Ronald Reagan was a terrible president for “American oil.” He had nothing against crude, but Reagan did favor reversing the weak dollar policies embraced by Presidents Nixon and Carter in the 1970s, and that caused “oil shocks” that were really dollar shocks. The U.S. was far more “energy independent” during the 1970s under Presidents Nixon and Carter, and that was the economic problem.
Essential as oil is to the abundant lives we lead, it insults economics to believe we must extract it here. There’s no need. The U.S. could be 100% bereft of oil, all the while at war with or embargoed by every global producer of it, and we would still consume it as though it had bubbled up in West Texas.
It’s basic economics. Production always and everywhere powers consumption in equal amounts, and with Americans the biggest producers on earth, the world’s plenty will always reach what is by extension the world’s biggest consumer market.
Which explains why the U.S. economy lagged in a relative sense in the 1970s, and does now. When we’re doing what others can do (energy extraction), we’re not as much availing ourselves of labor division that frees us to do much more productive work. There’s just one oil company in the Dow Jones 30, but countless technology companies.
Back to Reagan in the 1980s, and Bill Clinton in the 1990s, a strong dollar that oil was and is priced in made oil extraction stateside non-economic. We were very much “energy dependent” in the ‘80s and ‘90s, and the U.S. economy boomed as production moved to metaphysical pursuits beyond the skills of the rest of the world.
Let others extract for us. Labor division doesn’t lose its genius when oil is the market good being imported. Yet fallacies and falsehoods abound.
A Washington Post editorial contends that a big reason oil is so plentiful now “is expanded U.S. production due to the widespread adoption of fracking and horizontal drilling.” That’s just not true. Fracking existed in the ‘80s and ‘90s, but a strong dollar that pulled oil as low as $7 (Reagan) and $10 (Clinton) rendered stateside extraction a non-starter.
The Post editorial thrills at the fact that “U.S. annual crude production increased by about 120 percent” between 2000 and 2023, but glosses over the sad fact that the price of a barrel was in the $25-30 range in 2000, while it averaged $83 in 2023. The paradoxical truth is that rising U.S. oil production is an effect of much more expensive oil. We’ll know there’s not much oil extraction in the U.S. when the price of a barrel is quite a bit lower.
At the editorial’s conclusion, the Post’s editorialists wrote that “The U.S. participates more fully in global oil markets than ever before, and that’s why there won’t be gas lines.” That’s similarly not true. Without defending government intervention anywhere, the gasoline lines in the 1970s weren’t an effect of OPEC (the Arab Oil “embargo” was wholly symbolic) and U.S. energy “dependence” (the U.S. energy sector in the 1970s boomed), rather it was price controls placed on soaring gasoline prices that were once again an effect of a weak dollar. When government tries to control a market price, lines are always the consequence.
As always, oil is an essential driver of our economic well-being. And it’s great that the Post is moving in a market-friendly direction. But it doesn’t help the free market cause when it promotes the same “energy independence,” blind to market reality fallacies that feed a conservative flock increasingly allergic to the work divided genius of Mill, Ricardo and Smith.
