Wednesday, October 08, 2008

Let's Be Energy Independent. NOT

“Energy independence” is a bad idea. Every individual understands that it is far better to depend on others for most of what we want rather than trying to do everything for ourselves. This is true whether we’re buying oil or haircuts. The principle applies to groups of individuals living in large geographical areas called countries.

Energy “dependence” is much cheaper. In fact, the case for being “dependent” on other countries for oil is the same as the case for being dependent on other countries for bananas or coffee. At some tariff-protected price, the United States could be self-sufficient in bananas or coffee. If the price were high enough, someone would grow bananas and coffee plants in greenhouses. But why would we want that? Why would we want to pay more for coffee and bananas than we need to?

Another way of saying that we would pay more is that we would give up more of our resources (capital, labor, and land) to have domestic bananas and coffee than we now give up by producing other things with these resources and using the proceeds to buy coffee and bananas more cheaply abroad. We would be poorer.

The reasoning doesn’t change when the good is oil. By preventing people from importing oil, either with a ban on imports or a tariff on oil, the government would make us poorer.

Or think of it another way. Do you ever take your shirts to the local cleaner to be washed? If so, you are “dependent” on the cleaner. You could wash your shirts yourself, but you don’t. The reason you don’t is that your time is more valuably used producing other things, some of which you sell, and using some of the proceeds to pay the cleaner.


~Economist David Henderson in
The Freeman

MP: As David Henderson points out, advocating "energy independence" is as nonsensical as advocating "banana independence," "coffee independence," "lumber independence," "clothing independence," "diamond independence," "cashmere independence," "spice independence," etc. for the U.S. In fact, the inevitable result of the logic of "energy independence" is complete and total self-sufficiency for the U.S., with no imports and no exports, and complete "foreign trade independence."

But if economic self-sufficiency actually made the U.S. better off, wouldn't it also make the state of Michigan better off? And if economic self-sufficiency made the state of Michigan better off, wouldn't it also make each of Michigan's 83 counties better off to be self-sufficient? And if economic self-sufficiency made each county better off, wouldn't it also make me better off as an individual, to be "energy independent," "food independent" and "clothing independent?" If so, I guess I better start chopping wood and converting my back yard into a vegetable garden.

31 Comments:

At 10/08/2008 8:47 AM, Anonymous Anonymous said...

Cerrainly, keeping some of that $700 billion in the US would aid us. Also, drilling for oil would create jobs. The money the oil companies spend becomes income in other people's pockets. It would stimulate the steel and aluminum industries to name a few and also provide money for people to buy food and clothing, etc.... Compaies would need trucks, timber, woood, etc. It isn't really about independence, it about investing dometically rather than in other countries. It is just part of the solution until other forms of energy become widely available. 98% of our energy comes from fossil fuels. It will take 30, 40, maybe fifty years to get that below 50%.

 
At 10/08/2008 9:11 AM, Anonymous Anonymous said...

What if bananas never went bad and we could take half of the bananas we import and save them for later causing an apparent shortage so we could charge more for them now. Then later when there really is a shortage we could break out our massive stock pile of bananas and sell them at a premium. That would be awesome.

 
At 10/08/2008 9:18 AM, Blogger Mark S. said...

In principle this is true--assuming an irenic world economy with homogenous values. But that's not what we have. Further, energy and bananas are not the same thing. By buying bananas from Ecuador we are not tipping the balance of global wealth and power to Ecuador who potentially may use that wealth and power to destroy us. Nor are bananas (or cashmere!) a necessary commodity, like energy is. If tomorrow I cannot get bananas, I will buy apples, or, if absolutely necessary, I'll go 6 months with no fruit at all. The same cannot be said for energy.

To me this is a bit too simplistic.

 
At 10/08/2008 9:22 AM, Blogger Mark J. Perry said...

For some of us, cashmere **IS** a necessity.

 
At 10/08/2008 10:03 AM, Blogger Flash Gordon said...

Your analogy of oil and bananas would make more sense if somehow bananas never went bad, we had a huge banana forest and we were very skilled at harvesting those bananas but there existed a political faction that had been successful in lobbying for laws to prevent us from harvesting our bananas.

Imagine also that if our untapped banana forest were harvested the world supply of bananas would increase and reduce prices we had to pay for bananas, wouldn't we be better off if we voted all of the banana haters out of office and began to harvest our own bananas?

And wouldn't it be foolish to chastise anyone for inaccurately calling our harvesting of our own bananas "banana independence" since it's the thing we do that matters and not what it is called?

Now suppose we loved bananas so much that we buy lots of them no matter the world price for them and the other countries that produce the bananas at a very high price (because of our political nutjobs that won't let us harvest our own) are using the vast wealth they derive from high banana prices to build bombs and finance terrorists to kill us.

There, now you have an analogy that makes sense.

 
At 10/08/2008 10:37 AM, Blogger Trevre said...

Right now oil is a commodity that we all need to function. There is no replacement for oil if our supply suddenly runs out. There is no alternative fuel we can use to move goods in the near term. The idea of the government subsidizing the development of alternative energy sources isn't directed towards completely eliminating our oil imports, rather it is to unmonopolize oil as the primary energy commodity.

While I believe in free markets, I also believe free markets only work in the short term. They do not plan for the future. If they could or did plan for the future you wouldn't see the current problems we having now. If they could plan for the future financial institutions would have never taken such significant risk, no matter how hard the government pushed them to.

It is the government's job to plan for the future, for the long term. While they haven't always done a great job of that, they will continue to attempt it.

The post mentions that it is cheaper to rely on imports, but that is only in the short term. In the long term, based on current predictions, we are running out of oil. We could wait until we run out, let the markets correct by developing new sources of energy that can be used in the same way as oil, or the government can start planning now, attempting to make sure these alternatives are developed when we need them.

Alternatives will take years to develop, and if the free market is left to develop them, they will wait far to long to do so.

 
At 10/08/2008 10:57 AM, Blogger Colin said...

"While I believe in free markets, I also believe free markets only work in the short term. They do not plan for the future."

Then why do private investors already spend hundreds of millions of dollars developing alternative energy?

http://www.farmfutures.com/ME2/dirmod.asp?sid=CD26BEDECA4A4946A1283CC7786AEB5A&nm=News&type=news&mod=News&mid=9A02E3B96F2A415ABC72CB5F516B4C10&tier=3&nid=F277320D470C43E7AE3E4D9B52550C20

Look, if alternative energy makes sense then the marketplace will develop it. Last time we trusted government to develop alternative energy we got ethanol. This notion that politicians know better than the marketplace what kind of energy sources we should be using is ludicrous.

 
At 10/08/2008 11:01 AM, Blogger David said...

This analysis doesn't consider military & national security issues.

What do you think would have happened to the U.S. in WWII if we had not had synthetic rubber available when the Japanese took over most of the world's rubber plantations?

"Rubber independence" turned out to be a pretty good idea.

 
At 10/08/2008 11:18 AM, Anonymous Anonymous said...

Thank you Colin. Hayek must have been spinning in his grave.

 
At 10/08/2008 11:41 AM, Blogger bobble said...

colin:"Last time we trusted government to develop alternative energy we got ethanol. "

that was *george bush's* concept of developing alternative energy.

 
At 10/08/2008 11:51 AM, Blogger Bruce Hall said...

In a perfect world, trade would ultimately balance out and we'd all continue to prosper based on our "proficiencies."

In the real world, the quick shifting from producer to importer on the large scale we have seen in the past decade can result in rapid growth or decline in individual countries.

The statistics say that the U.S. hasn't been harmed by the changing roles, and that may be true. Michigan certainly has been harmed. It takes time and a certain amount of re-inventing to recover if you happen to be on the losing end of a market switch. Part of the re-inventing may be to look at re-evaluating the decisions that made sense prior to the changing roles. For example, Michigan government might want to consider its tax implications on its automotive industry or determining where there are opportunities for processes that are water-intensive where the state has a major advantage.

Likewise, the nation might want to consider that energy production may be both an economic and strategic advantage over importing, not simply because of current prices, but because of problems caused by price-volatility of imported energy.

 
At 10/08/2008 12:00 PM, Anonymous Anonymous said...

Gee, I can't believe all you grand economists forgot basic 'Cartel Theory'. Energy is not a competitive market, with production going to the least cost, most efficient producer (basic international trade economics). The drive for energy self sufficiency (but not necessarily energy independence) could leave the sheiks with too much, current oil, and not enough consumers. Time for a Wal-Mart price cut.

 
At 10/08/2008 12:57 PM, Blogger Trevre said...

I agree that the subsidies provided to encourage ethanol development haven't been effective. The government should be subsidizing the technology used to produce ethanol, not the ethanol itself. While current grain ethanol has many disadvantages, cellulosic ethanol has a much better chance of converting resources that are being utilized into useful fuel.

Many of the firms that are investing in alternative energy systems are being subsidized by the government to do so. A careful eye is needed to make sure new technologies are invested in wisely and substantially enough to make a long term return on our investments.

My original argument holds. I agree that the free market will develop these technologies if economical, but again that will likely be far to late than when they are needed.

If it really comes down to economics. It is much cheaper in the long term(the next 10 years) to start using natural gas, wind, and nuclear power instead of petroleum. Yes petroleum will still be needed as a transition energy source and in some cases(like airplanes) we will probably be using petroleum for a long time, but we won't need to use it for most of our other energy needs.

 
At 10/08/2008 12:57 PM, Anonymous Anonymous said...

"If the price were high enough, someone would grow bananas and coffee plants in greenhouses. But why would we want that?"

The countries who sell oil are using the money to threaten our national interestes including funding terrorists. The 911 atackers were Saudi, and Saudi's fund the islamic schools and camps where terrorists are trained.

Countries who sell oil include Iran, Russia, Saudia Arabia, Venesuela, etc.

We can be energy independent if we use coal, methanol from coal, oil from shale. These are competetive but not politically expedient.

Liberals want energy expensive because it will decrease demand and reduce pollution.

 
At 10/08/2008 2:03 PM, Blogger Arman said...

"Liberals want energy expensive because it will decrease demand and reduce pollution."
And really, what is wrong with that? Nothing will contribute to conservation and alternative development more.

 
At 10/08/2008 3:15 PM, Anonymous qt said...

Arman,

Liberals are getting their dream come true. A global recession should lower greenhouse gas emissions more effectively than any of the uneconomic alternative fuels or high gas prices have done to date.

 
At 10/08/2008 3:27 PM, Blogger Paul said...

qt, that plays into the meme of how environmentalists must love North Korea due to their low carbon footprint. It's a non-argument, and you will not be able to find a reputable source that buys into it.

Liberals, believe it or not, are not happy about a coming recession. They own houses, drive cars and watch TV just like normal people who don't hate capitalism. What liberals DO want - at least environmentally sensitive ones - is more efficiency and less pollution. Same result, different means of accomplishing it.

I know it means we're crazy hippies, but we believe there's more than one way to approach the problem. You could wait for economic ruin to destroy the existing energy infrastructure to reduce pollution and waste, or you could come up with alternatives. Most of us prefer the route that doesn't take away our many luxuries and quality of life.

 
At 10/08/2008 3:35 PM, Anonymous Anonymous said...

Liberals let their ideology get in the way of common sense. Kind of like religious fanatics. They like dogma masquerading as science. Once they latch onto an idea, they can't let go. Like they think sending more money to Washingtton, DC, is a good thing...!!

 
At 10/08/2008 3:46 PM, Anonymous Hayek said...

First of all, has no one ever heard of the concept of an EXTERNALITY?! In this market, buying cheap foreign energy puts resources in the hands of people who kill us. So, for the market to work correctly, we need a way to put the cost of that externality on the purchasers of the product. One way to do that is to add a tarriff to foreign oil purchased from "volatile" regions sufficient to recover the added costs of defense spending and anti-terrorism costs that must be incurred due to trading with these regions. Its prefectly consistent with a free-market approach.

 
At 10/08/2008 5:10 PM, Blogger juandos said...

"It is the government's job to plan for the future, for the long term"...

Hmmm, is that something that was added to the Constitution recently? Is that the welfare clause trevre?

"Alternatives will take years to develop, and if the free market is left to develop them, they will wait far to long to do so"...

Does that explain how Al Gore invented the internet and how NASA invented the computers we use today?

"that was *george bush's* concept of developing alternative energy"...

Are you saying bobble that George Bush's other name is Joe Barton?

"Energy is not a competitive market, with production going to the least cost, most efficient producer (basic international trade economics)"...

Hmmm, anon @ 12:00 PM do you have something credible to back that up or was in just another one of your insights?

From Ben Lieberman over at Cato: The Ethanol Mandate Should Not Be Expanded

 
At 10/08/2008 5:38 PM, Anonymous Craig said...

True, energy independence is a foolish goal, but producing more of our own is not an issue of comparative advantage, either.

Our growing dependence on foreign sources of energy has not been caused by any particular economic disadvantages to producing more of it here, it's been the result of government's forbidding us to.

Let the oil industry discover for itself just how much we can profitably produce and refine. I suspect it's a lot more than we do now.

 
At 10/08/2008 5:55 PM, Blogger juandos said...

arman says: "And really, what is wrong with that? Nothing will contribute to conservation and alternative development more"...

What are you? Some sort of stunted socialist?

"Our growing dependence on foreign sources of energy has not been caused by any particular economic disadvantages to producing more of it here, it's been the result of government's forbidding us to"...

Yes indeed...

Just consider those Congressionally mandated No Zones...

 
At 10/08/2008 8:27 PM, Blogger Dave Narby said...

...Would it make you feel better if it were worded "Let's make America energy production competitive!"?!

Because that's what I've always though being energy independent means - Being able to produce enough energy cheaply enough that we don't have to pay more than we need to, and give American companies (and their employees) first crack at those dollars!

Right now we don't produce enough energy to be competitive. We need to drill, drill, drill, use plug in hybrids (it costs 1/3 to run your car off electric compared to gasoline) and create electric producing solar heat farms in the deserts (hot salt & turbine method).

Cutting costs = Increased profits = Good for America!

 
At 10/08/2008 10:40 PM, Anonymous qt said...

"Liberals, believe it or not, are not happy about a coming recession"

Are Liberals ever happy? But seriously, any sentient being could hardly be sangine about the potential collapse of the global financial system.

 
At 10/08/2008 10:55 PM, Anonymous jlounsbury59 said...

This is a non-sensical argument. If you have the choice of making your own or buying from someone else, you are free from economic blackmail. Of course we can import oil whenever it is cheaper than producing our own energy. But if we have no options when oil is expensive we will become a failed economy. The arguments about coffee or bananas are irrelevent. If we could make more money growing our own bananas or coffee, facilities could be established in a very short time. Not so with energy. Also, we would not destroy our economy by forgoing bananas or coffee when they became too expensive. Not so with energy.

 
At 10/08/2008 11:03 PM, Anonymous qt said...

The fun one is the suggestion that the U.S. could place a tarriff on imported oil to subsidize the cost of anti-terror measures as though in a global marketplace, the seller would not simply sell to China.

Would this tarriff apply to Canada and Mexico?

 
At 10/09/2008 11:35 AM, Anonymous Anonymous said...

juandos said...
""Energy is not a competitive market, with production going to the least cost, most efficient producer (basic international trade economics)"...

Hmmm, anon @ 12:00 PM do you have something credible to back that up or was in just another one of your insights?"

Hmmm...I thought that empirical evidence was valid. And insight is the intrepretation that is given the data...so sure... my insight. So are you disputing the insight, or the data? Or in other words, do you believe that the production of oil is as unconstrained as possible?

 
At 10/09/2008 2:05 PM, Blogger OBloodyHell said...

> 98% of our energy comes from fossil fuels.

Uh, right. MAKE UP NUMBERS.

Just MAKE THEM UP WHOLESALE.

Here, let me do it:

75.742% of anon's brain cells are totally switched off.

Another 14.239% of them are firing incorrectly, creating random noise.

The remaining 42.693% of his brain cells are filled with false information.


Here are valid stats, for those of you who care.

Note that
787/4000 (Nuclear) = 19.7%

Last time I checked, Nuclear power was not a fossil fuel.

Also, Hydro and "other renewables" are also not fossil fuels, so:

1173/4000 = 28.8%

But hey, I forgot -- I'm making this shit up, so I hereby declare that we get 75.6% of our energy from non-fossil sources!! Who's with me?!?!

:-/

> It will take 30, 40, maybe fifty years to get that below 50%.

Actually, it would take about 15-30. All we have to do is decide to build nukes steadily (Hydro is already fairly close to capacity, and there aren't any other techs which can currently come close to supplanting Nukes). Probably 20 years would do it if we got serious, since we only need to boost it by 20% to get the other figure below 50%.

 
At 10/09/2008 2:21 PM, Blogger OBloodyHell said...

> The idea of the government subsidizing the development of alternative energy sources isn't directed towards completely eliminating our oil imports, rather it is to unmonopolize oil as the primary energy commodity.

If the government were actually subsidizing the development of "alternative" energy sources, then it would be pushing for streamlining the regulations for nuclear power plants, pushing for standardized designs, and assisting in the development of capital requirements by appropriate tax incentives and associated obstruction removals.

What the government is involved in is RAMMING INEFFECTIVE TECHNOLOGIES down people's throats. Pushing Wind, Solar, and Biofuels -- all extremely cost-ineffective -- into places where they are not market-feasible by any means.

> It is the government's job to plan for the future, for the long term.

BWAAAAAAAAAAahahahahahahhahaaaa!!!

Are you STUPID?

The government can't plan beyond the next election cycle.

As short-sighted as Wall Street tends to be with looking too closely to the next quarterly report, they do a hell of a lot better on most long term planning (except where the government meddles, mostly) than any democratic government on the planet.

> Alternatives will take years to develop, and if the free market is left to develop them, they will wait far to long to do so.

Ridiculous. The amount of money which would be produced in payment for the right patents on any effective AltEn technology is literally and figuratively obscene.

Not just billions but TRILLIONS.

You want "the market" to do something for you -- just dangle a few billion in front of it. They'll get there a hell of a lot faster than any government agency.

> "Rubber independence" turned out to be a pretty good idea.

Ah, so, you strongly support offshore drilling and drilling ANWR, then?

Far more critically, you strongly support development of oil shales and tar sands, of which the US/Canadian supply is something in excess of the total amount of oil already pulled out of the ground worldwide since the 1850s?

Since Obama is unyeilding in his rejection of those two, I take it you are voting for McCain, then?

> But seriously, any sentient being could hardly be sangine about the potential collapse of the global financial system.

Don't assume too much. The turmoil created by such an event is very much within the possible desires of social engineering types, allowing for radical reformation of existing systems, especially while using complaints of "the current system has faaaaaaailed!!" as a mantra allowing them to offer ridiculously ineffective alternatives. If you look carefully into some of the statements by Greens about their believed carrying level of the planet, you'll find that at least some of them are very MUCH in favor of economic catastrophe.

 
At 10/09/2008 2:35 PM, Blogger OBloodyHell said...

> It's a non-argument, and you will not be able to find a reputable source that buys into it.

Actually, if you look into statements made by many Green leaders, you'll find exactly that. It's not hard to find statement made by people in charge of the larger Green organizations which clearly express a desire to reduce the human population to a single-digit fraction of what it is now -- and when asked about the fact that that suggests mass suffering and starvation, they don't even blink... "Some sacrifices must be made" is their usual response.

But you never will, is my bet. And since you'll probably not change your position in the face of such information, I'm not going to bother looking.

 
At 10/09/2008 5:05 PM, Blogger Paul said...

Awesome comeback, OBH. Unsubstantiated claim as rebuttal is one of my favorite debate tactics to witness. It's such an honest reflection of the intellect driving the argument.

I'll wait while you find a "Green leader" with a solid mainstream reputation (hence my use of the word "reputable") that promotes economic collapse as a preferred route to saving energy.

No credit for whacko fringers or doomers. Sorry :(

 

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