Saturday, April 22, 2006

Oil Econ 101

With people blaming Bush for high gas prices, now is a good time to review Arnold Kling's essay:

"My instinct is to oppose any policy initiative that is touted to fight child pornography or the drug menace. It's not that I'm in favor of child porn or drug abuse. However, I am conditioned by experience to expect proposals supposedly aimed at those problems to turn out to be ineffectual while threatening damage to the Internet and/or the Constitution. But the worst refuge of scoundrels, in my opinion, is the line that "we need to reduce our dependence on foreign oil in order to fight terrorism." When I hear that, my baloney-sandwich detector really starts vibrating. I am ready to reject whatever is on offer, whether it be oil drilling in Alaska, regulations on SUV's, or some new synthetic fuels program. Oil Is Oil I teach economics in high school. Here is a good question for an introductory course:

If the United States currently satisfies 10 percent of its demand for oil with imports from Saudi Arabia, by what percentage must the U.S. reduce its consumption in order to be 100 percent independent of Saudi oil?

If you answer "10 percent," you get an F. If we reduce oil consumption by 10 percent, then we will not cut 100 percent of our imports from Saudi Arabia. We cannot arrange to consume only American oil and no Saudi oil. Oil is oil. If we reduce demand by 10 percent, we probably will reduce our demand for Saudi oil by 10 percent, not by 100 percent." Read it all


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