Posted by: bmeverett | September 14, 2014

Friedman Watch 9-9-14


I try to read all (or almost all) Thomas Friedman’s columns in the New York Times. I rarely agree with him, but every once in while, he writes a column that’s so bad that it just cries out for a reply. His September 6 column, entitled “Leading from Within” definitely falls into that category.

Mr. Friedman’s thesis in this piece is that the United States can combat ISIS and Vladimir Putin with two powerful actions: allow US oil to be exported and impose a carbon tax. He is way off base on both counts.

Let’s take oil exports. I agree with him fully that the US should allow the free export of crude oil and refined products. Doing so would eliminate some logistical bottlenecks inside the US and allow the US economy to reap the full benefit of the crude oil we produce. For decades now, many Americans have mistakenly believed that keeping oil in the US helps American consumers while sending oil oversees benefits foreigners. We saw this problem when the Alaska Pipeline opened in the mid-1970s. Alaskan crude was not a good quality fit with West Coaster refineries, and the sensible solution would have been to export Alaska oil to Japan and replace it with imported crude into the Gulf Coast. That proved politically impossible, and the companies were forced by law to bring the crude oil around to the Gulf Coast at significant additional cost. American consumers paid the difference.

This action was costly and unnecessary. American consumers care about the price of fuel and the potential for market disruption. There is a single global, integrated oil market with a unified price structure. Producers supply oil to the market, and consumers buy from the market. It doesn’t matter where your oil comes from. If Saudi Arabia collapses, the global price of oil will increase and all consumers will feel the impact, whether or not they happen to be purchasers of Saudi crude.

Mr. Friedman’s expectations from lifting the oil export ban are unrealistic. He quotes Andy Karsner, CEO of Manifest Energy, as saying “Let’s lift that export ban and have America shaping the market price in our own interest.” Producing additional oil is a great boon to the US economy, but we are hardly in a position to shape the world oil market. In 2013, the US produced about 10 million barrels of oil per day (MBD), up about 3.2 MBD since the low point of 6.8 MBD in 2007. That energy boom has created unexpected jobs, profits and tax revenue for the US. Over that same period of time, however, global oil demand has grown by about 4½ MBD from 82.4 to 86.8 MBD. US oil consumption has declined by about 1.8 MBD over that same period from 20.7 to 18.9 MBD, but we still have to import 8.9 MBD or 43% of our needs. Every barrel of oil exported from the US will have to be replaced by a barrel of imported oil. This trade may result in some sensible logistical cost savings, but they will be small when oil prices are around $100 per barrel.

The US has gone from producing 8½% of the world oil market to 11½%. That’s great, but it hardly puts us in a position to control world oil prices, particularly when the Middle East still produces one-third of the world’s oil supply. Mr. Friedman expects that lifting the export ban could reduce oil prices to $75-85 per barrel, resulting in a “draining of our enemies’ coffers”. A slight logistical shift in the destination of US oil supplies would have a negligible impact on world oil prices.

Mr. Friedman’s second proposal is a carbon tax that “puts a predictable premium on carbon, ensuring that we unite to consistently invest in clean energies that take us beyond fossil fuels, increase efficiency and address climate change.” Good luck with that. As discussed many times in this space, no politician in his right mind would impose a carbon tax high enough to induce a real change in the capital stock or in the way people use energy. So far, carbon taxes in Europe, the Northeast United States (The “Regional Greenhouse Gas Initiative”) and all the bills proposed in Congress would set carbon taxes sufficient to shift money from the private sector to the government but way below the level necessary to effect real change. Fossil fuels have no competitors in terms of cost or performance. Setting carbon taxes high enough to push fossil fuels out of the market would shut down the economy.

Mr. Friedman thinks he can compensate for the adverse economic impacts of carbon taxes by slashing income, payroll and corporate taxes. Seriously? Mr. Friedman is clinging to the naïve notion that our elected officials in Washington spend their time thinking about what’s best for the country. What they are in fact thinking about is how to extract the maximum amount of money from the electorate to allocate to favored constituents. Our Congress doesn’t do “revenue neutral”.

The problem with Mr. Friedman’s grandiose schemes is that they promise way more than they can deliver. If this is a weapon to be aimed at ISIS and Putin, it’s just another pea-shooter that will convince our adversaries that US politics is all about rhetoric and appearances and not about substance. This is exactly the wrong answer.

The idea that building a successful political/military coalition “starts with respect earned from others seeing us commit to doing great and difficult things at home that summon the energy of the whole country…” is ridiculous. Charles de Gaulle famously said, “France has no friends, only interests”. An understanding of that fact should be the core of our foreign policy.

Take Turkey, for example. The Turks sided with the Germans in World War I because they expected the Germans to win. They paid a heavy price for that mistake with the loss of their empire and sat out World War II as a neutral country. Today, Turkey is torn between the secular, modernist urban traditions of Mustapha Kamal and the more traditional Islamist view, which seems now in the ascendency. The current Islamist government of Turkey plays this game carefully as a major supporter of Hamas while remaining a member of NATO. None of this has anything to do with shared values or whether Turkey likes the US. They are simply picking winners. Remember that in 2003 the Turks refused to let coalition forces enter Iraq from the north which would have made our attack much easier.

How about Qatar? The US has made a major commitment to this small feudal sheikhdom by locating key military facilities there. While the Qataris are happy to have our protection and our money, they are also active financial supporters of the Muslim Brotherhood, Hamas and ISIS. Qatar host an office of the Taliban in Doha. The Qataris will always support the winners. If they are not sure who’s going to win, they’ll support everybody.

The Saudis have now agreed (maybe) to provide a base for training forces to fight ISIS. Wonderful. The US has treated Saudi Arabia as a friend for the last 70 years because they are the world’s key oil exporter. During this time, the Saudis have done nothing whatsoever to support US interests. The Saudi royal family has a deal with their Wahhabi extremists allowing the princes of the Saud family to keep most of the oil money and live in unimaginable luxury. In return, the Wahhabi clerics run Saudi Arabia with the brutal hand of Sharia law, making average people miserable. Everyone in the West, including myself, was shocked and disgusted by the video-taped beheadings of three westerners in recent weeks. Remember, however, that the Saudis carry out public beheadings not only for murder and rape but for crimes such as apostasy, blasphemy and witchcraft. Filipino workers in Saudi Arabia are subject to capital punishment for holding a Catholic mass. Sexual misconduct can be punished by stoning to death. These are the people who will help us to vanquish ISIS’s ideology?

The Middle East is a tough and mean neighborhood. The consequences of political failure can be a hangman’s noose or worse for you and your family rather than just a premature retirement from public life. As a result, Middle East politicians have an exquisite sensitivity not to those with whom they share values but to those expected to win. The United States can form a winning coalition against ISIS and Vladimir Putin by making clear that the US intends to win and that countries on the wrong side of the conflict will pay a price, while those who side with us will reap rewards. Coalition partners will be few and far between when the US shows ambivalence about the effort. The idea that the US can generate a stampede of support from Middle Eastern regimes by making the ineffective symbolic climate change gestures so beloved of the American left is simply embarrassing.

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