Throughout his two terms, Barack Obama’s position on energy policy is encapsulated in the soundbite: “We can’t just drill our way to lower gasoline prices.” In one case he doubled down, adding, “Anybody who tells you otherwise either doesn’t know what they’re talking about or they’re not telling you the truth.”* (Here’s an excellent video from the folks at Energy in Depth; hat tip to Rob Port at the Say Anything blog.)
Yes, Mr. Obama and his advisers were mistaken. But the bigger story is what this episode says about Free Markets vs. Central Planning.
The Shale Boom is a Free Market phenomenon. It was driven by private capital, drilling on private lands (mostly), regulated by (mostly) Free-Market-friendly states (Texas, Louisiana, North Dakota, Pennsylvania, Oklahoma and, oh yeah, Texas). It happened (mostly) outside of Federal government control.
More importantly, the Shale Boom would have never happened in a centrally-planned economy.
- In 2009, the Obama Administration perceived expanding oil supplies as a problem, in that lower oil prices might inhibit the development of alternative energy sources.
- Mr. Obama reasoned that the U.S., owning only “2% of the world’s proved reserves”, could never significantly grow production. In a centrally-planned economy, those kind of pronouncements become self-fulfilling prophecies (Warning: mild NSFW content).
- Centrally-planned economies have a penchant for picking winners and losers. What good is the power of the state if you can’t reward your friends and punish your enemies?
Now it’s 2016 and we have a bust where our boom used to be. Industry put the brakes on drilling: In November 2014 there were 1,930 rigs drilling for oil and natural gas in the U.S. Today barely a third that number are still working. Centrally planned economies don’t react that fast.
Governments suddenly turn incredibly efficient when it comes to wasting money by the bucketfull (*cough* Solyndra *cough*). Entrepreneurs can blow through the cash, too, but when they do, it’s their money, not your money. Hundreds of $billions in market cap have been destroyed on Wall Street, but the system will work through this. The government, on the other hand, can paper over its problems by turning on the printing press, but that’s ultimately going to present a problem.
One other point: Centrally-planned economies have a nasty habit of becoming soul-sucking authoritarian dictatorships. Can’t happen here? Well, then, maybe the Soviet Union, East Germany, China, North Korea, Cambodia, etc., etc., were just aberrations.
So, you’re considering voting for an avowed Socialist for president in 2016, or the woman who’s trying to outflank him on the left? Well, bless your heart.
*That “anybody who would tell you otherwise” would include yours truly. The oil industry has never seen a boom it could not drill its way out of. Due to advances in shale drilling technology, domestic production has doubled in a few short years; we did drill our way to lower gasoline prices. Crude oil prices collapsed from >$100 per barrel in mid-2014 to under $27 today. Consumers are seeing the lowest gasoline prices of the Obama presidency, a return to the levels last consistently seen in 2004. Maybe, just maybe, some bloggers did know what they were talking about in 2009. Perhaps they were telling the truth in 2011, or since.