Correcting Thomas Friedman can keep anyone busy. Today he is excited about the prospect of the United States joining the Organization of Petroleum Exporting Countries. That sounds like a great idea for a country that imports close to 9 million barrels of oil a day.
The basis for his excitement is that the United States is becoming somewhat less dependent on foreign energy imports. The main reason for this is the increased production of natural gas from shale deposits. However it is not clear how long these shale gas deposits will last since it seems that earlier estimates of reserves were seriously overstated. Furthermore, there is almost no plausible story in which increased natural gas supplies and domestic oil production, plus aggressive conservation measures, will cause our demand for imported oil to drop from 9 million barrels a day to zero any time in the foreseeable future.
Of course even if the U.S. miraculously became energy independent it would not free us of concern about events in the Middle East, as Friedman contends, since we are still in a global economy. This means that if war or revolution in the Middle East led to a sharp drop in world oil production it would still have an enormous impact on the U.S. economy.
To see this, imagine that there were severe droughts in Africa and Asia that caused the world price of wheat to quadruple. Guess what would happen to the price of wheat in the United States? That’s right, it would also quadruple. The reason is that wheat producers would export their wheat to take advantage of the higher prices available elsewhere in the world, so we would have to match the world price in what we paid for the wheat consumed in the United States.
Since the United States is a net exporter of wheat, the country as a whole would come out ahead in this story. However, since most people do not own wheat farms, they would end up as big losers, paying much more for their bread and other wheat products.
It would be the same story with oil if democratic revolutions temporarily stopped production in Saudi Arabia and the other Persian Gulf monarchies. We would see the price of gas double or triple. Exxon-Mobil and the other oil companies would see corresponding gains in profits, but those of us who don’t own lots of stock in these companies would still end up as big losers. In principle the government could tax the windfalls and redistribute them — okay, we don’t have to talk about such silliness.
Anyhow, it’s still fun to see Thomas Friedman get excited. I remember an earlier energy episode back in 2006 when he had Nancy Pelosi send a letter to President Hu in China, just after she won control of the House in the November elections. The letter Friedman drafted for her was about how the U.S. would produce clean technology products and export them to China.
Economist Dean Baker is co-founder of Center for Economic Policy and Research and writes regularly on CEPR’sBeat the Press blog, where this post first appeared.