Clinton's Crazy Oil Plan

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Does our government engage in Central Planning? Not in the good old USA. Surely not. Free markets, not politicians, determine the allocation of resources. Except in certain cases. Oil, for instance. Clinton has taken upon himself to do what he believes the free market cannot do: plan for the cold winter. It takes some chutzpah to believe you can outwit the price system, but Clinton somehow becomes more convinced of his own genius with each passing day.

How else to explain why Clinton is planning to create a two-million-barrel fuel reserve for the Northeast? The fear, he says, is that heating oil prices, by then, will become too high for the poor to afford. So a wise and far-seeing government must step in to smooth out the price dips and hikes, all in the interest of serving the common good. “Winter may seem far off on this hot day,” said the omniscient Clinton in the tradition of squirrels who save nuts for winter, “but if we don’t do something now, reserve stocks of heating oil may not be in place before the cold weather comes.” By we, he means they, the regime, acquiring heating oil at our expense to dispense to the cold, poor wretches of the Northeast, who might otherwise not be “prepared to face the winter months.” What’s more, he’s dumping crude oil out of the Stalin-style Strategic Petroleum Reserve to make room for heating oil, since he knows that it is far more important that people be warm in their houses than be able to drive to work more cheaply come November and December. And only he, not market traders who are focused on supply and demand every day, and buy and sell with the goal of getting it exactly right, knows precisely how much is necessary and at what price.

There still exists the problem of what will trigger a release of the heating oil. Who decides? Well, you guessed it: Clinton and his huddle of economic advisers, in an action straight out of the 1930s when everyone believed that the State run by experts could more rationally plan the consumption of economic resources than the market. In any case, he can make sure that Hilary’s house in New York is toasty warm during those cold and lonely post-election nights.

But where does he get the authority to engage in this Mussolini-influenced economic management? Certainly not from the Constitution; even the centralist authors of the Federalist Papers would be taken aback. The nutty Strategic Petroleum Reserve had its origins at the height of New Deal fascism, 1944,when Secretary of the Interior Harold Ickes pushed the idea of stockpiling crude. Of course this was also a period when all food, clothing, raw materials, and nearly every other good was being rationed, all wages and prices were being set by the wartime czars, and young men were being drafted against their will and sent to their deaths in a foreign war. A little oil confiscation was hardly a big deal. But the call was renewed after the beginning of the Cold War, when Truman’s Minerals Policy Commission proposed a strategic oil supply in 1952. After the Suez crisis, Eisenhower joined the chorus. But it took Nixon and the oil crisis of 1974, a period of oil price control, to finally get the policy imposed. This is truly a bipartisan program: both parties with a hand in your gas tank.

In the meantime, the reserve has been used not for Cold War purposes, but to correct problems created by other policy errors: during the late seventies energy crisis, and during Bush’s war on Iraq (and on behalf of Saudi Arabia and Kuwait, governments now squeezing us on the oil price).

At the very same time the government was blessing us with new supplies, it was badgering oil companies to lower the price — exactly the opposite action that needs to be taken when crude is in short supply. The combination has never worked. The SPR never solved a single oil shortage. But the administrative costs and supply disruptions it has created have been legion.

When faced with a crisis, or even a blip on the economic radar screen, politicians with loads of power like Clinton universally turn a blind eye to the brilliance of the price system. They are completely oblivious, or at least pretend to be so, to one of the many functions of the price system: to incorporate expectations of the future into the present price (discounted for time).

For example, an expected shortage in December will affect prices in July so that supplies can be made available year-round. Perhaps, then, the price of oil needs to rise in anticipation of heating use. Hence, the price of heating oil has risen 10 percent in the last month, one of the hottest months on record. Why? Because the price system is working just fine, thank you. But like his predecessors at the planning controls, Clinton also has badgered oil companies to keep the price down.

Ludwig von Mises had a dictum that government interventions in the economy tend to multiply on top of themselves as politicians pursue measures to "fix" the very problem they created. This applies in spades to the present oil problem. Environmental controls, oil protectionism, taxes, and regulations have conspired to artificially reduce available supplies. Noticing this, the government could back away from its interventions, but since politicians like using power instead of markets, they turn to ever more controls.

The Clinton administration has so far stopped short of imposing oil price controls, but does anyone really believe that the regime wouldn’t try if it thought it could get away with it? Dumping crude out of the SPR is an action that stems from the same economic rationale and the same failure to understand the way the price system works. And what happens if the price continues to rise? There will be more controls, more "planning," more regulations — all of which will make the shortages worse rather than better.

Clinton is right that we should use the summer to plan for the winter, and there’s no better action we could take than to abolish the Strategic Petroleum Reserve, get that oil out on the market, and allow the price system of the market economy to allocate resources now and forever. If anyone ends up without heating oil this winter, it will be due to the remaining controls on the market for oil, all of which should also be abolished immediately.

Down with the dangerous Planners in DC! Up with the market economy, which gives us the only kind of economic planning compatible with a free society!

Llewellyn H. Rockwell, Jr., is president of the Ludwig von Mises Institute in Auburn, Alabama. He also edits a daily news site, LewRockwell.com.

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