Intervention Begets Intervention

Frank J. Gaffney Jr. wants President Bush to impose a "requirement that every car sold in America be flexible fuel-compatible" and to establish "incentives for: the manufacture and purchase of hybrids and their plug-in variants, greatly increased production of alternative fuels and the necessary, modest infrastructure modifications."

Why all this intervention? To set "America free of its dependence on oil."

And why do we need to do that? "Because we in the United States and industrialized world more generally, are funding both sides in the War for the Free World. On the one hand, since we consume far more oil than is available here at home, we are obliged to import most of what we need from abroad. As a practical matter that means enriching with wealth transfers those who are the principal financiers of Islamofascist terror -- notably, Saudi Arabia and Iran. And, on the other, we are paying vast sums to protect ourselves against such terror."

Moreover, "our transportation sector remains reliant upon oil -- 60 percent of it imported -- for the gasoline and diesel fuel on which it runs almost exclusively. This creates a dependency that is as unsustainable as it is strategically perilous, especially as the appetite for oil of our emerging rival, Communist China, continues to skyrocket."

So, according to Gaffney, we need intervention in the domestic economy because of our dependence on oil. And how did we come to be dependent on oil? Through previous government intervention. A good deal of U.S. foreign policy has had the effect (and usually the intention) of subsidizing the American oil companies. Involvement in the Middle East, going back at least to the end of World War II, has, via the taxpayers,  externalized the costs of assuring a stable source of oil for ostensibly private companies. In other words, socialized costs, privatized profits. No wonder the left despises the oil companies. They have a point.

We don't know what the energy and transportation industries would look like without this subsidy, not to mention all the other subsidies and cartelizing regulations and taxes they enjoy. But we do have reason to think they would look a lot different than they do today. Government intervention distorts risk, prices, investment, economic calculation, and the resulting consumer choices. If unsubsidized oil companies had had to face the turmoil in the Middle East at their own risk, they would have acted differently than they have: they would have looked for safer sources of supply and/or developed entirely different forms of energy. We don't know what we're missing, but we are likely missing something good. Maybe we'd all be driving clean, high-mileage electric cars by now.

Of course, if the U.S. government had not intervened in the Middle East, there would have been much less turmoil there (and here) in the first place. We wouldn't be fighting a "war on terror" or changing regimes. So maybe we'd be using oil from there anyway. We'll never know. But we do know that the policy has imposed untold costs and hardship on American taxpayer-consumers--and the people of the Middle East.

For more, see my 1991 paper, published by the Cato Institute, "'Ancient History': U.S. Conduct in the Middle East Since World War II and the Folly of Intervention."