Oil and Instability

The surging price of oil driven by turmoil in Libya and other Arab countries is a reminder that America’s national security posture in the Middle East is what it is for a reason. And I wish we could have more above-board discussion of that fact, because I think subjecting it to scrutiny would swiftly reveal that it’s not a very good reason.

Oil price shocks are very costly to the American economy, so it makes sense for us to expend a lot of resources on trying to prevent oil-related problems. But when we do so by trying to directly prevent the shocks, the benefits of our success are spread around to everyone while the costs are concentrated. What’s more, the costs not only include a heavy fiscal burden but also soldiers killed and substantial anti-American sentiment in the area. An alternative strategy would be to expend resources trying to make the country more resilient in the face of oil price shocks via a more diversified physical infrastructure. If we had congestion pricing and abundant bus lanes in our major metropolitan areas, the vast majority of people would still drive to work in the morning. But a system would be in place such that when price conditions changed people could switch at the margin. A subway line, more generally, is cheap compared to a war.


Eugene Gholz and Daryl Press did a good Cato paper (PDF) on “Energy Alarmism” that tackled these issues.

Share Update