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Congress Exporting More Economic Ignorance

Here’s a letter to the Financial Times:

Ed Crooks reports on attempts by some members of Congress to restrict U.S. exports of natural gas (“Opposition mounts to US gas exports,” March 26).  These politicians assert that, by allegedly lowering Americans’ energy costs, such restrictions will raise Americans’ living standards.

They’re wrong.

To artificially restrict exports is to artificially reduce export earnings and, thus, to decrease the volume of imports that can be purchased.  Our standard of living would fall because we Americans would get fewer of the foreign-made goods and services that currently enhance our standard of living.

And our reduced access to low-priced imports will likely not be offset by any promised lower energy costs.  Despite its name, the supply of natural gas is not natural.  It’s an artifact of the investments and entrepreneurial effort applied to its production.  Natural-gas supplies in America today are as high as they are only because investors and entrepreneurs, anticipating being able to sell gas globally, have invested heavily in this industry.  If Uncle Sam were now to restrict the market for natural gas, the investments and entrepreneurship devoted to producing gas will shrink – resulting over time in lower energy supplies and higher energy prices.

Adam Smith understood this reality.  In The Wealth of Nations he warned that export restrictions cause the market for the restricted good to “generally be understocked, the people whose business it is to supply it being generally afraid lest their goods should be left upon their hands.  The prohibition of exportation limits the improvement and cultivation of the country to what the supply of its own inhabitants requires.  The freedom of exportation enables it to extend cultivation for the supply of foreign nations.”*

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (Indianapolis: Liberty Fund, 1981 [1776]), p. 537.  (Specifically, this quotation is from Book IV, chapter 5.)