abundant human and financial capital toward the extraction of a commodity that some of the most backwards countries on earth (think Venezuela, Iran and Russia – plus let’s throw in Equatorial Guinea, Nigeria, and Guyana) can ably extract for us?

None of this is meant to defend Joe Biden’s policies of blocking stateside energy extraction, but it is meant to remind readers that absent the weak-dollar policies of the 21st century that burden Americans most (we earn dollars), the U.S would still not have much of a domestic energy industry. And we would be much richer if so.

Indeed, similarly missed by Zycher is that profit margins in energy are rather small relative to what they are in, for instance, technology. Well, of course. Consider once again the backwards countries that are major players in oil. Get it?

Zycher is focused on “national wealth,” but he’s yet again limited to the “seen.” Unseen to him, is the exponentially greater wealth not being created in the U.S. given the aforementioned strange conservative obsession with “energy independence.” The latter personifies shrinking national wealth as we ignore the costly tradeoff of doing what the world can do (extract oil), at the expense of what 99.999999% of the world cannot: develop transformative technologies.

The late great Warren Brookes understood what Reagan did, but that modern conservatives don’t. He even wrote a book about a looming Reagan boom titled The Economy In Mind. Stress mind. Brookes was celebrating the movement away from the wealth of the earth to the metaphysical, as in the creation of new advances of the mind. There’s your future boom if conservatives are able to get over their oil obsession.

John Tamny is editor of RealClearMarkets, President of the Parkview Institute, a senior fellow at the Market Institute, and a senior economic adviser to Applied Finance Advisors (www.appliedfinance.com). His latest book is The Money Confusion: How Illiteracy About Currencies and Inflation Sets the Stage For the Crypto Revolution.

Show comments Hide Comments