Monday, August 5, 1996

FISCAL FITNESS: Are we energy hogs?

YOU HAVE PROBABLY HEARD SOMEONE POINT OUT THAT the United States, with less than 5 percent of the world's population, consumes about 40 percent of the world's energy output.

Did it make you feel guilty? The impression is that we are using more than our fair share of energy resources, that Americans are energy gluttons.

Should Americans feel guilty about their energy usage? We probably should if we stole oil from other countries. That, of course, is not what we do. We pay market prices.

The predominant way we interact with each other and the rest of the world is through voluntary exchange -- the essence of the market economy.

When voluntary exchange occurs, both parties benefit. When you sell something it's because you value the item less than the money you receive in return. The corollary is true for the buyer. Both participants end up better off than they started.

We benefit greatly from the oil we buy. But the rest of the world benefits as well from what it purchases with the dollars it receives in exchange for the oil as well as any other products we buy. When you have something to sell, you greatly appreciate having customers. Americans consume more than most other people in the world, but we also produce more.

The billions of dollars foreigners receive when we purchase their oil is used to buy the vast array of products we have developed and produced. Money is used as a medium of exchange, but what happens ultimately is that we are trading goods for goods. If we were not so productive, we would not have the wherewithal to make the volume of exchanges we do.

To hear some people talk, you would think that voluntary exchange makes the parties involved worse off! We are told that buying oil from foreigners hurts us by aggravating our trade deficit, and it hurts the countries we buy it from by depleting their resources. It seems sometimes that we are inundated by complaints from people with jaundiced outlooks.

Our productivity and ingenuity benefit the world in countless ways. The advances we've made in computers, for example, increases the pace at which other countries can improve their own productivity and thereby raise their standards of living.

Americans care about humanity beyond our borders. We want to see other countries develop economically so that they can rise above the scourges that accompany poverty. Using voluntary exchange to encourage development tends to have a much more lasting impact than unilateral grants-in-aid. Traditional foreign aid has the same dependency-inducing effects that welfare has within countries.

What if we use up all the oil before the rest of the world gets its chance to use it? That question is based on the seemingly obvious premise that we will, in fact, someday run out of oil. Ridiculous as it might sound, there is no real reason to assume that we will run out of fossil fuels, at least not before we switch to a better alternative.

Fossil fuel supplies are not what really should concern us. Rather, what we actually care about and need is energy. Fossil fuels are just one of countless sources of energy.

For example, someday we are bound to invent ways to economically divide water into oxygen and hydrogen. (We already know how to make the division, just not economically. You may even have done so yourself in your high school science lab.) When you burn hydrogen the by-product is water, not carbon dioxide.

How can we be confident that we will make such a discovery before we run out of fossil fuels? One reason is that our stock of knowledge will continue to grow. Another reason is that necessity is the mother of invention. When the price of a resource rises, it increases the incentive to invent substitutes.

The implication of comments like the energy-use/population ratio is that Americans should be ashamed and that the world would be a lot better off if we didn't exist. If you think about it, this is really an insidious line of reasoning. It's meant to make you feel bad about yourself and your countrymen, and you are given virtually no advice as to what corrective action to take.

Focusing on our energy usage is also a prime example of surface logic. It is a half-truth, and with half-truths, distortion is the dominant gene.


FISCAL FITNESS: Are we energy hogs? - North Coast Journal August 1996

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at

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