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Oily Protectionism

Here’s a letter to the Washington Post:


Henry Olsen pleads for President Trump to “protect” Americans from low oil prices (“It’s time to put ‘America First,’ President Trump. Protect us from the oil glut.” April 7). Alas, in arguing for making petroleum artificially scarce in the U.S. Mr. Olsen stumbles into the same intellectual error committed by all protectionists: he fails to look at the entire picture.

First, the data don’t support Mr. Olsen’s suggestion that today’s low prices will permanently destroy fracking in the U.S. While it’s perhaps today true that “many fracked wells only turn a profit when global oil prices are more than $60 a barrel,” it’s untrue that temporarily lower prices, even over a span of years, will destroy U.S. fracking.

Modern fracking techniques were developed in the 1990s and implemented quickly in a big way when oil prices steeply rose in the early 2000s. Yet when prices fell below $60 per barrel from mid-2015 through late 2017, U.S. fracking capacity didn’t disappear. It’s still with us. And it continues to improve, meaning that frackers become better able to turn profits at lower and lower prices. Artificially protecting U.S. oil-producers’ markets, however, will only discourage further innovation.

Second, the benefits to Americans of access to an increasing abundance of oil aren’t confined to lower prices of gasoline. Petroleum is also a major input for the production of medical supplies, including latex gloves and facemasks. And of course petrochemicals are critical components of many pharmaceutical products.

Mr. Olsen’s proposal to artificially restrict Americans’ access to oil is, therefore, also a proposal to artificially restrict Americans’ access to medical equipment and medicines. Now more than ever we Americans need protection from such “protection.”

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