Whitehouse Is Right and Cruz is Wrong
By David Henderson
The United States Joins OPEC.
What does it tell you about Republican sincerity when supposedly “free market” Republicans are out supporting a cartel, and lose it when the cartel breaks and prices go down for consumers? As long as it’s fossil fuel interests, nothing else matters. houstonchronicle.com/news/article/T
So tweeted Democratic Senator Sheldon Whitehouse of Rhode Island on April 7.
And how did Republican Senator Ted Cruz answer that same day? As follows:
For a sitting Dem senator to be openly cheering for Saudi Arabia to bankrupt thousands of US energy producers, unemploy millions of Americans, and profit to the tune of billions—even in today’s angry partisan Left—is just remarkable. And sad.
I have no love for Senator Whitehouse. He has been awful on many issues. And I think I’m probably closer on economic issues to Senator Cruz. But on this one, Whitehouse wins hands down.
Ever since the fall of 1973, when the OPEC cartel got powerful and raised the world price of oil from $3 a barrel to $11 a barrel in the space of a few months, most Americans, I dare say, have thought that such a cartel was bad. So when a cartel breaks down, as OPEC had temporarily, thus causing the price of oil to plummet, most Americans, and almost all economists, think that’s good. I wrote about it here.
Now it’s possible that Whitehouse is cheering for the many U.S. energy producer bankruptcies that are likely to occur if the price stays down much longer, but I don’t know that. I bet Ted Cruz doesn’t either. What we do know is that he’s cheering for the fact that a cartel has broken down.
After I conceived of this post on Saturday, I now learn that President Trump has been instrumental in strengthening OPEC. Oh joy. Thus the subtitle above. Actually, there is some joy. It looks as if the agreement has not had much effect on the spot price of oil. I suspect that the main reason is that market participants expect the cartel to break down, presumably with widespread cheating.
I do wonder about one other thing, though. Senator Whitehouse has been a real hawk on global warming. He wants to reign in our, and the rest of the world’s, use of oil. The lower price will cause more oil than otherwise to be consumed. I wonder how Whitehouse trades off the gain to consumers with the loss to one of his favorite causes.
By the way, here’s an interesting piece on OPEC from The Concise Encyclopedia of Economics. In it, energy economist Ben Zycher notes how OPEC was an unintended consequence of President Eisenhower’s import quotas on oil.