"Oil Recession Plunges Houston Into State of Mental Depression," says the Wall Street Journal headline. Good, say I.
All the reports of economic catastrophe in America's oil regions fill me with unwholesome glee. The Germans (who else?) have a word for this feeling: schadenfreude --meaning, roughly, joy in other people's suffering. It's not a very attractive emotion, and in due course perhaps I'll seek professional help. But first I'm going to enjoy it for a while.
The decline of oil prices has been a disaster for America's energy belt. Jobs are disappearing, businesses are going under, the real-estate market has collapsed. The Texas state budget is $1.3 billion in the red, compared to a $1-billion surplus a few years ago. Only pawnshops are booming.
It's sad. On the other hand, it's wonderful. After all, just a few years ago the schadenfreude was on the other foot. In the early 1980s, when oil was $36 a barrel and seemed to be going nowhere but up, there was little compassion down there for the agony of the frost belt. Texas cars sported bumper stickers reading, "Freeze a Yankee--Drive 75." Unemployed Michiganders who poured into Texas were derisively labeled "black-tag people" for the color of their license plates. Their desperation met with smug indifference or outright hostility. Today Texas' unemployment rate of 8.4% is approaching Michigan's 8.9%.
What often gets overlooked is that Texas' decade of prosperity was made possible by a classic illegal price-setting conspiracy. If the OPEC oil ministers weren't beyond the reach of American justice, they would all be in jail. But even though it was foreigners who staged this rip-off of American citizens and businesses, it was other Americans who raked in most of the profits. That's because, throughout the energy crisis, most of the oil America consumed was domestic, not imported. The oil states were, in effect, auxiliary members of OPEC. And they knew it, too. In Houston five years ago, Newsweek notes, "optimists" were saying "$85 by '85."
Yet Texas, Louisiana, Colorado, Alaska and the other energy states came down with a bad case of cognitive dissonance. Even as they rooted for OPEC, they came to believe that their good fortune was the result of moral superiority: They saw the traumas of the Northeast and the Midwest not as a cause for sympathy, but as an occasion for sanctimonious lectures about the virtues of free enterprise.
With consummate gall, oil-state politicians are now calling for "stabilization" of oil prices through a tax on imports. But they sure weren't calling for federal intervention to "stabilize" the price of oil when that price was rocketing upward. Then, when OPEC ruled, they adamantly opposed any interference with the "free market."
Now the rest of the country is being asked to cushion the shock to the oil states of OPEC's collapse. Well, forget it.
Even though only one-third of the oil that we consume is imported, an import tax would raise the price of domestic oil, too. That's exactly the idea, of course. In effect it would be a tax on all oil consumers, with two-thirds of the money going to domestic oil products instead of to the government. Sen. Lloyd Bentsen (D-Tex.) and others would like the government to set a price "floor" of $27 a barrel. At the current market price of $12, that would require an import tax of $15 a barrel. (Or 125%!) Since Americans use nearly 6 billion barrels of oil every year, this would cost consumers almost $90 billion. The government would get $30 billion of that directly and a bit more indirectly through the windfall profits tax. But most of the $90 billion would go into the producers' pockets.
Some sort of new energy tax is actually a good idea right now. It would encourage conservation. And with prices falling, it would be a fairly painless way to raise some serious revenue. But any new tax should cover oil from all sources, foreign and domestic. An increased tax on gasoline and heating oil, for example, would raise billions without squandering most of the potential revenue in a subsidy to oil producers--hardly America's most deserving group.
Oil types insist that cheap oil will make us overly dependent on foreign supplies again. This is a danger, but only if such dependence leads to another price squeeze--exactly what, in their hearts, those expressing this alarm would dearly love to see. But handing $50 billion or so on a platter each year to domestic producers isn't a very sensible insurance policy. As insurance, it arguably makes more sense to use foreign oil now and keep our own stuff in the ground. In fact, for $50 billion--one year's insurance premium--we could buy a huge supply of today's cheap foreign oil to sock away for a rainy day.