Reluctantly, the Carter administration is not thinking and talking again about mandatory quotas on oil imports. The administration's economists detest the idea. But Congress is eliminating the alternatives.
President Carter's first choice was a tax on all oil, to discourage the country from using it up so fast. Congress refuses to enact the tax. The administration has been hinting that the president might use his emergency powers to impose a tariff on imported oil - again, to discourage consumption. The Senate responded by voting to revoke the president's emergency power to do it.
That brings the question back to quotas - limits on the amount of foreign oil that could enter the country. If the president's purpose is to hold down American dependence on foreign oil, import quotas look, at first glance, like the most direct and simplest answer. But if you think that, need to look more closely.
First of all, imposing quotas means creating an artificial shortage in this country. Would the American public tolerate it? Everything in current American political behavior suggests not. The costs and irritations would be immediate; the gains, in national security and economic stability, would be distant and controversial. An artificial shortage would mean lines at the service stations-in effect, rationing by incovenience-if gasoline stayed under price controls. But if it were decontrolled, no one could tell how high the price might shoot with even a minor tightening of the market.
But beyond that dilemma, there is a whole range of dangers that Americans need to think about before they embrace the idea of import quotas. It is not, after all, a new idea. The United States has had vast and recent experience with quotas on oil. Mandatory quotas ruled this country's oil trade from 1959 to 1973.
In those years, the quotas kept cheap foreign oil from swamping the domestic producers.Today, of course, the American position is exactly the opposite: Domestic oil is much cheaper than foreign oil, and the domestic producers are producing only half of the country's demand. But, while the circumstances in the late 1970s are the reverse of those of the 1960s, recent experience carries certain pointed lessons for future policy.
Two economists, Douglas R. Bohi and Milton Russel, have just put out a book, "Limiting Oil Imports," that deserves attention in this debate. It's published by Resources for the Future, one of the foundation-supported research organizations that roost along Massachusetts Avenue.
By keeping cheap foreign oil out of the country, Bohi and Russell calculate, the quotas were costing American consumers over $6 billion a year by 1970. The point is that the costs of a quota' system are hidden, but they are not small. Who benefited? Roughly half of that money went to the industry. The other half was pure waste-the effect of using an expensive resource instead of a cheap one.
The consequences of the quotas were far-reaching. Without them, Bohi and Russell write, "domestic output would have fallen by almost one half and price by one third." It's fair to argue, as the industry does, that under those conditions the effect of the enormous 1973 world oil-price rises would have been even more harmful in the country then they were.
But Bohi and Russell point out that the United States could have bought the same protection with a tariff around $1 a barrel and a strategic oil reserve like the one that the government is now beginning to establish. The difference is that the consumer would have been paying a tax that went back to the government, instead of a cost that went to the industry.
Economic policy has political effects, Russell goes on to observe. When prices of food or housing or medical care rise, Americans usually shrug and say that, while it's outrageous, the market is pushing them up and what can you do? But when gas and oil prices rise, the same people regard it as a political decision for which they can hold their government directly responsible. In fact, there's very little difference between the ways that grain markets and oil markets work. But people don't see it that way. Why?
Because, Russell argues, years of government manipulation of the quota system left an indelible impression on the public that oil prices are simply a political decision, determined by nothing but which interest pushes hardest.
The quota system was infinetely receptive to loopholes, trimming and costly special exceptions. There were regional benefits, like the exemption of heavy fuel oil for New England. There were breaks for certain companies, like the small refiners. Peculiar rules brought into life peculiar industries, like the string of refineries along the Canadian border.
Canadian oil was exempt from quotas, but Venezuelan oil was generally not. South Americans saw it as another example of Washington's discrimination against the Latin world. It was Venezuela, that took the lead in organizing OPEC, the exporting nations' cartel that now sets world oil prices. The political consequences of quotas may well have been more important than the purely economic ones-and might quickly become so again, if quotas were reimposed now.