Wednesday, January 11, 2012

Can America Achieve Avocado Independence?

As Jersey is fond of screaming in ALLCAPS, "ENERGY IS A GLOBALLY TRADED COMMODITY!!!" And he is right.

But we shouldn't let that keep us from extracting our own gas and oil.  I'd rather put our own people to work and have a dependable supply system on hand in case of global emergency.  Also, the Canada pipeline, while not giving us energy independence, does allow us to purchase more oil from a friendly neighbor and therefore less from people who hate us.

Jonathan Thompson explains the folly of pursuing energy independence.  He's a green energy liberal, but he doesn't resort to the usual tendentious tactics.  His article is firmly grounded in mainstream economics that comprehends the global market:
The base premise of energy independence is the notion that we started importing oil because we didn’t have enough of it here at home. That’s about as accurate as the idea that Walmart fills its shelves with China-made items because the U.S. is unable to produce those things.
In fact, we get oil from all over for the same reasons we get tomatoes, avocados and cheap electronics from all over the place. It’s not always pretty, and it doesn’t always make sense on some levels -- shipping apples from New Zealand to Colorado just seems wrong -- but it makes sense to the market. Chesapeake says that spending $400 billion per year on foreign oil is “fiscally insane.” 
Yet the U.S. will also spend $400 billion on a variety of exports from China this year, not to mention the billions more we’ll spend on food, clothing, cars and electronic devices from a myriad of other countries. No one calls that fiscal insanity, nor do we hear politicians calling for iPhone independence. (High Country News – Circular Logic of Energy Independence)
So green dreamers like Jersey take a free-market principle and use it to argue against drilling for more oil. The same argument could be made for ceasing all manner of activity, from making our own cars to growing our own food. We could still get cars and food from other nations, but the diminution of supply would drive up prices and a lot of Americans would be unemployed.

The author goes on to explain how us pumping oil like crazy can make a difference in the market, and eventually make prices come down... Which will then make drilling in difficult sand and shale formations less lucrative, slowing operations there, resulting in less supply and higher prices, again making extraction profitable...  And around it goes.

 This is market economics 101, and it is no reason to forgo our own extraction that puts Americans to work

So free market forces are not “right” or “wrong.” The free market is an organic entity sending and receiving myriad internal and external signals every day, and as such is self-correcting, so long as central planners keep “rescues” and “protections” to an essential minimum. 

Also, there are no magic bullets or perfect solutions; only tradeoffs.  Until someone comes up with a viable alternative, oil and coal is here to stay.