Oil and Overproduction

Julio Huato juliohuato at hotmail.com
Fri Jan 17 20:24:47 MST 2003


Let me examine two interesting objections.  Apologies -- no more oil after
this.

* * *

I'll paraphrase the two objections this way:

- Final consumers appropriate the oil rent AND with their insatiable demand
for oil content in their consumption, they are leading us all to a faster
depletion of the resource than socially desirable -- say, with respect to
the way a hypothetical communist society would deal with oil.  Obviously,
final consumers means mainly people from the middle class up in rich
countries, particularly in the US where per-capita consumption reaches the
highest oil content on earth and ever.

- Field owners and oil capitalists are actually getting more than a fair
share of oil rent and profits because we all finance them by getting stuck
with the environmental, urban, and health bill from excessive oil production
and consumption.  Again, the hypothetical benchmark is a society where the
latter costs are not external to production (as they are external to private
profit making as long as communities don't tax them enough or expropriate
them and/or public spending is not fairly distributed anyway).

The two claims are not mutually exclusive, but they deserve a separate
examination.  The second -- I admit -- makes sense to me although I don't
have idea about its order of magnitude.

Let me put it this way: Since such costs are real and presumably high, then
people more heavily involved in oil production and consumption are
benefiting from the sweat of people not as involved.

In such case, oil prices are artificially low and, indeed, the high rate of
consumption is partially funded by us with no Exxon stock or SUVs to show.
Then the resource is indeed being depleted somewhat (much?) faster than a
rational society would do it.

So, I admit it.  We're funding oil rents and profits by paying for the nasty
byproducts of excessive oil production and consumption.  The next issue is
whether the break we give big oil and big consumers goes mainly to the
former or the latter.  That'll be my response to the first objection.

It's clear that I have not researched the issue enough to assert that final
consumers are not pocketing most -- or a good chunk -- of the aggregate oil
rent and profits (fattened by their handing us the environmental bill).

Under that scenario, the ecologists' critique of consumers' "preferences"
seems to score a point.  Here you have a small bunch of people in the rich
countries who want a lot of oil in their consumption, they want it now, and
they don't seem to care much about anybody's grandchildren.

The greens, at least a portion of them, think that they can "educate" these
consumers by promoting an earthier lifestyle.  I'm not going to dismiss that
strategy as useless, but I would humbly insist that ultimately the issue is
not the patterns of consumption, but the social relations of production.

Let me just state the obvious fact that consumption "habits" or
"preferences" are not -- as often assumed by conventional economics -- some
deux ex machina entering the minds of consumers in some mysterious way.
They simply cannot be disconnected from the social conditions of production
in which we people live.

Someone can explain better than me whether suburban sprawl, decay of public
urban services, etc. in the US have not been mere unintended results of
"self-enlightened" choices made by "sovereign consumers," but rather
consequences of something much like a de-facto conspiracy of bureaucrats,
developers, big construction, big automaking, and big oil.  I don't really
know.

But aside from that, let me examine the "political-economic" aspect of this
objection.  As I said before, oil rent is social labor (surplus value)
appropriated by the owners of the crude resource.  They can appropriate it
even though, by itself, the value of their untouched oil is zero (of course,
there are prospecting costs to be reckoned with, but let me ignore them here
for simplicity)  because they control access to the resource (private
ownership) AND there is demand for oil out there -- ultimately demand for
final goods that have oil content in some form.

If middle-income to rich people in the rich world don't give a damn about
future generations and want oil now and are willing to pay for it, then
obviously the rent that field owners (or others down the pipe) can fetch
goes up.  The technical information on oil availability is what it is and
the owners of the crude resource look after their own interest.  So oil rent
goes up.

Now, they have a finite income and want oil consumption now -- that means
that they are willing to sacrifice their future consumption accordingly.
So, if we apply the conventional reasoning, not only oil rent increases.
Significantly or not, the expected return rate on financial assets also goes
up because rich consumers are massively discounting future consumption
heavily in favor of current consumption.  Middle classers max up their
credit cards to feed their SUVs.  So they push the interest rate up.

But, if this is true, this just means that the price of oil must actually be
"artificially" higher.  It now needs to reflect a higher oil rent and profit
rate (thanks to the heavy current demand for oil).  But, let's not trust too
much the self-balancing mechanisms of markets.  Say these pressures haven't
yet caught up in the market, so the price lags and remains artificially low
in spite of this.  Therefore, the insatiable demand for oil in rich
countries is leading to a faster depletion of the resource than socially
desirable.  In that case, the oil renters and capitalists are really the big
suckers.  Is this a likely scenario?  Sorry but I really doubt it.

Notice that I'm just taking seriously the reasoning of the ecologists who
focus on consumption patterns and whose strategy relies to some extent on
transforming consumers' habits.  Again, changing lifestyles in the rich
countries is nothing to sneer at.  It may not even be mutually exclusive
with the traditional political approach of revolutionary Marxists.  But it
just doesn't seem to me like the best strategy to move things ahead.

In any case, if their claims are correct and oil is underpriced, the
political conclusion would still be to reform and ultimately revolutionize
the wealth disparities that allow for rich consumers to lead us to a
socially irresponsible, premature depletion of the resource.  And that would
be just the beginning.

Julio

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