David R. Henderson  

Boone Pickens Illustrates Becker's Theory of Discrimination

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In his latest TV ad for subsidies for wind-generated power, T. Boone Pickens states words to the effect:

Much of our oil is imported from countries that hate us.
Pickens uses this to argue that the U.S. government should subsidize a move away from oil and towards Boone Pickens, er, I mean wind power.

In fact, Pickens is unwittingly making the point Gary Becker made in his classic book, The Economics of Discrimination. Assume he's right that people in those countries hate us. Notice that, as Bickens himself points out, they're selling oil to us. Becker argued that markets cause people to bear costs of discriminating. In this case, if people in those countries refused to sell oil to us because they hate us, they would give up profitable exchanges. Which is why they don't.

For more on this, see my "Do We Need to Go to War for Oil?"


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COMMENTS (15 to date)
John T. Kennedy writes:

The point on war for oil has been crystal clear to me since at least the first Gulf War. What do people imagine bad guys will do with oil, besides sell it?

david writes:

Or maybe they do hate us and would rather not sell, but sell oil anyway because we've backed dictatorships friendly to our interests to rule over them.

Ron writes:

Most of our imported oil comes from Canada and Mexico. I don't think they hate us. Boone Pickens is making up non-facts to boom his wind investments.

burger flipper writes:

And it is this, I think, that makes Kafka’s wit inaccessible to children whom our culture has trained to see jokes as entertainment and entertainment as reassurance. It’s not that students don’t “get” Kafka’s humor but that we’ve taught them to see humor as something you get – the same way we’ve taught them that a self is something you just have. No wonder they cannot appreciate the really central Kafka joke: that the horrific struggle to establish a human self results in a self whose humanity is inseparable from that horrific struggle. That our endless and impossible journey toward home is in fact our home. It’s hard to put into words, up at the blackboard, believe me. You can tell them that maybe it’s good they don’t “get” Kafka. You can ask them to imagine his stories as all about a kind of door. To envision us approaching and pounding on this door, increasingly hard, pounding and pounding, not just wanting admission but needing it; we don’t know what it is but we can feel it, this total desperation to enter, pounding and ramming and kicking. That, finally, the door opens…and it opens outward—we’ve been inside what we wanted all along. Das ist komisch

mulp writes:

T Boone is trying to explain foreign politics in words few and small enough for conservatives to understand.

Consider, the US was attacked on 911 by Saudi extremist ideology - the House of Saud cut a bargain with the religious leaders that allowed them to vent against decadence outside Saudi Arabia in Britain, Pakistan, Afghanistan, not expecting blowback from the terrorism that was being promoted. Initially the terrorism was directed at the Russians, but soon it targeted others. Logically, the nation to bomb was Saudi Arabia in retaliation.

However, that is economically disastrous because the loss of it 10 million barrels per day exports at that time would have caused a huge spike in US oil prices. If the US doesn't get its oil from Saudi Arabia, how is that possible? The logic a conservative can understand is we get our oil from Saudi Arabia, or one of the other Persian Gulf states that will likely be unable to export oil if the US attacks one of them.

And why do I know this is the language of speaking to conservatives? I listen to Bush et al - "the terrorists attack us because they hate our freedom."

The real reason has more to do with conditions within the dictatorships in the Muslim world that the US supports and props up because the US fears any of those nations changing governments to one that is more tuned to the people; any such government would be socialist, and a dictator who tortures his subjects is preferable to conservatives. If it is too difficult to overthrow a dictator, like the House of Saud, then attack the much more vulnerable supporters of the Saudi dictator, the US. It isn't because they "hate us" but because of the oppression the US government either imposed, imposes, or supports.

In other words, Bush used words few and short in place of a more complex reason for the attacks. And to a conservative, oil coming from outside the US will go up in price of the US were to attack the root of the problem Bush calls "they attack us because they hate our liberty."

Daniel Kuehn writes:

Are you serious, David?

Perhaps the people that hate us in the country aren't the people selling the oil to us. Pickens is wrong because countries can't "hate". You shouldn't make the same mistake - countries don't "trade" and neither do they "hate". It's perfectly legitimate to say that a lot of Saudis hate us but the Saudis with their boot on the other Saudis neck don't hate us and sell us a lot of oil, and that this is all a very combustible situation.

David R. Henderson writes:

Daniel,
Yes I am serious. You do make a good point though about countries not hating. Only individuals can hate. That's a point I normally make, but I was focusing elsewhere. It's certainly the case, though, that many people produce products that they sell to Americans even though they hate some Americans, especially Americans in the U.S. government.
Best,
David

taimyoboi writes:

I sense an issue with your account. If you're smart enough to realize that we don't need to go to war to get countries to sell us oil, you don't believe that current and past administrations can realize this as well?

So let's suppose they do recognize this principal. Perhaps then they are going to war for other reasons?

One that comes to mind is to effect the kind of formal institutional change that Professor Kling thinks plays a weak role in growth and development. Misguided, perhaps, but not wrong.

Douglass Holmes writes:

Mulp

“the US fears any of those nations changing governments to one that is more tuned to the people; any such government would be socialist, and a dictator who tortures his subjects is preferable to conservatives.”

As a conservative, I plead guilty to this. We were supposed to be backing the Shah of Iran, but we backed out and allowed them to change to a government MORE TUNED TO THE PEOPLE. We allowed them to get rid of the dictator who tortured his subjects and now they have an Islamic republic that tortures and kills its citizens, colonizes Lebanon, destabilizes Iraq, and threatens to destroy Israel. Yes, I am guilty. I prefer the Shah over the Mulahs.

I would prefer markets over both.

Tracy W writes:

David - that's possible but doesn't explain Venezeula's continued selling of oil.

Tom D writes:

Tracy W:

Venezuela sells oil for the same reason everyone else does. They have more oil than money.

Bonus question and answer:
Q: Why do we buy oil from Venezuela?
A: We have more money than oil.


Joey Donuts writes:

Has anyone stopped to think that Middle Eastern oil suppliers sell us oil BECAUSE they and citizens in those countries hate us.

Perhaps its only a coincidence that terrorist attacks not just here but in Thailand, India and other places as well have increased with the rise in fungible wealth of the middle east resulting from increased oil sales.

Could it be that the thinking goes like this? Sell the infidel oil now. In the short run the infidel is better off. In the long run we will use the funds generated by oil sales to prepare ourselves to attack the infidel. In the long run the infidel is dead.

Ernest Lane writes:

It's so obvious: the easiest way to reduce our dependance on imported oil is to produce more here.

All that alternative energy stuff may eventually pan out (but it might not), but the simple fact is, we use oil (and coal) _now_.

Tracy W writes:

Tom D, I don't understand your point. Money and oil are very different things, money is a measure of value, oil is a phsyical liquid. Saying that a country has more oil than money is like saying that a country has more kilometres than roads.

If you mean that many countries that have oil tend to be poorer ones, well fine, but I don't think that explains the oil-producing countries' behaviour. The United Kingdom is one of the wealthier economies in the world but happily exploited its own North Sea oil and gas deposits, and the US in the 19th century was both one of the richest countries in the world and the biggest oil producer. If your hypothesis was true I would have expected those countries to not have sold their oil/gas. Personally I think the standard economic assumption that wants are unlimited holds (see the pressures for more healthcare spending), and countries sell oil as long as the money they can get for it is more than what they think the cost of extracting the oil is.

Dan Weber writes:

This thread is bonkers. I'm amazed to read it on an economics blog.

Even if Venezuela hated us, they could no more refuse to sell us oil than we could refuse to buy (or "boycott") oil from them. Oil is extremely fungible, and if two parties refuse to exchange, they will each exchange with one of the dozens of other parties, probably at the same market price.

What investing in non-oil energy (and this isn't limited to wind or solar; nuclear fits the bill just as well) does is drive down the global price of oil. You can predict how bellicose Russia is going to be to its neighbors almost entirely on the global price of oil.

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