Monday, July 26, 2010

Energy independence meets comparative advantage

According to Don Boudreaux:
Achieving energy independence in the U.S. would require Americans to gain a comparative advantage at producing all forms of energy.  But as every ECON 101 student learns, to go from having a comparative disadvantage to having a comparative advantage in one industry means that a country goes from having a comparative advantage to having a comparative disadvantage in some other industry (or industries).  Looked at differently, energy independence would mean that resources now used in other American industries – for example, in agriculture, aviation, or biotech – would shift into American energy industries.
Americans would then become more dependent upon the likes of foreign food suppliers, airplane builders, and pharmaceutical companies.  And it’s not at all clear that such “dependence” would be any better (or worse) than dependence on foreign oil suppliers.
From various commenters:
1) Shifting resources from a reliance on stated enemies ... towards a reliance on agriculture from Canada or aircraft manufacture by the EU may provide benefits that counter the pure economic efficiencies of a totally free market.

2) Should New York City be self-sufficient in energy as a political entity? Manhattan by itself? If not, why not? And why wouldn't those sorts of reasons be just as valid for larger political entities like the US as a whole?

3) The U.S. gets most of its foreign oil from Canada, Saudi Arabia, Mexico, Nigeria, and Venezuela. The U.S. government didn't have to send troops to any of those nations in order for U.S. energy companies to obtain their oil.

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