Unfortunately, or fortunately, depending on how you look at it, presidential campaign years give us economists a lot of “teaching moments,” that is, chances to educate the public about basic, important economic truths. This campaign year is no different. I say “unfortunately” because we get a cold dose of reality, an awareness that, whatever the candidates do or don’t understand, they think they have running room to make nonsensical statements. And they think correctly. Very few people in the public and very few people in the media know that their statements are nonsense. Parenthetically, because this is not what I want chance to focus on in today’s blog, that was what was so refreshing about “Joe the Plumber.” He saw a vulnerability in Barack Obama’s thinking and, sure enough, got Obama to reveal his collectivist view of wealth. I’ll lay out my thoughts on that in a later blog if other issues are not more pressing.
The fortunate part is that people’s interest in issues is heightened during presidential campaigns. Invariably, I see this in my classes. When the campaigns are on, I get more questions from students about the campaign issues, a high percent of which don’t seem to be “gotcha” questions directed at either of the main candidates, but, rather, seem to be based on genuine curiosity.
One issue that has arisen in this campaign is the issue of “energy independence.” Both McCain and Obama believe that moving towards energy independence is a good idea. But, as I pointed out in this month’s The Freeman, it’s not. Energy independence is no more desirable than coffee independence, banana independence, or car independence. The case for free trade does not break down just because the good being exchanged is important, as oil is. It doesn’t generally make sense, if your goal is the wellbeing of country A’s citizens, for country A’s government to impose tariffs or import quotas on a product from other countries. Even if we put the moral arguments against coercion aside, and even if we nationalistically care only about Americans (I don’t care only about Americans), the gains to the domestic producers from reducing trade are less than the losses to domestic consumers. I won’t repeat that argument here because you can go to The Freeman to read it.
Many people think oil is different in one other fundamental way: they think we are vulnerable because countries that send us oil might cut us off. Sure enough, when I laid this out in class last week during a discussion of trade barriers, one of my students quoted Senator McCain’s statement that in buying as much oil from abroad as we do, “we are sending $700 billion a year to people who hate us.” (Actually, McCain’s usual version is “don’t like us very much.” I believe, although I couldn’t find it on the web, that I’ve heard McCain use the word “hate.”) I answered that I don’t think Canadians hate us that much. (It comes as a surprise to most people that we import more oil from Canada than from any other country. Mexico and Saudi Arabia vie for second.) I also think that many of these foreigners hate our government more than they hate us. Most of the polling data of other countries’ citizens’ views of America are not about their views of Americans but of their views of the U.S. government. This is a distinction, by the way, that Americans seem to have trouble making. But I also pointed out that even if we take McCain’s statement as true, notice what McCain is saying: Even countries that hate us want to sell us oil. To paraphrase Adam Smith, it is not from the benevolence of the Saudi Arabian or Venezuelan producers that we fill our gas tanks, but from their regard for their own self-interest. Indeed, this statement of McCain goes further than Adam Smith. In Adam Smith’s world, the butcher, baker, or brewer might have been indifferent to you or only mildly liked you. But McCain’s statement illustrates Gary Becker’s point that free markets break down discrimination: you might hate that guy who wants your product, but you love yourself and your family, and so you sell it to him.