"Oil Recession Plunges Houston Into a State of Mental Depression," says the Wall Street Journal headline. Good, say I. Stories like these fill me with unwholesome glee. The Germans call it Schadenfreude -- meaning, roughly, joy in other people's suffering. It's not a very attractive emotion, and in due course perhaps I'll seek professional help. But first I'm going to enjoy it for a while.
The decline of oil prices has been a disaster for America's energy belt. Jobs are disappearing, businesses are going under, the Texas state budget is $1.3 billion in the red. It's sad. On the other hand, it's wonderful. After all, just a few years ago the Schadenwas on the other foot. When oil was $36 a barrel and seemed to be going nowhere but up, there was little compassion down there for the agony of the frost belt. Texas bumper stickers said, "Let the Bastards Freeze in the Dark." Michiganders pouring into Texas in search of jobs were derisively labeled "black tag people" because of the color of their license plates. Today Texas' unemployment rate of 8.4 percent is approaching Michigan's 8.9 percent.
Texas' decade of prosperity was made possible by a classic illegal price-setting conspiracy. If the OPEC oil ministers weren't beyond the reach of American justice, they would all be in jail. But even though it was foreigners who staged this rip-off of Americans, it was other Americans who raked in most of the profit. That's because, throughout the energy crisis, most of the oil America consumed was domestic, not imported. The oil states were, in effect, auxiliary members of OPEC. Yet they came to believe that their good fortune was actually the result of moral superiority: a rip-roaring capitalist spirit not shared by the rest of the country.
With consummate gall, oil-state politicans now call for "stabilization" of oil prices through a tax on imports. Texas Gov. Mark White blames Texas' economic problems on "the federal government's lack of action to stabilize oil prices." These guys sure weren't calling for federal intervention to "stabilize" the price of oil when that price was rocketing upward. Then, when OPEC ruled, they adamantly opposed any interference with the "free market." Today, when there really is something like a free market in oil, Texas Sen. Lloyd Bentsen bawls that the price of oil "has nothing to do with the free market. It has everything to do with a decision made in Riyadh."
Speaking of taxes, remember the windfall profits tax? The idea was to use a small fraction of the OPEC-level profits being enjoyed by domestic oil producers to cushion the shock of high prices for oil consumers. Oil-state politicians were hysterically opposed. Meanwhile, during the late 1970s, both Texas and Louisiana enacted new taxes of their own on oil and gas shipped out-of-state, just to squeeze the last drop of blood from the rest of the country. Think of it as a "Yankee tax," a major Texas newspaper editorialized at the time. Now the rest of the country is being asked to cushion the shock to the oil states of OPEC's collapse. Well, forget it.
Even though only a third of the oil we consume is imported, an import tax would raise the price of domestic oil too. In effect, it would be a tax on all oil, with two-thirds of the money going to domestic oil producers instead of to the government. Bentsen and others would like the government to set a price "floor" of $27 a barrel. At the current market price of $12, that would require an import tax of $15 a barrel. (Or 125 percent!) Since Americans use nearly 6 billion barrels of oil every year, this would cost consumers almost $90 billion. The government would get $30 billion of that directly and a bit more indirectly through the windfall profits tax. But most of the $90 billion would go into the producers' pockets.
Some sort of new energy tax is actually a good idea. It would encourage conservation. And with prices falling, it would be a fairly painless way to raise some serious revenue. But any new tax shouldn't squander most of its potential revenue on oil producers (hardly the most deserving group). A tax on gasoline and/or heating oil is the right approach.
Oil types insist that cheap oil will make us overly dependent on foreign supplies and could lead to another squeeze (exactly what, in their hearts, they'd love to see). But handing $50 billion or so on a platter each year to domestic producers isn't a very sensible insurance policy. If low prices reduce domestic production, high prices -- if they come -- will increase it again, as any potential future Yamani will realize. As insurance, it arguably makes more sense to use foreign oil now and keep our own stuff in the ground. In fact, for $50 billion -- one year's insurance premium -- we could buy a two-year supply of today's cheap foreign oil to sock away for a rainy day.
No, it's the frost belt's turn to gloat. Letem rot in the sun. And don't let us catch any of your tatty Texas license plates loitering around our northern freeways, y'hear?