March 2001 Vol. 222 No. 3  Editorial

Thomas R. Wright, Jr.,  Publisher

A dubious long shot

Many times over the years, we’ve passed on some very good ideas and opinions put forward by the Cato Institute, a conservative think tank in Washington, D.C. Most we have agreed with strongly, but a recent Cato news release has left us wondering if somebody has been spreading a new form of gas around the "Beltway."

What had us scratching our head was a proposed op-ed piece by Cato’s Jerry Taylor, titled, "Give Alaska to the Greens." What Mr. Taylor says is that, with energy prices skyrocketing and with President Bush pushing to open public lands – primarily the Arctic National Wildlife Refuge (ANWR) – to the oil and gas industry, the U.S. government should turn over control of those lands to an environmental group, such as the Nature Conservancy.

If you’re like us, you’re probably wondering, "What is this guy thinking?" Well, Taylor argues that, "If there is one thing we should have learned from the economic history of the past century, it is that politicians and bureaucrats are incapable of ascertaining how resources can best be used. If government were better able to allocate resources than markets . . . then, the Soviet Union would have won the Cold War."

Taylor says the dispute over ANWR occurs "because we lack price signals to guide our deliberations." He suggests that President Bush is saying that the oil beneath ANWR is more valuable than the wildlife above it. (Well, we think that is obvious.) But Taylor also wonders how Bush would know that, and then suggests that the only way to find out for sure would be to "check its price." In other words, since ANWR’s resources aren’t in the marketplace, "there are no prices and no way to empirically judge the matter." The only way to discover the value of ANWR’s resources, according to Taylor, is to put those resources on the market, i.e., privatize it and let the market agents, not politicians, decide whether to drill or not to drill.

At this point, while we can almost follow Mr. Taylor’s reasoning, we can’t quite swallow the idea that all politicians can’t be trusted to evaluate ANWR. Yes, there are many in the U.S. Congress who will place their personal benefit before fiduciary responsibilities, but in the long run, levelheaded thinking should win out over elitist protectionism.

Assuming that it would be advisable to divest ANWR, the next question would be how to accomplish it. Assume that ANWR was auctioned off, with conservationists bidding against oil companies for the land. Obviously, the oil companies would outbid the conservationists, at least for the lands thought to be oil-productive. However, if that was the outcome, it wouldn’t settle anything, because the conservationists would cry "unfair advantage," "money wins over right," etc.

But Taylor argues that if ANWR were given to the environmentalists, and they were allowed to do with it what they will, then some amount of economically promising land will end up in the oil industry’s hands sometime down the road. The theory is that there is no objective reason for government to choose one custodian over the other, that with either, economics will "maximize social utility," which is economic jargon for "the greatest good for the greatest number."

At the end of the day, the question will be whether giving ANWR to the conservationists will lock the oil industry out. The Cato scholar doesn’t think so. Since the oil industry says it needs only a small part of the refuge for development, Taylor feels that the conservationists would be willing to take, say, $10 billion for that access. Then, they could use the money to buy more land elsewhere, while insisting upon environmentally sensitive development practices.

While we wish that we could buy such logic, something tells us that the conservationists wouldn’t feel a need to sell. After all, the idea is nothing like a business, in which the owner of the asset must make a profit to survive. The conservation group most likely would be exempt from any taxes on the asset and not under any pressure to sell any of it. As a result, the group could sit on the holdings forever, while maintaining the typical elitist view of keeping all but the very few away.

In addition, if they somehow did agree to sell, why in the world would we want to enrich some environmental group to the tune of $10 billion, when that money should have gone to the treasury?

On this, we agree. Another Cato study, however, says that the oil industry enjoys fewer benefits than the general populace suspects and would be better off with less government intervention in energy markets. Energy economist Ronald J. Sutherland argues that, contrary to the claims of oil industry critics, "the evidence indicates that, on balance, the oil industry is not a net beneficiary of government subsidies. The facts point in the opposite direction. The oil industry is more harmed than helped by government intervention in energy markets."

According to data from the Energy Information Administration, total energy subsidies were $6.2 billion, or about 1% of total energy expenditures in 1999 (the most recent year with available data). Of that, only $567 million went to oil companies, "far less generous than the preferences and subsidies provided for rival businesses and technologies such as mass transit and alternative fuels." Sutherland says that the "oil industry receives less real subsidy . . ., undercutting ethanol producers and others that cite oil subsidies to claim more government handouts for themselves."

Some critics argue that industry and consumers don’t pay enough of the costs incurred by oil use – such as pollution and deployment of the military to safeguard oil sources in the Middle East. Sutherland doesn’t see it that way. He reasons that environmental regulations imposed over the developed world, plus local and federal taxes, more than pay the marginal environmental costs of using oil. He also thinks that imposing taxes to pay for military costs to ensure secure oil supplies would result in a decline in oil consumption, but would not significantly reduce military costs.