Wind Energy is not Green Energy

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Published on Thursday, 05 April 2012 14:39

Stanton Yuwono, a member of AHI Rochester, was published in the Rochester Campus Times this week.

Do we need to go to war for oil?

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Category: The Blog

Published on Friday, 16 March 2012 01:37

The Short Answer...NO!

By Vinit Akolkar

In today’s world of politics, even those who claim to be literates in the language of economics tend to abandon ship when discussing issues of international trade. We frequently see politicians, espoused champions of capitalism, giving passionate speeches in favor of outdated ideas such as protecting domestic manufacturing and reducing our dependence on foreign oil. To them, the concept of trade is zero-sum, where beating our partners (doesn’t have the same ring as opponents, does it?) is the ultimate goal. Unfortunately, these proponents of the free market seem to forget one of its best features: trade, or voluntary exchange, is always mutually beneficial.

We witness examples of this cognitive dissonance all the time, particularly during election seasons. As candidates leverage threats of sanctions and oil shocks to score political points, we as constituents are left with some natural questions: Do we really need to fight over the allocation of limited resources? Is there anything special about oil that necessitates conflict?  Is peaceful engagement on the international stage really not a viable option?

On February 9^th, writer for Econlog, columnist for antiwar.com, and associate economics professor at the Naval Postgraduate School, David R. Henderson visited the University of Rochester to give a lecture that sought to answer such questions. The talk was titled, “Do we need to go to war for oil?”

Our speaker opened the discussion with a light joke. He asked a rhetorical question, “Do we really need to go to war for oil?” and immediately responded, “No.” He then folded his hands together to suggest that the lecture was over. While this made for a rather humorous opening, Henderson actually made a key point: the solutions to our conflicts over resource depletion are intuitive. They come, not from complex theories of international relations, but from basic concepts learned in Economics 101, such as the analysis of incentives.

For instance, what is the first argument that war hawks make when justifying war for oil? They say that we’re on the brink of running out! This premise has been used as a call to action for decades now. What is the reality? As long as we’ve been concerned, the estimated amount of oil in reserves around the world has been increasing due to the profit motive that faces every oil producer (to varying degrees). Why then should we expect the politicians to be right this time around? According to Henderson, we shouldn’t. These are the types of basic reasoning skills that he claimed are sufficient to challenge the headlines we see in newspapers.

As an introduction to the talk, we were given a quick historical backdrop of the issue. A Harper’s magazine article in the 1970s, written by an anonymous Washington insider, first introduced the concept of “war for oil” to the United States. This approach had no academic backing. Still, it gained popularity as a convenient political tool to justify the spending of billions of taxpayer dollars. Upon rigorous examination, it is easy to see that the idea of using aggression to facilitate trade is, and has always been, intellectually bankrupt.

Its main source of bankruptcy goes back to our first lesson about trade as being mutually beneficial. Any win-win situation means that all parties involved have an incentive to cooperate and to find common solutions to problems. If an aggressive country tries to harm another by manipulating its oil supply, it can only do so in a way that is equally, if not more, harmful to itself. In other words, trying to harm your trade partner imposes very serious costs upon you. Our politicians’ biggest fears—reductions in oil supply and selective oil embargos—at best simply rearrange international trade patterns and at worst cost the aggressor a lot of money. If markets are allowed to adjust (no price controls) to an imposed reduction in supply, prices rise minimally per person and the country that cuts supply loses substantial oil revenue due to decreased marginal consumption. The concept of imposing an embargo has also become moot with the onset of global markets. If one country decides not to sell us their oil, we can easily buy it from another. Aggressive actions taken by foreign oil producers are extremely unlikely to cause substantial issues here in America, provided that we foster a well-functioning market.

People may ask, what if our enemies are suicidal and don’t care about losing money? Henderson explained that such questions reflect a misunderstanding of dictators; those that wield power have to acquire and maintain it through a process that is inherently self-interested. Consequently, they are never willing to give it up. We’ve rarely, if at all, seen political leaders act otherwise.

There are also pro-war arguments out there claiming that, even if there’s no threat, invading other countries for oil may be worthwhile if we are able to increase the world’s oil supply. However, it is very likely that the costs of such an endeavor far outweigh the benefits. Advocates of this position often forget that relevant military spending needs to be factored into the picture. Also, there is a significant risk that the country being invaded may sabotage its oil supply as evidenced by the war in Iraq.  The big mistake on the part of US officials regarding foreign policy has been the assumption that the world is a simple system which can be easily rearranged. They forget, however, that individuals adjust their behavior rapidly to changes in their environment, making any efforts at manipulation a rather tall order.

What is the most effective long-term solution to our problems on the international stage, if intervention is both unnecessary and destined to fail? According to Henderson, we should pull our troops out of the Middle East. The interconnectedness of our globalized world provides an implicit safety net against conflict. Nations that engage in trade have strong built-in disincentives to go to war, or even to act aggressively. Pulling back sanctions, for example, is a much stronger deterrent to conflict because it raises a culture of mutually beneficial cooperation. Perhaps the best summary of this point comes from our speaker’s adaption of Adam Smith’s famous quote from An Inquiry into the Nature and Causes of the Wealth of Nations (1776): “it is not due to the benevolence of the world’s oil suppliers that we get our oil, but from their regard for their own interests.” A crucial step towards crafting a more effective foreign policy is to realize that their interests coincide with ours. Today we are witnessing moderate groups rising everywhere across the Middle East whose success is guaranteed, provided that the United States abandons its conquest for domination and pursues an agenda of trade.

Liberty Week

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Category: The Blog

Published on Tuesday, 20 March 2012 03:22

Liberty Week Speaker Series

"Litigating for Liberty"

Sunday March 25, 2012 7PM-8:30PM

University of Rochester, Goergen 101

Robert McNamara, Attorney
Institute for Justice

 

Currently, McNamara is lead counsel representing a group of Philadelphia tour guides challenging a law that would make it illegal for them to give tours without first obtaining a special license from the city government, literally making it illegal for them to talk about the Liberty Bell for compensation. His practice has also included representing Bill Brody, a Westchester County, NY, property owner who is fighting against his state's outrageously unfair eminent domain procedures and a group of Colorado homeowners in their fight to be able to speak freely about politics without subjecting themselves to the threat of lawsuits from their political opponents.

Sponsored by the AHI Rochester and the University of Rochester College Democrats

 

"Crony Capitalism and U.S. Energy Policy"

Wednesday March 28, 2012 7PM-9PM

University of Rochester, Lander Auditorium (Hutchinson 140)

Robert Bradley, PhD

Institute for Energy Research

 

Bradley is the CEO and founder of the Institute for Energy Research. As one of the nation's leading experts on the history and regulation of energy markets, he has testified before the U.S. Congress and the California Energy Commission, as well as lectured at numerous colleges, universities, and think tanks around the country. Bradley has applied the classical liberal worldview to recent corporate controversies and energy policy debates.

Sponsored by the AHI Rochester and the University of Rochester College Republicans

 

"Private Management of the Public Parks"

Thursday March 29, 2012 7PM-9PM

Staybridge Suites

Warren Meyer, MBA

Recreation Resource Management

 

Meyer is currently in the bussiness of managing his own private recreational facilities on government lands. His experiences give him a unique insight into the relationship between the private and public sectors.He worked for nearly 20 years at a range of companies including Exxon (engineer), McKinsey & Co (management consultant), Emerson Electric (marketing), Honeywell (marketing), and at a series of Internet companies of varying levels of success such as Mercata and Whitepages.com (general manager).

Sponsored by the AHI Rochester

 

An Interview with our Director

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Category: The Blog

Published on Monday, 20 February 2012 19:46

1. Bidding on a CO2 Permit

2. Broken Window Fallacy