Everyone seems to agree that it would be a beneficial thing for America to become energy self-sufficient. Many reasons are advanced. The most common are national security and financial reasons. Sometimes these are one and the same; for example, that our oil dollars are financing global terrorism amongst people who at one time embargoed their product against us.
Nevertheless, this is not so. Once one digs into the issue for only a short while, he will realize the heavy costs associated with energy self-sufficiency—costs that negate and exceed the purely emotional benefit—making it, like King Pyrrhus’ victories over the Romans, so costly as to lose the war.
Why Do We Trade?
All the goods and services of modern life are the result of the division of labor carried to immense proportions. Self-sufficiency in anything, whether it be energy or toilet paper, means that we should restrict the division of labor to some extent. Think of our economic world as a bulls-eye. The small dot in the middle would be the goods and services represented by a subsistence economy, such as that of the North American Indian tribes. Small bands of people provided everything they consumed themselves. As capital and the division of labor expand, we move further out on the rings and the size of the economy grows exponentially larger. Instead of hunting our own food and weaving our own clothes, we rely upon the specialized skills of others, who perform only small pieces of the entire process but who perform their process unbelievably efficiently and productively. The division of labor expands to such a degree that we no longer understand how most goods that we consume are produced. We take all this for granted, yet it is a miracle of the free market. The more people engaged in the division of labor, the greater will be the total amount of goods and services available. Of course, the largest possible extension of the division of labor, until we trade with alien worlds, is the entire population of planet earth. (You can be assured that shortly after encountering our first alien civilization, entrepreneurs will be looking for trading opportunities!)
It is clear from this explanation that reverting backward from a more extensive division of labor society to a less extensive one means that society must accept a lower standard of living. There are two main causes for such an unfortunate occurrence—war and misguided economic policy. History is replete with examples of trade restrictions used as weapons of war. This makes perfect sense, too. If an enemy nation is denied trade, its total national product diminishes and its war-making capacity becomes a much larger burden upon the people. This burden may be so great that the war cannot be continued, lest the people starve. Therefore, it is ironic that societies often make war upon themselves! When they restrict the importation of some good, they force their society to revert to a less extensive division of labor, which results in a lower standard of living. Yet almost every country in the world restricts trade to some extent, almost always in order to protect the jobs and capital of some local industry which can no longer compete internationally. Government and special interest propaganda blind the people to the reality of the situation.
Energy Self-Sufficiency Would be a Pyrrhic Victory
The claim that our national security is enhanced by government restrictions on foreign energy imports and increased subsidies to domestic production fails to take into account that society at large is weakened by such action. Government intervenes to force business out of the production of goods more desired by the market and into domestic energy production. Few politicians and/or citizens recognize that an artificial requirement favoring some industry must come at the expense of another. We may get more domestic oil production, but we must have less of something else—the same capital and labor cannot be engaged in two production processes at the same time. If this process is carried far enough, an economy can collapse into backwardness. The Soviet Union is the prime example of our age. Its domestic production of goods to sustain life was so small that the people simply gave up. All production was geared to the military with no regard to the economy as a whole. Those who traveled there at the so-called height of Soviet power, like myself, were shocked at the state of the economy. There was nothing for the people—not housing, food, decent clothing, personal transportation, or even hot water! The Soviet Union had magnificent military hardware but little else. Its military might, achieved by ignoring the needs of the people, was a Pyrrhic victory. Society simply collapsed.
No one knows what sacrifices in lifestyle alone, not to mention capital investment in all other goods required by a modern country, would be required for America to become energy self-sufficient. Undoubtedly, our total energy consumption would be much less than it is today in addition to our loss of other goods. This means that our military budget would have to be cut unless we were prepared to go the way of the Soviet Union and simply ignore the needs of the people. We would be trying to support the same military preparedness on the back of a smaller economy.
All during the Cold War our military budget was a much smaller percentage of our country’s GNP than that of the Soviet Union, yet it equaled if not exceeded that of the Soviet Union in all objective measures of military power. Former economic advisor to Mikhail Gorbachev, Yuri Maltzev, estimates that the U.S. economic base was at least fifteen times that of the Soviet Union. In hindsight, it was no contest. And at no point during the Cold War was the U.S. self-sufficient in energy. In conclusion, rather than enhance our national security, attempts to achieve energy self-sufficiency actually would reduce it.