I was listening to the radio on the way to work this morning and the topic of discussion was how a local lawyers group had set up a series of "discussions and debates" for high school seniors on a variety of topics. The first was topic was
"If gasoline goes to $10 per gallon, should we nationalize the oil industry?"
These students voted that they did indeed think it was a good idea. The lawyer/moderator said something to the effect that "all those young people who voted to do so, did so only after considering all the facts and after having thoroughly debating it. It was the American way."
Good to know that our young folk are so well schooled in sophistry and debate. Yay. Unfortunately, it seems like they might be a pantload light on economics or history. The REAL cost in the increasingly eroding return on investment we have in our educational system is in the damage these energetic and idealistic, yet ignorant, pups can do when they are given the keys (and handguns and whiskey) of power. The regrettable shrinking SAT scores just portend that.
Let's face it. The entire premise is so silly on so many levels that I cannot believe it was seriously chosen as a topic of debate.
First, what good would nationalizing the US oil industry do?
If it was done to decouple price from market conditions, you know, the whole "supply and demand" bugaboo that screws up Marxist economic theory, you would succeed in dropping the price of gasoline to $5 or $1 or a penny a gallon or whatever level you choose to fix it at. Until it runs out. The lower you set the price, the faster you won't have any more product to sell.
The problem with all price manipulation is supply disruption. The two go hand in hand, like Pressure and Temperature. Fix the price artificially low, you will soon run out of product because no one in their right mind will continue to make it... unless you control the whole market. Fix it to high, and you are swamped with product. Just ask the Department of Agriculture.
Unfortunately, the US is a long, long way from controlling the whole oil market. Our "Big Oil" bogeymen that haunt our fevered dreams in the pages of Time and Newsweek and Mother Jones and the Atlantic Monthly control MAYBE 20% of the word's oil supply, and most of that isn't in the US.
Should our "mighty race of genius toddlers", as I heard our government described in a movie recently, noting the age of aides in D.C., decide to do that, the Multinationals that make up Big Oil wouldn't be American very long. You can take away their domestic assets, but you ain't taking away their worldwide assets. Switzerland or Dubai beacon as fine corporate headquarters. Thus, we are dealing with around 5.5 to 6 million barrels of oil a day that you get to "nationalize". Too bad we consume 20 million. Whoops.
The other bummer is that the US production that was, what is that word for "taken without consent of the owners"? Oh yeah, stolen from its rightful owners, the producers and royalty owners, have this nasty habit of Declining, meaning "making less and less everyday", unless new wells are drilled.
I wonder what the exploration budget will be for Nationalized E&P Company? Do you think that Nationalized E&P will support the thousands of independent oilfield service providers? Or would we have to Nationalize all of them as well?
I think it is safe to say that without the competition of tens of thousands of creative folks coming up with ideas where to drill and frac and perforate, drilling rates would most likely fall dramatically, and service companies would "consolidate". Unfortuneatly, this leaves only 1/3 of American demand that can be sold under market this year, 1/4 next year, 1/5 the year after, not to mention the couple of hundred thousand unemployed oil and gas folks, and a collapse of the school tax base in many states, including a huge percentage of overall state budgets in Oklahoma and New Mexico.
Thus Nationalizing the US oil industry will certainly decrease DOMESTIC supply. It cannot help but do so. Where does all of this lead? It leaves us increasingly dependent on foreign oil supplies.
Will our foreign oil-supplying "friends" listen when the American people demand their "right" to cheap gasoline? I mean, after all, the American people have a "right" to all sorts of things for free or cheap, like healthcare. Right? Hell, we can rationalize it all sorts of ways.... Just look at the arguments being proposed for the "right" to universal healthcare. The problem is that the "rights" arguments hold a lot less water when you demand your "rights" from Saudis instead of preying on the misspent guilt of fellow citizens who make more than you.
What do you bet that Putin or Ahmadinijad (or however you spell it or pronounce it) or the Saudi royal family will not be as attuned to our American "rights" as, say, the ACLU? So, assuming I am right, these fellas, with the rationality that comes with being a maker or seller of goods rather than the rationality of American high schoolers who have been apparently conditioned that they should be given things , aren't likely going to sell us that oil for $5 or $1 or a penny for gallon of gasoline equivalent if they can get a better price elsewhere.
It seems like our only choice, once we have decided to take other folks' property domestically, is to extend that same rationale and make the foreign owners sell us their property at below market conditions. I mean, if it was good enough for patriotic Americans to have their property confiscated, it sure should be good enough for the towel wearers and ex commie bastards, right?
Clearly, Hugo and the Sheiks and Putin won't appreciate the beauty of our reasoning that this is some sort of American Right, so that leaves us with the other alternative to stealing... War. Hard to do the whole war thing without fuel, though. Ask Nazi Germany. I wonder if the concept of "mandatory draft" popped up in the debate that Mr. Lawyer was so proud of?
For the life of me, if one was knowledgeable about where America's energy comes from, who controls its supply, and how supply and demand really work, how could one rationally propose such an idea? Congressmen and Senators, sure. We have come to expect insane statements from them. But American High School students? I expect better.
Survey says 10 out of 10 economists would tell you that the fundamental price will rise in that scenario. Should you force your supply to be sold "outside of market", the result will be scarcity as you run out of hostage supply. This isn't even debatable. It is as immutable as a law of physics. Are they still teaching laws of physics in high school? If so, I wonder why since it doesn't seem to help you in a legal career...
By the way, here is a picture of the fellow they just busted for trying to do the ol' WMD thing in NYC.