Commentary

Low Oil Prices: A Fill Up of Good News

By Stephen Moore
March 17, 1999

Some people are just genetically incapable of accepting good news. In recent weeks the media have inundated us with stories of the latest crisis in America: low oil prices. James MacKenzie of the World Resources Institute has declared that low oil prices are harmful because they destroy the market for alternative fuels and increase pollution from cars. Meanwhile, financial analyst Teresa Wyszomierski writes in the Washington Post that low gasoline prices are bad news because they are hurting the Saudi economy.

It seems like only yesterday that the doomsayers were warning that high oil prices were a harbinger of economic collapse. Now it’s bargain-basement prices that are the curse. As for Ms. Wyszomierski’s absurd claim that we should worry about the Saudis, excuse me, but I don’t recall the Middle East oil sheiks crying tears for Americans when we were paying our astronomical heating bills during the days of $30 a barrel oil in the 1970s.

In fact, one wonders whether those who long for the good old days of high oil prices have totally repressed that era of malaise from their memories. I haven’t. I vividly remember frigid February Chicago mornings in 1973 when my parents and I scrambled out of the house early to beat the rush to the gasoline pumps. If you arrived too late, frustrated motorists would be queued up half way around the block.


Many of the doomsayers who predicted $100 a barrel oil in 2000 are the same people who falsely predicted nuclear winter, massive famine across the globe, cities so polluted that gas masks would be required and other crises of biblical proportions. And these are the same pessimists who somehow have concluded that low oil prices are the problem.


Throughout the whole energy crisis ordeal, I kept thinking: What is wrong with our country? Why is America being bought up by Arab princes? It didn’t help matters that at school our social studies teacher was filling our heads with frightening forecasts about the planet’s oil reserves running dry within 20 years.

It wasn’t just junior high school social studies teachers who were prophesying doom. The Club of Rome’s Limits to Growth report predicted that oil would cost $100 a barrel by 2000. Even President Jimmy Carter in his cardigan sweater announced to the nation that we should all turn down the thermostat and bundle up because “we could use up all of the proven reserves of oil in the entire world by the end of the next decade.”

Twenty-five years later the good news is that we can conclude definitively that the globe is not running out of oil. And despite what the nattering nabobs of negativism say, this is truly good news. Oil now sells for roughly $11 a barrel, meaning that the Club of Rome was off by a factor of almost ten. The Associated Press recently calculated that oil is now cheaper than bottled water. In fact, oil is just about the cheapest liquid on earth.

Regular unleaded gasoline can now be had in many parts of the country for 89 cents a gallon, which, adjusted for inflation, is cheaper than at any time in 50 years. The average state and federal tax on a gallon of gasoline is now 43.4 cents, which means that half the cost of filling up your tank now goes for taxes, not the fuel itself.

So what lessons can we learn from the false energy crisis? I suggest three.

First, apocalyptic predictions from academics, government officials and the media should always be treated with a healthy dose of skepticism. Many of the doomsayers who predicted $100 a barrel oil in 2000 are the same people who falsely predicted nuclear winter, massive famine across the globe, cities so polluted that gas masks would be required and other crises of biblical proportions. And these are the same pessimists who somehow have concluded that low oil prices are the problem. Just remember these Chicken Littles have a perfect record: they have been wrong every time.

Second, markets work; government interventions don’t. Almost every energy policy Presidents Ford and Carter devised to try to alleviate the energy crisis backfired. The windfall profits tax and energy price controls short-circuited the market pricing system. With prices held low by government fiat, oil consumption was raised artificially high, and domestic production was kept artificially low. The result: shortages intensified, gas lines got longer and America’s reliance on imported foreign oil doubled. On the day Ronald Reagan became president, his first Executive Order was to lift all remaining energy price controls. Oil prices soared in the short term, but that stimulated domestic production and exploration, thus triggering the 20-year swoon in prices.

Third, we no longer need a national energy policy or a federal Department of Energy. Actually, we never did. The energy crisis is over. Why do we still spend billions of tax dollars on energy conservation and alternative fuels programs? Why conserve a resource that is in great abundance? While we are at it, Congress should repeal another byproduct of the energy crisis: the Corporate Average Fuel Efficiency Standards for U.S. autos. With energy as affordable as ever, it makes sense that Americans want to trade in their 40 MPG Pintos for safer and heavier cars, even if they guzzle a little more gas.

The United States has an energy policy. It’s called the free market. And it has worked marvelously for consumers. True, producers are none too happy these days, whether they’re in the Middle East or the Texas panhandle, but for the rest of us, more cheap oil means greater prosperity. In fact, low oil prices are equivalent to a large tax cut for American workers.

Only those who fear progress and prefer to sit in darkness would bemoan our new era of cheap and abundant fuel. As for me, I say, fill ‘er up

Stephen Moore is director of fiscal policy studies at the Cato Institute.