Do we really want to be energy independent? (continued)

A very well-informed and thoughtful e-mailer responds to John Stossel's points of yesterday with the below, from a libertarian point of view--see what you think:

...I think Stossel is wrong in his analysis of the energy situation. I respect Stossel because he is normally an able defender of libertarian principles and free markets. But in this case he is wrong. Stossel makes the mistake of asuming that oil is a commodity like any other, akin to orange juice or rice. It is not, and these are the differences:

1.) 80 percent of the supply of oil is controlled by a cartel (OPEC) that has, with some success, limited the production to keep prices higher than they would be in a truly free market. No entity can corner the market on orange juice or rice because there are too many independent producers and more supply can be created by simply planting and growing more.

2.) If an entity did corner the market on o.j. or rice, and successfully limited the supply in an attempt to raise prices, many consumers would substitute with apple juice, soda, coffee, water, etc. -- or beans, potatoes, or pasta, etc. But if OPEC corners the market on oil, we have NO CHOICE but to buy it anyway because 99 percent of our transportation fleet runs on oil. We cannot substitute, so all we can do to limit our exposure to rising prices is cut back on usage. Unfortunately, our entire economy is built around motorized transportation so we cannot conserve significantly without damage to our economy and lifestyle.

3.) By most expert accounts we are near or past the point of peak oil. The supply is dwindling and becoming increasingly costly to extrude, making the oil market quite different from a normal commodities market. If the demand for orange juice or rice goes up, suppliers will grow more of these goods. We can't grow crude oil.

4.) Most of America's untapped oil reserves are under the control of the government, and much of it is off limits to production due to ecological concerns (real or phony, it doesn't matter in this context). No such controls apply to orange juice or rice production because there are no environmental concerns and entrepreneurs can supply all demand using private land.

5.) Oil is a strategic commodity, vital to our economic and military security. Obviously, that is not true of orange juice or rice.

The question free marketeers such as Stossel should ask themselves is, "How can we get free market forces working again in the transportation energy market?" The simplest thing we can do is deal with the number 2 problem above. If we can change the market so that consumers can substitute other fuels for oil-based ones, we will have a free market.

Fortunately, we can do that very simply by mandating that the auto makers build "flex fuel" cars that can run on gas, ethanol, methanol, and other alcohol based fuels. This feature can be added to any car at the time of manufacture for less than $100 and it would immediately create an explosion of entrepreneurial activity in the liquid fuel market. We would see massive increases in methanol from coal and garbage, and ethanol from sugars, algae, etc, along with other biofuels. And if we mandated that cars be flex-fuel plug-in hybrids, we would expand consumer choices even further because we could then use nuclear, geothermal, solar, wind, natural gas, and coal as transportation fuels via electrical power plants.

Do we really want to be energy independent?

John Stossel made the point yesterday that, well, maybe not:

"Most every politician and pundit says "energy independence" is a great idea. Presidents have promised it for 35 years. Wouldn't it be wonderful if we were self-sufficient, protected from high prices, supply disruptions and political machinations? The hitch is that even if the United States were energy independent, it would be protected from none of those things. To think otherwise is to misunderstand basic economics and the global marketplace.

To be for "energy independence" is to be against trade. But trade makes us as safe. Crop destruction from this summer's floods in the Midwest should remind us of the folly of depending only on ourselves. Achieving "energy independence" would expose us to unnecessary risks -- such as storms that knock out oil refineries or droughts that create corn -- and ethanol -- shortages. Trade also saves us money. "We import energy for a reason," says the Cato Institute's energy expert, Jerry Taylor, "It's cheaper than producing it here at home. A governmental war on energy imports will, by definition, raise energy prices". Anyway, a "domestic energy only" policy (call it "Drain America First"?) is a fantasy. America's demand for oil is too great for us to supply ourselves. Electricity we could provide. Not with windmills and solar panels -- they are not yet close to providing enough -- but coal and nuclear power could produce America's electricity. But cars need oil. We don't have nearly enough."

Yep. Read the whole thing. By the way, most of the oil we import doesn't come from the Middle East. It comes from Canada and Mexico.