In a benevolent or romantic conception of the state, it must be impossible to understand why politicians and bureaucrats hold official opinions on the price of oil, let alone intervene to control it. It must be utterly difficult to make sense of why Trump, Putin, and bin Salman want to push up oil prices. This suggests a very different theory of the state.
A story in today’s Wall Street Journal gives a hint at the alternative, non-romantic conception of the state (“Trump, Putin, Saudi Crows Prince Scramble to Fix Oil Markets,” April 10, 2020):
President Donald Trump, Saudi Crown Prince Mohammed bin Salman and Russian President Vladimir Putin lead the world’s top three oil producers, respectively. Mr. Trump is counting on support from the country’s now-vast oil patch in his re-election bid. Mr. Putin is trying to extend his rule amid a weak economy, and the crown prince needs to consolidate power and keep funding his ambitious reform efforts.
In America, some 250 million adult consumers put gasoline in their cars and many of them use fuel oil to heat their houses. For lots of them, the drop of oil prices by two-thirds since January has been a godsend in this time of crisis. Compared to the 250 million consumers, about 150,000 Americans work in the oil and gas industry, besides owners and shareholders. The numbers don’t matter as much as the fundamental question: Why does the state take sides between these two groups of citizens?
Anthony de Jasay built a formal theory, in many ways close to public-choice theory, to answer this question. (Public choice analysis is, James Buchanan wrote, “politics without romance.”) His answer is that, in the absence of public goods, the state cannot but take sides among its subjects; it is necessarily a discriminatory and adversarial state. Because interpersonal comparison of utility are impossible, government interventions must always favor some citizens and harm others. Of course, state rulers will decide to favor their supporters and clients. The state just cannot please everybody and, as de Jasay put it in his book The State:
When the state cannot please everybody, it will choose whom it had better please.
The fact that Trump himself understands little about the world except for an intuitive view of his own immediate interests, which can change on a dime, does not make the US government more benevolent, loving, and rational. He tweeted earlier this year:
Do you think it’s just luck that gas prices are so low, and falling? Low gas prices are like another Tax Cut!
From the vantage point of a non-romantic conception of the state, the best government decision on oil prices, as on so many other things, must be the Marquis d’Argenson’s injunction: “Laissez faire, morbleu! Laissez faire!” (“Morbleu” is a French swear word, derived from “death of God.”)
READER COMMENTS
BC
Apr 10 2020 at 3:08pm
The ironic part is that if US oil companies themselves tried to do what Trump apparently is trying to do, collude among themselves and with other producers to boost price by restricting supply, it would probably violate anti-trust law. At the very least, some of the same people that cheer when government tries to “protect” industry would decry the oil companies’ “greed” and…call for government intervention to stop it!
Pierre Lemieux
Apr 10 2020 at 3:16pm
Indeed, that’s another absurdity of interventionism. The state is the most dangerous of cartels.
nobody.really
Apr 13 2020 at 1:43am
Since you bring it up: Trump has allegedly suggested to Russia, Saudi Arabia, and Mexico that the US is/will reduce production. What mechanism would Trump have to implement such a policy? Like BC (and Lemieux?), I’d assume such a policy would violate antitrust laws.
News accounts have been quite cagey about Trump’s mechanism. Sometimes reporters suggest that Trump has been intentionally vague, and may simply be referring to a natural decline in exploration that follows any drop in oil prices. But other accounts seem to suggest that Trump has some extraordinary mechanism in reserve. Anyone got an insight?
Alan Goldhammer
Apr 10 2020 at 3:20pm
All one needs to do is look at the CEOs of the Oil & Gas Industry President Trump recently met with and their campaign contributions. There is a very high correlation. The 2nd big impact is that other than 2-3 major integrated oil companies, the rest are in debt up to their eyeballs. I will disclose that I have been a Chevron shareholder for some time and was very pleased that they dropped out of the bidding war with Occidental for Anadarko. Chevron even got a bonus payment for this. Business writer, Bethany Mclean, disclosed this a couple of years ago in her book about the fracking industry, “Saudi America: The Truth about Fracking and How it’s Changing the World.”
President Trump campaigned on looking out for the forgotten and draining the swamp. This is NOT a good example of that.
IronSig
Apr 11 2020 at 1:53am
Citation needed
Jon Murphy
Apr 11 2020 at 10:23am
I think there’s another explanation we can use as well: Trump’s a mercantilist.
The US is a net oil exporter. Falling oil prices reduce the value of exports (all else held equal). Thus, falling oil prices are bad in the eyes of the mercantilist
Henry
Apr 11 2020 at 2:20pm
Producers want high prices, and consumers want low prices. Our government puts its thumb on the scales all the time. Is there an analysis on the impact of higher oil prices? I vaguely remember reading that the gasohol mandate was a net negative for our nation despite its popularity in Iowa. How does the benefit to the oil patch compare to the drag that higher prices produce?
Henry
Apr 11 2020 at 2:24pm
Let me add that our nation’s support of higher oil prices includes a large part of the cost of our military adventures in the Middle East, a cost not just in dollars but also in blood.
Pierre Lemieux
Apr 12 2020 at 9:21pm
Henry: That’s the point of de Jasay. When the state helps some and harms others, there is no way to compare if the ones harmed lose more happiness than gained by the ones helped. Reread his quote in my post as well as this one:
I suggest that whether one ultimately agrees or not with this, one has to understand what it means if one wants to speak meaningfully about government intervention, not to mention “our Nation.”
Phil H
Apr 12 2020 at 12:28am
I am pretty much persuaded by this point, that government intervention in market prices is always inefficient. But then, why is it so popular? I think there is at least one good reason for wanting to intervene.
Market variations in price make for unpredictability, and that’s a problem as our economy becomes more advanced. People undertake construction and R&D projects that will last tens of years, and they need some level of insight into what will happen to their key inputs in the future. (There were massive building projects in the past, of course, and they required the overwhelming authority of God (cathedrals), the state (palaces), or heredity (large estates) to make them workable.)
A personal example: I once won a scholarship to go and study in Shanghai. The scholarship was generous, but between the time I won it and the time it came to start, the euro dropped by 25% relative to the CNY. About half of the money was a fixed expense (tuition costs), so I was suddenly left with less than half of what I’d planned for, and a family I’d already relocated to a very expensive city.
This kind of uncertainty is a problem. It can be offset with insurance, of course, like all uncertainty, but that’s hard to do, and expensive in itself.
There are plenty of examples of where government intervention in prices goes wrong. But it’s not obvious to me that some mild intervention might not have a beneficial effect. The problem would be finding that balance.
(Given that the balance is hard to find, I actually think the correct policy prescription is zero intervention in market prices. But I don’t think that this issue is quite so simplistic as is sometimes argued here.)
Pierre Lemieux
Apr 12 2020 at 9:25pm
Phil H: Do you think there is less uncertainty in the decisions of politicians and bureaucrats? Do you think they can forecast future prices better than financial markets or even than Joe?
Phil H
Apr 12 2020 at 11:45pm
“Do you think they can forecast future prices better than financial markets or even than Joe?”
This question isn’t relevant to my point at all. Politicians don’t have to forecast; if they’re willing to intervene, they can control.
“Do you think there is less uncertainty in the decisions of politicians and bureaucrats?”
Yes. People are good at reading people; and people tend to act within fairly predictable parameters. Markets, on the other hand, are unpredictable *by definition*. Think about it: in a truly efficient market, everything that can be predicted has already been priced in. That’s what efficiency means. The remaining variation in market prices is necessarily that which is unpredictable.
Thaomas
Apr 12 2020 at 8:17pm
How is this different from trade wars, immigration restrictions, deficits at full employment? Income distribution to politically favored classes?
Pierre Lemieux
Apr 12 2020 at 9:29pm
Thaomas: The short answer (if I understand your question) is that it is not. A political-bureaucratic answer to the issue you raise goes “all the way back to the irreducible arbitrariness to be exercised by authority,” to quote de Jasay. There are reasons to qualify this answer, but they are complicated and controversial answers.
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