| 0:33 | Intro. [Recording date: May 9, 2016.] Russ: Before today's interview I want to remind listeners that we've added a new feature at EconTalk.org, the Extras--opportunities for further discussion or ways to check your knowledge of an episode. I also encourage you to follow me on Twitter. My handle is @EconTalker, if you'd like to know about upcoming episodes or the opportunity to read books in advance. And finally I want to say that EconTalk is now on SoundCloud. It's been on Stitcher for a while, if that is useful to you. |
| 1:03 | Russ: And now for today's guest, Leif Wenar.... Our topic for today is the world trade in oil and the moral and political and economic consequences of that trade that you discuss in your very provocative book, Blood Oil. And I want to parents listening with children that we may explore some of the more brutal elements in the world trade for oil, so be prepared if you are listening with your children. I want to start with the Resource Curse. What is it? Guest: So, Russ, think about some of the big stories that we've been hearing from overseas in our lifetimes. I mean, now we've got ISIS (Islamic State in Iraq and Syria) and Bashar al-Assad dropping barrel bombs on his own people, Syrian refugee crisis; Vladimir Putin going into Syria and also Crimea not so long ago. A little further back, Muammar Gaddafi and Saddam Hussein; Al Qaeda and 9/11; the Saudis spreading this extreme strain of Islam worldwide. If you are as old as I am, you can remember the Soviet surge ahead of us and nuclear arms race, the Iranians' incessant spreading of terrorism around the world. All of those stories that we've been hearing all of our lives have one thing in common. All of those threats and crises come from states that export oil. And that is a big part of the Resource Curse. Russ: Now, you take a provocative turn, twist on that curse. It's usually focused on the people who have the resources. So, you make a really wonderful analogy, I felt, between drugs and alcohol on the one hand, and oil on the other. So, talk about the range of relationships, just like drugs and alcohol, that people can have with oil, and why and how it varies across countries. Guest: So, an oil-producing state is a little bit like a person who is addicted to alcohol or drugs. And as we know, it's very dangerous to be addicted to alcohol or drugs. If you take a lot of them, then you are really risking trouble. Now there are, in our history, some individuals who have been addicts and have done great at their jobs. You can think of Winston Churchill, for example, the 'greatest Briton', as they call him. Or John F. Kennedy, who was addicted to various kinds of painkillers. Those addicted people are unusual in that they did very well by their addictive substance. But in most cases, addiction to alcohol or drugs can be really dangerous to a person's constitution. Similarly, exporting a lot of natural resources can be really dangerous to a country. So, for example, think of the resource-rich states that we know of that have run into such trouble--not only the ones that I've mentioned in the Middle East, in Iran, Iraq, Saudi Arabia, and also Russia; Sudan and Syria. Think about the terrible war in the Congo over these metals that go into our cellphones or our laptops. Or those terrible Blood Diamonds that came out of the war in Sierra Leone that went into our engagement rings and our earrings. There is something about exporting a lot of resources which can cause real difficulties in the politics and the economics of the country. Russ: We understand that because it's a prize, in essence. And the person or people who control that prize have a lot of power and a lot of wealth. And yet, as you point out, there are countries that have lots of resources that manage to somehow do well by their people. Norway is an example. Botswana is an example. The United States would be an example. So, what's different about those countries relative to the little more depressing cases you mention? Guest: Here's the big difference. And this is what people can think of about natural resources: Is the government accountable to the people? So, if a government is accountable to the people, when all this resource money starts to come in, well then the people can make the government use that money for public goods. So, you mention Norway; it's a great case. They got lots of money from their oil. And the government is accountable to the people there. So the people have made the Norwegian government save that money for the future and their pension fund--the equivalent of our Social Security. It's funded for decades in advance. If the money comes in when the government is accountable to the people then it makes the people better off. But: if the money goes to an authoritarian ruler, it gives that ruler a chance to rule without being accountable to the people at all. And in fact to oppress them. And if it goes to a rebel group or an armed group--as we see, for example in Iraq or as we saw in Libya--then the group can use the money from the resources to buy more weapons and to cause more chaos in their country. So, the big question is: Is the government accountable to the people, when the oil money comes in, when the diamond money comes in, if yes, then good; if no, then real trouble might be in store. Russ: So, one of the examples that you talk about at length is Saudi Arabia. Which, on the surface, you could argue is a fairly benevolent place for its people. Somewhat benevolent, in certain dimensions at least. There is government provision of health care, education, per capita income is very high--and of course it's often high in these countries it's very unequally distributed, so the average or per capita is a very bad measure of the wellbeing of the people. So, one extreme we might have, Saudi Arabia, which seems like some of that oil money is going toward the people. The other extreme we might have, Equatorial Guinea, which is a horrific example of how the leader has abused his people and taken that money; and of course, it's always a risk in a dictatorship and authoritarian regime. So, there's a lot of terror spread often by the leader to his own people just to keep that prize in his own hands. But talk about those two extremes and whether we should make a distinction between them--say, Equatorial Guinea on the one hand, which is absolutely horrific, and Saudi Arabia, which is perhaps somewhat horrific, but in both cases you argue--excuse me: In neither case do the people control the resource. And yet you could argue Saudi Arabia is not so bad. Push back against that, as you do in the book. Guest: It's a key point here, is that the people should ultimately control the resources. So, if the government is accountable to the people, things go well. If it's not accountable to the people, you get real trouble. The country ultimately belongs to the people; and people should have the ultimate say, what happens to the resources of their country. So, you can imagine the two different cases of an authoritarian regime and the two extremes of strategies that authoritarians use oil to stay in power, take advantage of. On the one hand there is the terrible African dictatorship of Equatorial Guinea, where the President stays in power by using his oil money--mostly for coercion. The prisons are terrible and he locks up any dissidents, and notorious torture in the facilities in that country. So, there, it's mostly coercion as a strategy of divide and rule. In Saudi Arabia, the strategy is partly coercion. The Saudi security forces, the religious police, are extremely vigilant and severe. But Saudi also spends a lot of money dividing its people by paying them off, essentially: putting them into useless government jobs where they hardly even have to show up, and paying them essentially just to be quiet. Now, we don't actually know much about how the Saudi people like this deal. The Saudis, as far as we can tell do seem to think that the Saudi people own the resources of their country. And it's not really possible to ask them how they feel about this deal, where the royals take all of the oil money, then spend a huge amount of it on themselves, and decide to give some fraction of the rest to the people, to keep them quiet. That strategy has been effected so far. But let me just mention: The Saudis have done another thing to keep in power, besides coercion and patronage, which is to really insist on this extreme, intolerant version of Islam, not only within their own country, to get their own people to support the regime; but they've been spreading it around the world for decades--perhaps the biggest ideological campaign of all time. The Saudis have been funding medrassas and mosques and study centers around the world. And there's very intolerant, anti-Christian, anti-Jewish, anti-other strains of Islam versions of Islam that they've been insisting on, has bedded down around the world. And that's the version of Islam that we now see mutating into jihadi extremism, not only in the Middle East, and in Asia, but also in prior[?] Paris, and Brussels, and perhaps even here in the United States. |
| 10:49 | Russ: So, the question then, is--well, first of all, I guess the question would be, should we do something about that? Should we care about it? One of the powerful parts of the book is that, of course it's not just that. There have always been dictators who don't treat their people particularly well. There's always a question of what should be done about it, if you are on the outside; if there is anything to be done. Of course, there's the law of unintended consequences, which rears its head very badly, unfortunately or not in these foreign policy situations. So, one view says, 'Well, there's these bad places around the world. And there's really nothing to be done about that. Effectively it's hard to do anything real about it.' The part that's depressing, that you chronicle so well, is that you and I are funding it. I go down to the pump and I fill up my car. And sure, most of the gas comes from the United States; it's consumed in the United States. But we still import quite a bit. And of course, that world trade in oil keeps the price in the United States low, so we benefit financially from the trade in oil around the world. And, still, that trade itself, and the price of gasoline, is funding really horrible things that people are doing to their people. So, again, it's one thing to say, 'Well, maybe the people of Saudi Arabia deserve more of their own money than they are getting.' But the real part [?] is that you and I are keeping those regimes in place. And we don't want to confront that, do we? Guest: That's right. It's a fact that's been hidden for a while; but once you see it, it's hard to miss. So, it's true, in a sense, that there will always be dictators; there will always be poverty. But there's something really special about these oil states, in particular. So, let me just mention one fact: Think about all the progress that the developing world has made since 1980--[?] rise, India's rise. The oil states as a group in the developing world are no richer, no freer, and no more peaceful than they were in 1980. And that's remarkable. All the money going into those countries has not made the countries richer or more peaceful. And why is that? It's because our money is going to authoritarian rules and rebel groups. And that's the key to the Oil Curse. It's the rule that we use for deciding to who to buy oil from that's causing this trouble. So, when we go to the pump, we might be putting Saudi oil or Angolan oil or Equatorial Guinean oil into our pump. And our money--and our cars--I'm sorry--and our money will be going back to those men to help them maintain their repressive rule and to buy more torture chambers and helicopter gunships, and so on. It's our money that are keeping the men of blood in power in foreign countries. Our money is actually making those men stronger. That's the problem we need to address. Russ: And, you make a very powerful analogy with slave trade: that, even though the world, many parts of the world that traded in slaves or traded in the products that slaves created, benefited materially from that trade. The moral case was overwhelming: people said, 'I don't care. It's wrong.' And so the question is: Can you make the case--obviously most of us benefit tremendously here in the United States and the Western world and much of the world--benefit tremendously from the current situation with the world, or particularly right now, when the price happens to be relatively low? So it's really unpleasant to think about having to give some of that up to stand up for the principle of not cooperating with tyrants. And, we'd also have to confront the question--which we will--well, is it actually going to help the people we are talking about here? Because that's the question I care about a lot as an economist. But if we just think about the moral question of whether we should be complicit in this activity, it's a lot like slavery. Guest: It is. In fact, it's the same rule that we are using now for oil that we used to use for slavery. So, let's go back 300 years ago. Back then, in this very violent era, the rule for almost all international affairs was the rule of Might Makes Right: violence created legitimate power. So, back then, our rule for human beings was, whoever can seize them by force can sell them to us. And that was the rule that made the Atlantic slave trade legal, under which 12 million Africans were forced through the terrible Middle Passage, where they were bought legally as property here in the Americas. So, Might Makes Right used to be our rule for human beings. And we've abolished that rule, now. But Might Makes Right is still our rule for the resources of other countries. Our rule for the resources of other countries is: Whoever can seize the resources by force can sell them to us. And that's the rule that puts us into a business relationship with the men of blood abroad. Now, of course this rule makes no sense from a basic market perspective. Our rule is that violence overseas will create legal property rights in the United States. And that is a violation of central market norms. I mean, imagine that in your cellphone is a small piece of the Congo that was extracted at gunpoint by one of those vicious militias in the Congo that have been doing such horrible things to women over the last dozen or so years, in an effort to keep themselves in power in a chaotic region. Well, if that piece of the Congo is in your phone, you still own every molecule of your phone, 100%, under the laws of the United States. Violence there creates property rights here. That's an anti-market rule that we still use. And that's the rule that's causing the trouble. Now, if I can go back to one other thing you just mentioned, a very intuitive point that we benefit from, this violation of market norms in getting stolen goods all the time: It might seem like we are getting a good deal, just like it might seem we are getting a good deal by buying a stolen car from a car jacking instead of going to a showroom. Sometimes it seems cheaper to violate property rights. But, go back to those first examples I gave about the Oil Curse. Look how much trouble the Oil Curse ends up causing the world, ends up causing us. Best estimate we have is the United States spends about $67-68 billion dollars a year on our military protecting the global supply of oil. And the latest estimate for how much we spent in the most recent war in Iraq is [?] $2.4 trillion. That's serious money. That is serious money that we spend to try to keep oil--cheap. And we have to add that price on to what looks like a lower price at the pump. |
| 18:14 | Russ: So, I have to say--I'm a free-trader, and I'm a pretty hardcore free-trader; and I'm not particularly sympathetic to Fair Trade ideas. And these are somewhat what we are going to talk about what we're going to talk about with these issues that you've raised, or have some relationship to Fair Trade. They are basically saying: Well, you don't always just trade with countries; you don't always freely engage, even if it might seemingly make you better off. It might not, really. But we don't--maybe we shouldn't just trade freely. Maybe you should restrict some kinds of trade. And I was talking to my 18-year-old son about the ideas in your book and how provocative and persuasive some of them were; and he said, 'Dad, that's the least [?]thing I've ever heard you say.' Because, what you force--it's a very clever rhetorical device to say this is anti-market. Because it's forcing us to basically acknowledge theft, you are suggesting, as part of global trade. But the real question is: Having made the case that foreign trade in oil is making us both complicit with really evil people, some of them, and possibly hurting us more than we fully imagine in terms of its overall consequences, that leaves us with the question then of what is to be done about it. Because I think, when you tell people these kind of things, there's a temptation to say, 'But that's just the way the world is. There's really nothing practical to be done about it. Sure, maybe I should feel a little guilty that I'm funding a vicious dictator who tortures people in order to keep power. But really, it's just bad things in the world. There's nothing really to be done.' And it's true that 'might makes right' doesn't seem so right in 2016; but we don't really have a better idea of how to get there from here. So: What are you recommending? What would you suggest we do, to do this? I just want to make one more point. Because, you know, in my lifetime there have been many suggestions to boycott various products, various countries' trade--whether it was China for its so-called slave labor, whether it was grapes when migrant workers were allegedly poorly treated. And when I am confronted with those, I always ask the question: Does this help the people you claim to be worried about? So, in the case of China, you know, if China actually had slave labor making its products, I'd be very uninterested--I wouldn't want to--that's the wrong word: I wouldn't want to trade with them. So, I don't want to be complicit in slave labor, on purely moral grounds. I don't consider low-wage workers slaves. And I think our trading with them actually makes them better off. So, I always, actually find myself wanting to suggest the opposite of many of these international campaigns: 'Let's buy lots of stuff that migrant workers pick.' Like grapes. Because that will increase the demand for their services, push up their wages. 'Let's buy lots of Nike shoes that are made in Indonesia or Vietnam or wherever.' And the evidence is that a lot of these people who make these low wages actually have been improved over time by trade. Not by not-trade. And it's not always clear that not-trade is a way to make them better off. So, my question is: In this particular case: You make a pretty good case that there is some actually slavery here, effective slavery. So, what am I to do about that, if I, as an individual, say, 'Well, I'm not going to buy gasoline from Equatorial Guinea'? I can't really do that. And that's the problem you try to confront in the book, in terms of trying to find solutions. Correct? Guest: That's true. And you've raised a lot of points. So, let's take those three and separate them out. First is the really interesting, fundamental point about the foundations of economics, about property rights and theft. And the second is whether our trade makes people better off overseas. And then the third is what we could possibly do about this problem. And I'm so happy to talk to you and your listeners about the first point, because I know that you are a student of history and Adam Smith and the philosophy of the market. And I did my Ph.D. with Robert Nozick on property rights, and I edited a book on F. A. Hayek. This fundamental point is really important to me. The question is: Do we have a free market in oil today? Really, just on a basic level. And that might seem obvious: we do. But let me ask about this first: Did they have a free market in human beings 300 years ago? Now, there were human beings who were sold across borders. And money changed hands. And property rights certificates were traded, too. Russ: Prices emerged and weren't under anyone's control. Guest: That's right. So they had a market in people. But, we now believe they were selling things that they ought not have the right to sell. Human beings should not be property. So they actually shouldn't have been sold. It's not the case that everything that can be sold should be sold. Think about passports or nuclear weapons. So, there was a market because they had a wrong idea about who had the right to sell human beings. In today's world, we have something of the same situation. There's nothing wrong with selling oil as such. But who is getting the right to sell of the oil of a country? Why does the Saudi regime, or that terrible dictator in Equatorial Guinea--why do they get the right to sell off the resources of their country? Now, your first thought is that they are the head of a recognized government. But that's not the answer. Because as I said before, when a rebel group takes over the wealth, well, we'll buy [?] from the rebel groups like we did from Libya or even from ISIS in the early days, before we put sanctions on. So, our rule really is: Might Makes Right. And I'm claiming that from a basic market perspective, that makes no sense. I mean, look at it this way, Russ: If you and I got some [?] and went down to the Exxon station at the corner and took over the Exxon station, no one thinks that the law should say that we can sell off the oil and keep the money. But if you and I got some guys together with guns and overthrew the government of Equatorial Guinea tomorrow, then the next day, the world wouldn't [would?] say we have the right to sell off the oil of that country and keep the money. So, on the basic philosophical level, we don't have a free market in oil. We have guys with guns selling off the oil of the country that belongs to the people of the country. |
| 25:04 | Russ: But they are not under our jurisdiction. Right? And we don't have international law in the sense of a one-world, global set of property rights. And so this fact that jurisdictions have limited power only within their borders raises a very knotty question. The other knotty question--that's with a 'k-n,' not an 'n-a-u-g-h'--is: If I'm only trading with morally upright countries, who can I trade with? I mean, can't you make the same argument about the United States? We stole--a lot of our oil right now is coming out of Oklahoma and Texas, Pennsylvania, South Dakota--a lot of fracking going on. Those are regions that were once held by Native Americans that we exploited and took their stuff; and now we call it ours, whatever that means. Where do you stop? Who can you trade with morally? On one level, it opens a terrible can of worms. Guest: Good, well, worms are not so bad, all the time. Let's go back to that first question. So, it's absolutely right that there is not international body that determines the rules for trading oil. And we have no jurisdiction over other countries. That's all true. So, who is it that decides who we buy oil from? There's no international law about it? Well, we are also a sovereign state. In fact, we decide our own rules about who we'll buy oil from. It's entirely a decision of every sovereign state to decide who will have the right to sell the oil of other countries to them. Right now, we like every other country, use the rule of Might Makes Right. That goes against our basic principles. I mean, our basic principles are in the other direction. Abraham Lincoln said in his first inaugural address that a "country belongs to its people." That's what we believe as Americans: Every country belongs to its people. So, we're still using this bad old rule from the 17th century to decide who to buy oil from. But that's totally our decision; and we could make our own laws aligned with our own principles and say that we're only going to buy from actors who could possibly have the authorization of the people to sell off the oil. Now, that doesn't mean we should only buy oil from Norway. Goodness. Just think about it. What would it mean if we decided only to buy oil from those who could possibly have the authorization of the people? Well, it would just mean that the government would have to be accountable to the people about resources. Can the people find out who is selling the oil? How much they are getting? And if the people don't like what the government is doing it, can they protest it without fearing for their safety or their lives? And will the government policy change if the majority of citizens strongly don't like what the government is doing? So, we are just talking minimum, bare-boned civil liberties and rights. That kind of accountability to the people is fairly widespread in our world. If you divide it up, about 50% of the world's oil is sold by governments that are accountable; and 50% of the world's traded oil is--literally, by our own principles--stolen from the people of their country. |
| 28:21 | Russ: Let's talk a little bit about that idea of what you call 'popular sovereignty' and this issue of the people having a say, the people owning the oil. Of course, a government can "own the oil" and keep it for itself or it's leaders. It can own the oil and give property rights to the oil, to its own citizens in very direct ways. It can sell them off to the highest bidder, and give the money from the auction to the people in various ways. One of the challenges all these ideas face is that the will of the people--population sovereignty is in many ways not well defined. So, you can argue in certain situations--let's take Mexico. Does Mexico have control--is Mexico a popular sovereignty? Does Venezuela? Does Russia? What's different about those cases, if any, between them and the United States? Guest: Good. That's a really important question. Let's say we took Lincoln's principle seriously: A country belongs to its people. And let me just say that this is not a Left Wing principle or a Right Wing principle: This is just an American principle. I mean, George W. Bush stood up in the middle of the Iraq War and said that the oil of Iraq belongs to the people of Iraq. And George W. Bush is not a Socialist. Russ: Well, now you've named two Republicans--Lincoln and Bush. And those are nice statements: The oil of Iraq belongs to its people. What does that mean in practice? That's the tough question. Guest: Good; and let me just mention someone from the other side of the aisle: Senator Bob Graham of Florida said, 'The oil off our coasts is the property of the American people.' So, it's a bipartisan principle, oil belongs to the people. And as you said, all this means is that oil ultimately should belong to the people. The government can make decisions about what happens to that oil. The government just has to be minimally accountable to the people when it does so. So, in this country, the oil, for example, in the Gulf of Mexico is auctioned off to private bidders, and is privatized, and the money goes into the national Treasury. That's fine, because if the people wanted a different regime in place for their oil, they could get one. The government is minimally, at least minimally responsible to the people's will. If 100 million Americans were willing to vote and march and go on general strike until we have a different system for the auctions of oil in the Gulf of Mexico, then that would happen here. But it's not like that in other countries. In other countries, individual citizens really would risk their lives to stand up and say, 'The oil belongs to the people, and the President or the Princes can't have any of our money until we give them permission.' That would be a very risky thing to do. So, let's go through the countries that you mentioned; and whether the people have popular sovereignty or whether there are resources in these countries. Well, Mexico, they do. I mean, Mexico is in no way perfect: there are a lot of problems in Mexico, for sure. But the people there do have minimal, bare-bones, civil liberties and political rights, consolidated democracy, that if they really disagreed with what the government is doing with their oil, then the government's policy would change. Russia, I don't think so. I mean, Russia has changed quite a bit, even in the last 15 years. But now, I think an individual Russian would be brave if he tried to get together with his fellow citizens and say, 'The regime is taking our oil and keeping the money; we don't like what they are doing with it; and we insist that the government change its policies.' That would be a courageous thing to do. I think you'd probably end up in prison. So, Mexico, yes; and Russia, no. If you are worried that it's just me making these kinds of decisions, let me mention that there are well-established metrics that have been around for a long time that measure the civil liberties and political rights in every country. And these metrics are the kinds of things we can use to decide who we would buy oil from. Russ: Of course, the political system is a rather opaque box. When we think about sovereignty--as you talked about--people marching if they didn't like the United States selling off oil rights in the Gulf, I couldn't help but thinking--and you mention Senator Graham of Florida--I couldn't help thinking of the fact that there are at least 100 million Americans who would probably prefer to have the market price of sugar be untainted by the quotas that we use in the United States to keep out foreign sugar. Most Americans don't know about that. That's a feature, not a bug, for the people benefiting from it. But if you asked, if you did a poll and said, 'Should the handful of families who make huge amounts of money by keeping out foreign sugar, should they be allowed to?' most people would say 'No.' But the political system isn't listening to that. Now, your point, I guess, would be that if they got really mad and they marched on Washington for cheap sugar and to stop the exploitation of consumers by this handful of farmers who grow sugar cane and sugar beets, that we could do it. So, in that sense, there is some sovereignty over trade policy in the United States. But it's a very--it's a loose connection there. Wouldn't you concede? Guest: I do. And it's good that it's a loose connection. Because a tighter connection would be difficult. I happen to agree with you on the sugar issue. I'm glad we can agree on that. But here's the way I think of it: the people own the country's resources much in the same way as shareholders own a company. I mean, there's nothing unusual about shareholders who don't know much about or don't keep track of what's happening with the governance of the company they own stock in. But, it would be very unusual and very bad if shareholders could not, could not do anything to influence the actions of the governance of the company. And that's the situation in oil-cursed, resource-cursed countries are in. |
| 34:35 | Russ: Well, Leif, I think actually we agree on a lot. So, I'm just pushing back. Because I have to, um--I find one of the things I find most fascinating--first of all, it's my job as host. But also because I love the way this issue forces you to confront the intersection between political economy, morality, principles about, say, trade or peace or legal rights. It's a very rich book and we can't do justice to it in an hour. And I recommend that readers on various ideologies grapple with ideas in the book. But it's very appealing to me--again, I'm making the contrast with Fair Trade--it's very appealing to me to say that trade in oil is an enormous source of wickedness in the world, and it is perhaps not morally legitimate. And we, by buying gasoline and natural gas from certain regimes, are complicit in their wickedness. And I think that's something that a thoughtful person has to confront. So, let's turn to the question of what could be done about it that could actually make it better. And I don't--as I said earlier--I don't have any problem with arguing: 'I'm just not going to be involved in this; I'm going to ride a bicycle all the time and I'm going to heat my phone with wood that I chop myself from my backyard. And I just don't want to be a part of this.' Most of us would find that very difficult, practically. And--but so the question is, though, the key question is: Is there something to be done about it that would make the situation better? As opposed to just keeping my hands clean? The cover of your book is two hands covered in bloody oil. And [?] I'm not saying this very well. What I'm trying to say is that I understand the argument that I don't want to dirty my own hands, so I'm stepping back. There's another argument that says: If I step back, do I improve things for the people I care about? And I want to hear the case for: What can we do practically as a nation, either politically or as individuals, to reduce the harm that's caused by trade and oil in today's world? Guest: Good. And I'm so glad to be able to talk with you about these things, Russ. Because you and I are engaged in the same process of going deep into the foundations of economics and politics and philosophy and trying to bring these lessons forward. I mean, your book How Adam Smith Can Change Your Life, is just such a terrific example of this kind of thinking. So, we're trying to do the same kind of thing; and my line is you can tell, is that we are every day involved in this trade in blood oil, and we just can't step back from it. Because oil is not only in our cars when we drive: it's everywhere. The oil is used to transport almost everything we buy. And it's also used to make so many things we buy. Basically, it's plastic. It's oil, and we smear oil on our face in the morning with cosmetics; and it might be in your waistband, it might be in your shoes or my glasses. Oil is just everywhere. And so all the time, when we buy things, whatever it is, we may be sending back money to men who consider us to be their enemies. And, this trade that we're involved in does not tend to make people better off. This is why it's a malfunction in the trade system. Unlike the usual case of trade which is win-win, when it comes to trade using Might Makes Right, our money tends to go to make people worse off. So, take that fact I[?] mentioned the oil states are no richer, no freer, and no more peaceful than they were even in 1980, and then think about other cases, about where our money is going: the genocide in Darfur, this terrible world war in the Congo; blood diamonds, Sierra Leone and Angola. About 40% of the resource-rich world lives in severe poverty, and their governments tend to be more corrupt. You [?] think of a place like Nigeria, corruption around oil there. So, in this case, our money is going to essentially who has the most guns, instead of to the people of the country; and the guys with the guns are not making life better for the people of the country as trade should in the normal case do. |
| 39:04 | Russ: So, it's a great thing to write a book that says, 'Hey, you're really doing some awful stuff when you fill up your car. You didn't realize it. Congratulations. Sleep badly at night.' And the book does that very well. In fact--I just want to read a little bit of a paragraph here from the book because it's so eloquent and provocative and it makes you face this. It says,It makes perfect sense for an undergraduate in Manhattan to wake up on a warm Saturday, put on a few clothes and some earphones, and go for a run in Central Park--to move in close proximity to hundreds of thousands of many races and creeds--with every expectation of returning home safe and heading to the library. Contrast this with a woman of the same age in the eastern Congo, who has heard rumors of a dozen men with guns near the village, who must calculate whether it's safe enough to go to the well to get water--and who wants very much not to be assaulted, but even more wonders who will take care of the children if she does not return. Across modern history, identities have changed to make more of the world like Manhattan. So, that's the good news: the world is getting a little more peaceful--at least that's the trend. It's a little safer, but there's still this wickedness in the world--which, again, we all understand. But the idea that that wickedness is funded by oil money is something that should make us sleep badly at night. So the question then--it's one thing to raise the alarm, and say, 'This is a bad thing,' just like people did about slavery. What's to be done about it? What is your proposal for how we might move forward, besides raising consciousness that this is not as attractive as it might seem? Guest: I'm so glad to be able to tell you this point; and I'm tremendously optimistic that we can actually fix this problem. I'm tremendously optimistic that we can and we will get ourselves out of business with these terrible guys abroad. So, I'm in Washington right now, as it happens; I'm going to go over to Capitol Hill after this and try to convince people on Capitol Hill that the United States should pass a bill that just says: We will no longer buy oil or other natural resources from authoritarian regimes or failed states. America will pass a law that we taper off all our imports of blood oil or conflict minerals from foreign countries. And we can do that: we have enough energy now in the free countries. We don't need conflict minerals from foreign countries. We can get ourselves out of business, as a country with these men of blood overseas. It's too hard for us to do this as individuals. We just can't figure out which of our shopping is involved more with blood oil, and so on. That's too complicated. And the markets are too opaque. We have to do it as a country. It's a political problem and needs a political solution. And, the political solution, luckily, is waiting right here for us to take it. It sounds like a big ask, for us to stop by authoritarian oil. But as I mentioned, we don't need that oil any more. And, the principle that we would be using, to replace Might Makes Right here, is one of the deepest principles of American political morality: all countries belong to their people. And, better still, that principle, that countries belong to their people, resources belong to their people, is now deeply embedded in primary documents of international law. So, if you look at the two big human rights treaties that almost every country has signed, they just say in Article I: All peoples shall for their own ends freely dispose of their natural wealth and resources. So, this is a principle that not only America but the world has signed up to, on paper. Everybody knows that Might Makes Right is a crazy, anti-market rule; and everyone has agreed on the better rule for resource trade. We've just got to summon the leadership and the political will to move from the bad, old rule to a better and modern rule and get a genuine free market in natural resources. Russ: So, let's make the parallel with, say, Fair Trade. Should we also have a law that we shouldn't trade with countries that--and many people advocate for this--pay their workers poorly, or less than a certain civilized wage. Maybe it's not our minimum wage but let's start with that: Any country where workers earn less than the U.S. minimum wage, to trade with them is to exploit them and we're not going to be a part of that. Do you think that's a good rule? Or is it different from what you are proposing? Guest: There's different views on that. And, people like you tend to think that it does a lot of good to trade with countries where, for example, there's sweatshop labor. Very controversial issue. We have seen a lot of countries that have gone through their industrialization period with sweatshop labor, and now are much better off. So, that issue of Fair Trade and labor standards is different from natural resources because at least with sweatshop labor, you have laborers who are voluntarily getting out of the field and going into those terrible factories. The problem there is exploitation; and people have different views on whether exploitation is a necessary part of development or whether it's just too morally tainted for us to do business with. Russ: Well, the other problem is that there are people here who would benefit with our not trading with them; and so they push this agenda. It's what we call a Bootlegger and Baptist issue here on EconTalk, from Bruce Yandle's work, right? That there's certain people who take the moral high ground--it's terrible to trade with exploited workers--and other people who say, 'Yeah, it is terrible' because they actually benefit from restricting trade with foreign countries. This case seems a little different, your case. Guest: That's right. Russ: It seems to be mostly Baptist--mostly people who are claiming the moral high ground by not trading with dictators. But then, the next response--and you deal with this in the book with quite a lot of detail--is: Well, it's a nice gesture. Suppose we pass that law, and the United States stops trading--and it's effective--which is a separate issue. Let's say that it's an actual--we have to determine what's a dictator, what's an authoritarian government; we use some kind of index, as you suggest. And we stop trading with Equatorial Guinea, with other places that are evil, where the leaders are evil. And that's nice. We've cleaned our hands. But we are actually going to reduce the power, the span of control of those people by this, some kind of law like that. Guest: That's right. We will. And let me just say that this policy will have tremendous soft power. Imagine the day where the United States of America actually does the right thing and says that it will no longer be in business for oil with authoritarians. That will put pressure with authoritarian regimes, in itself, to reform. There's reformers waiting outside the palaces--often waiting inside the palaces--to make these kinds of reforms to give people basic civil rights and political liberties; they've been saying they are going to do it for a long time. If the United States up and did the right thing, it would be a tremendous movement in the right direction. And let me also mention just from the national security side: If the United States stood up and said we're going to get out of business with those who are attacking and oppressing the peoples of other countries and affirm the rights of all peoples, we would defuse that victimization narrative that jihadis are now using to recruit extremists. That would be the end of this narrative. We would no longer be in business with people that we claim we don't agree with in terms of governance that are very powerful. Russ: But, as you point out, if not every nation in the world accepts this argument--which they won't, at least in the short run, maybe in the long run--what difference does it make? They are just going to sell their oil--the wicked people will sell their oil to people who are willing to buy it. Our hands will be clean, but there will be no real impact. They'll just sell more oil to those countries that don't have this moral concern. Guest: That's right. And I do want to make a strong moral argument. But I also want to make a strong, hard-headed national interest argument, both for us and for other countries. So, the moral argument we've seen a lot. But look at the national interest argument for us. We're spending a huge amount of money on our military trying to keep oil flowing around the world. And if we stopped buying oil from those countries we wouldn't have to spend quite so much on our military. As you say, if we don't buy that oil, well then the Chinese might be tempted to buy it instead. And that's correct: they probably would, at first. But let's look at Chinese national interests. Do the Chinese want to send their money into a destabilizing Middle East and depend on the Middle East to provide their primary energy imports? Basically, does China want to buy oil from ISIS 2.0 in five or ten years? That's not in their long-term national interest. They don't want to be energy dependent on the Middle East, which they can see as well as we is really getting much worse. So the Chinese, purely for national interest reasons also has the incentive to announce--and I only mean announce--that at some point in the future they will no longer be importing blood oil, like we won't. If the Chinese make that announcement, well then the game really will be up for the authoritarian regimes in the Middle East. If they see their customers are disappearing, then there will be reforms in those countries. The people will be given more rights over the resources of their country. |
| 48:54 | Russ: But in the meantime, as you point out, while we might not be importing oil from Equatorial Guinea, we'll be importing Chinese toys made from oil from Equatorial Guinea. It's just oil in a different shape. And you actually suggest that we should put tariffs on those products and create a trust fund with the money from those tariffs to refund at some point to the people of Equatorial Guinea, because they are not getting the money right now. Do you think that's a viable proposal? Guest: I do. It's just a mechanism to protect property rights. As you can tell, this proposal is all about property rights. Let's say we actually did believe that the people of this African country, Equatorial Guinea, own the oil of that country. What could we do? Because if we don't buy that oil, as you say, the Chinese will; and then we'll import Chinese toys which are made out of oil, and we'll be buying that oil second hand. Well, we can put duties on Chinese goods as they come into the United States. So, let's say China buys $3 billion worth of oil from Equatorial Guinea. Then we'll put $3 billion worth of duties on Chinese goods as they come into the United States, and we'll save that money in a bank account for the people of Equatorial Guinea and give it back to them once they've got a minimally decent government in place. That will protect their property rights: that will give them the value of the oil that was stolen from them. And it will also give everyone in the world an incentive to improve governance in Equatorial Guinea. Russ: So, I'm not a big fan of that. Just because I see it as a mechanism that would be abused in all kinds of creative ways by people who would benefit from those tariffs direct, not just from the moral case. The issues we were raising earlier. So I want to propose a different focus. It's not your focus, but I want to get your reaction to it. So, you've proposed a centralized solution--a U.S. government basically saying to me, I, Russ Roberts, am not allowed to buy, to be part of the trade with Equatorial Guinea. Because it would be very difficult for me to make that moral decision on my own. And so you are going to make it for me, in the form of some type of legislation that would try to keep those products out of the U.S. part of the oil market. I'm thinking about abolition, again. So, abolition in slavery began as a moral crusade alone, right? And the first steps of it weren't--I guess it was a dual track. There was a political track all along, and then there was the moral outrage track. So, I wonder: Is it imaginable that the moral outrage could ever be loud enough that individuals, such as Exxon or Sunoco and others would decide not to trade, not to be part of this business for reasons that would--because they wouldn't be successful for their own business? That is, could an oil company based on the moral outrage that you could create from books like this and testimony and other things--website, which we'll put a link up to--could an oil company offer its products as free from wickedness as a way of gaining market share and put competitive pressure on its competitors who were not doing that? Guest: Well, it's funny: I've actually helped the oil companies out a little bit there. So, in a couple of weeks you'll be seeing on my website, Cleantrade.org, will be an index of major oil companies and which ones are doing more business with authoritarian regimes. So, if individuals out there do want to take action on this problem of blood oil, they can decide where to buy gas based on which company is doing more business with authoritarian regimes in the world. Now, when I talk to people in the oil industry, I don't tend to make the moral case, because these are businessmen and their job is not particularly to respond to philosophy professors like me. Their job is to do their business; and I make a business argument to them. I just ask them, 'How's it going for your bottom line? How much money have you made in Iran since 1979? How are you feeling about your assets in Iraq? How are you doing since you were chased out of Sudan in the 1980s? How do you feel about Algeria in the medium term? How's it going for you in Libya?' These are really big oil-producing countries. And our companies are not able to do a lot of business in these countries because of the instability that's coming from the oil curse. They are as oil-cursed as we are. And simply from the business perspective, they should favor a change in the law that will bring stability to these terribly unstable countries in the Middle East and North Africa. Russ: I think you are making the right marketing strategy in trying to convince them. But I do think that no CEO (Chief Executive Officer), no employee, no manager, no--down to the lowest level in those companies--wants to think that they are helping people be enslaved or tortured or raped or mutilated as often as is the case in these examples. So, there is a moral--I understand they mainly care about profits. But I think you could make the moral case sufficiently loud, which I think you do very effectively in the book. Loud enough to get this free-trader, just might think about this as a legitimate cause. I think you could make an impact there. And it's an interesting idea of how that might play out. Guest: Good. Let's work together on that. I'll make the business case; you make the moral case. We'll convince them together. Russ: Well, I'm glad that you mentioned Iran, because I couldn't help thinking of a friend of mine who was at a conference--it was a conference related to the post-Iran deal that was recently made to open up Iran a little bit to the Western world. And how western companies were champing at the bit I think is the correct phrase to get at that market. Oblivious, of course, as I have to concede, to the fact that Iran is not a particularly free country. It has many, many unattractive statements coming out of its capital about how people should be treated elsewhere, and we can debate whether that's a response to other problems that they're--that we've created in the United States. But the reality is, is that those companies are just racing to do business. It's a huge, attractive opportunity for them, and they are going there. Guest: Yeah. You know, the oil curse is like poison ivy. In the short term, there's a really strong desire to do what will make it worse in the long term. It's the same for our governments. We are always tempted to do business with authoritarians. And, how did it work out? How did it work out when we were supporting the Shah of Iran? Or Muammar Gaddafi? Or Saddam Hussein? Or now the Saudis? How is that working out? It's tough to say that in the long run U.S. national interests or corporate interests are furthered by sending our money to whoever has the most guns. I'm going to say something controversial. I actually think that the American people are closer, culturally, to the Iranian people than they are to, for example, the Saudi people right now--and the Saudi regime is our ally. I have hopes that Iran could one day become a country where the people control their own resources. And I look forward to the day, actually, where the Middle East is a region where the people are sovereign and the countries are at peace. That's not going to happen if we keep sending hundreds of millions, billions of dollars to whoever has the most guns. Looking to the long term, the right thing to do and our national interest point in the same direction: Get out of business with the men of blood. Affirm the rights of people in all countries. |
| 57:04 | Russ: So, here's the irony that I struggle with. I love the sentiment, again. But we boycotted--the United States has boycotted Cuba, put sanctions on Cuba, forbidden trade with Cuba, since the 1960s or late 1950s--I don't know when it started; maybe you know. But it's been about 50-something years. And recently President Obama has liberalized that, or at least taken steps to begin a more open relationship with our two countries. And while I despise the Castro regime and have nothing good to say about, say, the health care of Cuba or the education in Cuba, the apologies that people make for their repression, I think the sanctions and the failure to trade with Cuba has allowed Cuba to blame the United States for its economic situation, rather than its own policies. It's created a demonization potential to mislead people, as they control the press and so on. So, how is it that not trading with these countries is going to help them be more free? Is it not the case, even though I'm not a big fan of Iran, is it not the case that by having Western companies there we have the potential to create a more liberal Iran down the road? Guest: So, I just have to say, again, natural resources are special. There really is a resource curse. And trading in resources does not tend to make the people richer or more free. And it does tend to stimulate civil war; and sometimes it also empowers wars between countries. Resources are highly concentrated sources of economic value; and they are big trouble if they are in the control of authoritarians and armed groups. So, resources are special. And, we are not going to be imposing sanctions on countries. Sanctions are punishments. We're just going to be saying, 'Look, who rules in foreign countries is none of our business. But right now, by our deepest principles, is authoritarians and armed groups qualify for none of our business. We don't believe we have the right to buy resources from you guys, because we believe your people own the country.' Now, unlike sanctions, this is not something that authoritarian regimes can easily turn into a propaganda victory. This is the United States standing up, doing the right thing, and saying, 'We are on the side of the people now. We are no longer going to send our money to the guys who are oppressing and attacking you.' Russ: So, in response to that--again, I salute the moral clarity of that--but in response to that is Mr. Obiang, the leader of Equatorial Guinea, who has this grip on power in a desperate way, been quite successful for a long time in abusing his people and profiting from the resources that he has: Is he going to say, 'Well, I guess I better do better on that Freedom House Index so that I can sell my oil to the United States.' Is that likely? Is that going to be his response? What do you hope for his response to be? Guest: So, this guy, Obiang, has been in power for a long time. He is one of Africa's longest-serving leaders. He's been around since 1979. He just won a fake election last week with 93% of the vote. And as I said, his regime is terribly, terribly repressive. Imagine the day when Obiang can't sell the oil of his country off because his customers believe that the oil belongs to the people. That's going to be a tough day for him. I'm not sure that he himself has it within him to reform any more than, say, Mugabe, who also came into power around the same time has the power to reform himself. But there's another generation of governors coming up in that country. The question for us is: Are we going to keep trading with Equatorial Guinea from the next generation just because the next generation can keep the people from the next generation living in fear and poverty? Or, are we going to say, 'Someone in the next generation has to come up who minimally represents the people and is accountable to the people for the sale of their primary national asset?' Russ: And I guess the other argument would be that if you lower the value of the prize of those wells, the willingness of people to kill other people and brutalize them to get access to that will be reduced. That would be a big plus in my book. |
| 1:01:38 | Russ: Let's close with what kind of reaction you are getting from two groups: fellow philosophers--this is an unusual book for a philosopher to write, it seems to me. I think philosophers should write more books like this, though. I want to emphasize that. What kind of reaction are you getting from your academic colleagues and what kind of reaction are you getting from politicians? Is there any--I think they are probably taking a wait-and-see attitude. But tell me if I'm wrong. Guest: The politicians are interesting. I'm here in Washington talking to people and everyone agrees that the analysis is correct: oil is such a huge source of unaccountable power. We can't control it from the outside by alliances by military action or sanctions, so we really have to find ways to empower the people of countries so that oil can be made accountable from inside the country. Everyone sees that the analysis is correct. The question is: Will the American people stand up and say that we need to get ourselves out of business with the men of blood abroad. So the political consensus needs to form around it; and that's the way these things are. The philosophers are much more encouraging. Everyone sees that this is the kind of issue that philosophers should be engaging with. And let me just leave you with a story from one last time I was teaching Political Theory 101 at Princeton. I said to the students: Look at the people we are reading in this course. Look at the great classics of political philosophy in this course. We are doing Hobbes and Locke and Rousseau and Marx and Mill. I mean, all of those men were deeply engaged in the politics of their time. Hobbes had to flee the country for fear of his life because of the political philosophy he was writing. Locke had to flee the country in fear of his life because of the political philosophy he was writing. Rousseau wrote a Constitution for Poland. Mill was a Member of Parliament. And they chased Marx from Germany to France and then from France to London, and they still followed him around with the Secret Police in London. These philosophers were deeply engaged in the politics of their time. And they could see the big picture of their time. That's what gave them the ability to say: This is the problem; here are the principles we're using now. Here are the principles we could use to make things better in the future. And that's why their work has had enduring value. |
Should the United States allow its citizens to buy oil from countries run by bad men? Is this a case where morality trumps the usual case for free trade? Leif Wenar, professor of philosophy at King's College, London and author of Blood Oil, talks with EconTalk host Russ Roberts about the morality of buying resources from countries that use the resulting revenue to oppress their citizens. Based on the ideas in his book, Wenar argues that in many cases, importing oil is equivalent to buying stolen goods where the low prices cannot justify the purchase. The conversation discusses the possible outcomes from banning foreign oil from tyrannical regimes along with the resource curse and the case for fair trade.
READER COMMENTS
Daniel
May 16 2016 at 9:12am
For some perspective, here were the top 20 countries the U.S. imported oil from in 2015. The units are thousands of barrels per day. Source: https://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbblpd_a.htm
Canada 3,754
Saudi Arabia 1,058
Venezuela 830
Mexico 758
Colombia 392
Russia 354
Ecuador 230
Iraq 229
Brazil 214
Kuwait 206
Angola 136
United Kingdom 121
Algeria 108
Korea, South 99
India 84
Nigeria 83
Belgium 78
Chad 72
Spain 63
Norway 58
Danan
May 16 2016 at 10:49am
So did Russ just agree with the central idea that “the people of a country should own the natural resources?” I didn’t hear any pushback.
What reason was given for that statement? Should the government also own all the land in the country (or at least adminster property rights as it – or “the people” – see fit)?
Clearly land is also a natural resource. The liberal/libertarian/Lockean idea is that property rights are not granted by majority consent and do not result out of government action. That happens to also be one of the foundations of modern Western thought. Especially the USA is built on this belief.
Obviously a warlord financing their oppressive regime with oil money is bad for the people of the country (then again there are god-awful resource-poor countries too). But Venezuela is an example of a nation that nationalized all their oil (and more) with the consent of the people (well, at least the majority) – and what good has it done them? By all accounts they are worse off. Many African countries did and are doing nationalizations of national resources and land, and more often than not this is widely popular with the population. That doesn’t make it moral or beneficial in the long-term.
Property rights don’t come from majority consent, in my view. An Oregon resident has a lot less of a rigthful claim on the oil in the Gulf of Mexico currently under US-government ownership, than someone from Cancun.
In my opinion, what is warranted, rather than giving property rights to “the people of the country”, it ought to be given to those with the best claim given ideas about originary homesteading of property and legitimate title transfer. Obviously that would be extremely messy, after centuries of governments unrightfully claiming resources, but there is always a best claim, even if that happens to be a weak one.
That may result in some kind of fund that includes many or all of a nation’s (or more of one nation’s) people as its shareholders. But what is vital about this, has to be that being born after some date doesn’t automatically give you any shares. In other words we need (as rightful as possible) private property rights that can only be aquired by originary appropriation, or legitimate title-transfer.
Ajax4Hire
May 16 2016 at 12:37pm
Oil if fungible.
Leif Wenar accurately identifies the problem.
But, fails to provide a real solution.
Setting aside Tariff money will never work. Your politicians will need to spend the money wisely (Social Security “Fund” lockbox).
Forcing everyone in your country to buy local is its own form of oppression.
The hardest thing is life is to watch a crushed and oppressed people, suffering the hardships meted out by _their_ leaders. You wait for the revolutionary moment; eager for the people to throw off the chains of inequity.
You want to help so badly.
But you can’t.
The strength for revolution must come from within.
Buzz
May 16 2016 at 12:48pm
Danan: You’re misunderstanding their point. They were saying that a country belong to its people, so they should have self determination and freedoms. Not that everything should be owned communally.
And in your system wouldn’t almost everything in the US belong to Native American tribes ?
Madeleine
May 16 2016 at 4:09pm
[Comment removed. Please consult our comment policies and check your email for explanation.–Econlib Ed.]
emerich
May 17 2016 at 4:48am
At the beginning I thought the guest was hopelessly naive but by the end I was half convinced he was right. Half. But as a commenter notes above, it’s a global market. If the U.S. refrains from buying oil from kleptocracies, others will. Then there’s the political economy of the policy, how it will be influenced (and perverted) by special interests on its way to becoming law, if it got that far.
By the way, if the natural resources in the Americas belongs to native Americans, which ones? They fought each other pretty continually. Would it be the tribe whose ancestors are found, via genome analysis, to have crossed the Bering Strait first? The ones occupying resource-rich land at a particular point in time? Which time?
casey
May 17 2016 at 10:53am
Very interesting podcast, will be one of top 10 of the year.
I didn’t feel like he answered the Boycott/Cuba point.
I don’t feel like he addressed the commodity issue sufficiently… If US and Europe don’t buy from Saudi,Russia,Angola,Iraq etc.. and China does.. it will basically raise the price for US, and lower the price for China.. creating incentives for cheating…
Daniels list, with a note of the ‘Not Free’ according to freedom in the world index.
https://en.wikipedia.org/wiki/List_of_freedom_indices
Canada 3,754
Saudi Arabia 1,058 – Not Free
Venezuela 830
Mexico 758
Colombia 392
Russia 354 – Not Free
Ecuador 230
Iraq 229 – Not Free
Brazil 214
Kuwait 206
Angola 136 – Not Free
United Kingdom 121
Algeria 108 – Not Free
Korea, South 99
India 84
Nigeria 83
Belgium 78
Chad 72 – Not Free
Spain 63
Norway 58
Kevin
May 17 2016 at 11:57am
Interesting podcast.
I had a difficult time taking the guest seriously after he essentially said the Iraq invasion was a war of blood for oil. No, not because this revealed his political ideology. It is because he is proposing that we are a free country responsible to the people while simultaneously saying the government was able to carry out a trillion dollar war with the backing of the people that was carried out for a completely separate reason than the stated reason for the war that the vast majority of Americans believed. So – if there can exist such a disconnect between the people and the actual purpose of policy our leaders are carrying out than I am not sure that they are accountable or that we could reliably conduct such intricate moral policy and expect it to mesh with our desires. Basically, if the government can trick us to this degree the system is rigged.
I disagree with the guest that the resources themselves corrupt societies. The authoritarian societies just happen to benefit from the resources. We have authoritarian countries without an identifiable single natural resource – such as Cuba or North Korea. The biggest resource of all countries are not their oil/diamonds/lithium, it is the people. In free countries resources are controlled in a way that the people may regulate it, but if that resource is the people why would I worry about the evil of oil from Iran and not labor from oppressed people in North Korea or Cuba. The focus on physical resources elevates the oppression of the people in some authoritarian regimes above those who live in physically resource poor nations, which morally makes no sense to me. In both places self will is being determined by who has the guns. Control over self might be considered an even greater right than control over property. If we want moral boycotts, I think we should boycott all nations products that score poorly on some freedom index since those oppressed peoples lack control over their own lives – the country’s most valuable resource. However, this did not seem to help Cuba, despite Cuba being a vile oppressive country without oil.
An alternative and potentially cheaper solution to this problem would be instead of punishing ourselves with higher costs and tariffs and the long onslaught of this moral crusade, is that we simply list countries from high to low on a freedom index (ones with only some resource if we end up concerned that way) and we overthrow a country every year or so. This is appealing because the people are liberated immediately, the oil profits become the peoples much sooner, and once liberated it will stand as a strong example to the next country on the list. The British defeated slavery by active patrols, boarding ships, and bombarding ports that participating in slavery. Active efforts to make the world free are thankless, and as we see in Iraq, without constant vigilance can be screwed up easily. I don’t think I would personally support this path, but if we are thinking about huge costs and world wide trade wars, actual wars with tiny African nations ought to be on the table.
Finally, what do we do about countries like Venezuela that vote for governments which then smash their nations and wealth using oil as the means? Are they just incompetent versions of Norway and how do we tell?
JonathanH
May 17 2016 at 12:57pm
I really enjoyed this episode and probably will not sleep well at night afterwards!
Commenter Danan has an interesting point regarding property rights. Although I would like to respectfully push back a little bit because I think property rights, especially natural resources have to be consented upon to some degree by your neighbors. Even though this would go against a “libertarian” argument, I think it’s in line with a “classical liberal” argument.
Thinking of an extreme example of a person buying up land until they own all the resources. There would be no difference between that person and a king that has ruled in ages past. The people would exist at the whim of the majority land owner.
Or what if all land is owned already? You wouldn’t even be able to stand anywhere without the permission of the land owner.
So I think when Russ is talking about “the people of a country should own the natural resources” It doesn’t mean anyone can use your stuff but it means people agreeing on what property rights are and how to deal with usage and disagreements.
jw
May 17 2016 at 1:46pm
Luckily, I am in KY this week as this is going to take a lot of bourbon. Wenar makes many logical and economic mistakes, many of which I had hoped to have been caught. There is a lot more Rawls to this than Hayek.
Interestingly, the Saudi situation may resolve itself. Paraphrasing “Syriana” – “A hundred years ago they were living in tents and a hundred years from now they will be living in tents.” The Saudi’s realize that they have a limit to their oil and their wealth. The inability to raise prices signals that they are in the same boat as many other oil based dictators, their deficits are too high to reduce supply. This is an indication that their time may be up sooner than they thought.
There will be a significant cost to these proposed sanctions that will be borne by everyone via increased energy costs. Just like the minimum wage, it is economically unjustifiable, but people want to do it anyway. (On the other hand, we spend $6B/yr subsidizing the burning of food in our cars for no scientific reason, just due to a political caucus schedule, so maybe people don’t really care about the cost of gas.)
The problem is mis-stated, the problem is not the oil funding but the underlying philosophies. The US cannot change every dictator, Islamic or otherwise, into a capitalist economy via sanctions. The Marxian examples of Cuba and North Korea and the Islamic example of Iran prove that dictators have absolutely no concern for the hardships of their people as long as they can keep power via force. The Socialist example of Venezuela proves that the socialist utopia of ownership by the “people” always fails (Bernie Sanders’ primary results notwithstanding). Only capitalism prevails. Unfortunately, not every capitalist state is energy independent, so we shall have to continue to deal with the devil. If someone wants to make you feel guilty about that, throw away your iPhone and start chopping wood.
Cornette
May 17 2016 at 5:40pm
Ajax my sentiment while listening was oil is fungible. A free trader knows that any market that is fungible will be hard to control by anyone even governments. Blackmarket discounts/premiums will ensue. Blood oil will continue at a discount and will make it to our shores in some form. It is a nice idea however.
Martin Dertz
May 17 2016 at 6:08pm
Thanks for another incredible discussion. I’ll be recommending it to at least a few.
There are a few topics I’d like more dialogue or perhaps a future episode on…
-Wenar’s definition of popular sovereignty over resources is whether citizens could organize/march to request a change in resource management without fear of retribution from the government. Couldn’t help thinking of the US at the turn of the century, when there were anarchist and socialist movements throughout the country demanding changes in resource management (among other things) that were put down – often violently – by the coordinated effort of corporations and government.
-To Russ’s question of individually keeping your hands clean, Wenar laughed but efforts like that played a large part in ending slavery in England. A small group of abolitionist organized and, along with being non-stop, persistently politically active refrained from consuming products produced by slaves. I don’t know how much a dent it put in slave traders’ profits, but it added influence to their arguments. That and the comments re: oil being fungible remind me of a chapter in Taleb’s FBR on the spread of boycotting initiated by what he calls the “stubborn minority”. Perhaps rather than operating at the country level and not trading with authoritarian countries there could be a demarcation for products indicating whether or not it was produced/purchased from an authoritarian country which would remove the opacity that makes individual boycotting impossible, similar to GMO labeling proposals in CA.
-On the nature of property rights, and to jw’s comment that slavery and natural resource exploitation aren’t similar in any way, the similarity is both improperly assign property rights. The discussion and comparison with slavery made me think of Aldo Leopold’s words “There is as yet no ethic dealing with man’s relation to land and to the animals and plants which grow upon it. Land, like Odysseus’ slave-girls, is still property. The land-relation is still strictly economic, entailing privileges but not obligations. The extension of ethics to this third element in human environment is, if I read the evidence correctly, an evolutionary possibility and an ecological necessity.” I would love love love if the Econtalk team could get EO Wilson on to talk about natural resource management (as well as philosophy of science, evidence changing ideology, and/or a gaggle of the other economic issues he’s written about).
ej
May 17 2016 at 7:07pm
[Comment removed. Please consult our comment policies and check your email for explanation.–Econlib Ed.]
George
May 17 2016 at 8:27pm
The guest never claimed that valuable natural resources corrupt societies. The thrust of his argument was that these natural resources CAN entrench an unsavory regime.
George
May 17 2016 at 8:59pm
Might does, in fact, make right.
I dislike the way the guest frames the issue, though I do largely agree with Russ and Leif. It makes me cringe since that line of thinking can lead to the justification of military intervention across the world.
This may need some clarification. The rights of a society relies on the might behind the consensus of its people. Here in the United States we have a certain set of rights which are defined by and enforced by the government. However those rights are only protected by the consensus of the people as allowed by the framework of the voting process.
Take an issue I am agnostic about for instance: the Second Amendment defining the right to bear arms. This is enshrined in our founding document, the Constitution of the United States, but it can be limited if the consensus of Americans require it. Gun control laws all over the country violate the Constitution as written.
The people have the right to keep and bear arms.
However, there is a consensus that limits (or infringes upon) the right to bear arms. California has such laws. Oregon as such laws. Alabama has such laws. The consensus of these states is that the right to bear arms ought to be infringed. Not nullified outright, but infringed nonetheless. These states use the coercive power of the state to infringe upon the right to bear arms.
In an autocratic nation a ruler uses coercive power to prevent rights from being defined and invoked. The people of these nations, unfortunately, give that ruler tacit approval by not overthrowing the ruler and setting up an alternative form of government. There is power concentrated in a small group of people or a single person. The power of the people is more diffuse. The people may not have enough power to oust an autocrat out of power. As a result, the people of that region give their tacit approval.
It is unfortunate, but true. Our recent meddling in the middle east has shown how trying to spread democracy there has been disastrous and made us less secure as a result. It is not in our interest to use military power to try and do this. Otherwise, Russ and Leif had a very productive discussion.
Philip Jonat
May 17 2016 at 10:16pm
This episode was great food for thought.
I was thinking that the best way to put these ideas into practice is not individual or government action. It may be possible instead to build an alternative institution as a sovereign wealth fund NGO. I would gather some expats from one of the “Not Free” countries. Then spend some of Leif’s political capital on convincing some of the oil majors to donate money to the fund based on the amount of oil they purchase from the SFW country. Build capital and create the rules for using the money both now and in a hypothetical future that involves democracy, freedom, and free markets. Build enough trust, so that governments around the world can pass Leif’s tariffs and send the money directly to the SFW NGO without corruption. This seems to me to be the best way to scale up to the level of governmental impact.
Please send thoughts, I’d love to kick around more.
Luke J
May 17 2016 at 11:16pm
I would have preferred the discussion to spend more time establishing the evidence for Wenar’s premises rather than correct course of action.
If we agree that boycotting oil from certain countries is a moral action, then it is the right action regardless of pitfall and consequence.
Well, it might not bring down the regime or maybe another country will step in and buy: these are just excuses for inaction and not legitimate concerns. You tell the truth at work even though you might be fired. You are kind to others even though they might mistreat you. Right is right.
I am just not convinced it is a moral issue. I am not convinced [by this conversation] that everyone working to produce oil in these countries is doing so involuntarily as if a slave. I’ll have to check out the book and the readings and links to see if this can be established more concretely.
Todd Kreider
May 18 2016 at 12:00am
jw covered a lot of what I was going to point out. Here is another point about growth and inequality. The guest claimed:
I understand that inequality is high in most of these countries. For example Iran’s inequality is as high as the U.S. (gini = 0.45) while Venesuala and Russia are more equal at 0.38 and 0.42. Mexico = 0.48, and Columbia = 0.54.
Still it isn’t true that they are “no richer” from 1980. I could find GDP/capita (ppp) data quickly from 1990 that shows:
Saudi Arabia $35,000 to $53,000 (2.1% per capita growth per year)
Russia $19,000 to $25,000 (bottomed out at $12,000 in 1994; 1.3% per capita)
Brazil $10,000 to $16,000 (2.5% per capita)
Mexico $12,500 to $16,500 (1.3% per capita)
Iran $10,000 to $16,000 (2.5% per capita)
Columbia $8,000 to $12,500 (2.3% per capita)
Equador $7,500 to $11,000 (2.0% per capita)
Venezuala $14,000 to $16,000 (0.6% per capita)
U.S. $37,000 to $52,000 (1.7% per capita)
Russ Roberts
May 18 2016 at 1:06am
Luke J,
It isn’t that the workers producing the oil are slaves. It’s that the thugs running the governments in some of the oil-producing states keep the revenue from the oil for themselves. And to keep that situation going, they torture and jail dissidents who threaten their power. So the money paid by oil consumers finances the lifestyle of tyrants who in turn are more tyrannical in order to preserve their power.
Brian Mason
May 18 2016 at 6:39am
Wenar talks about people people people … reminds me of People’s Democratic Republic of Korea, People’s Republic of China …
About fair trade Wenar responds “opinions differ … [my opinion should be forced on others]”.
Oil is fungible. Wenar’s answer is to take more from US citizens in the form of tariffs.
Wenar often claims “give oil money to the guys with most guns.” Exon et. al. buy oil based on price and quality.
Wenar bemoans might makes right and proposes enforcing his opinion.
The whole Blood Oil claim is weak. The opposite is better supported by the facts: NOT selling oil, not one drop, made the Soviets, Chinese fascists, Chinese communists, North Koreans, Nazis … murderous. Selling oil has made Saudis and E. Guineans boy scouts by comparison. Raising the return on people’s labor (finding, extracting, logistics …) encourages better treatment.
jw
May 18 2016 at 7:20am
Is economic warfare more moral than military warfare?
Let’s try this fun philosophical thought experiment.
Let’s say that ALL of the oil was in Saudi Arabia. We have been trading with them for decades and everything is rosy and our lifestyle is the same as it is today.
But then, they decide that according to their morality, the US is immoral and decide to sanction the US and withhold any oil shipments unless we convert to Wahhabism. Within a week or two, all transportation stops. Days afterwards, grocery stores are bare. A week or so after that tens of millions are starving.
Do we respond militarily? If so, is then economic warfare equivalent to military warfare?
(If you think this thought experiment is too far fetched, Google “oil embargo” and “Pearl Harbor”.)
Cecil
May 18 2016 at 9:14am
I was super jazzed up after this latest episode, and since Russ seemed to veer away from his norm, I too was ready to make an exception and stretch my beliefs. I couldn’t wait to get to a computer to try and find which gas station to use next to ensure I was the most moral.
But. . . After reading the comments, I was snapped back to reality (too presumptuous?)
With all the talk of slavery and oppression, I am surprised none have mentioned opening boarders and accepting immigration from these countries without freedom.
Surely a pipe dream (as are the tariff solutions IMO), open boarders seems like the answer to me that will do the most good.
Floccina
May 18 2016 at 1:06pm
The shouldn’t resources like oil (as opposed to air and water ways) belong to those who owned that land or who fist found the resources. The lack of natural resources seems to not be helping Pakistan, Somalia. I do not buy the whole resource curse theory.
Doug T
May 18 2016 at 1:11pm
Oil is not economic wealth. It is a raw material used in many economic processes. It requires capital investment to transform it from its raw state to a useful form.
I was surprised that Russ conceded this, as well as the many other above-referenced points. Russ, are you testing us?
The notion that oil “belongs” to the citizens of a nation-state who neither develop it nor market it nor ship it would be risible, if Russ didn’t seem to take it seriously.
Governments extract rents from resources because they can. They typically do so according to the nature of their society — authoritarian, democratic, bureaucratic, kleptocratic, etc.
Oil doesn’t kill people. Evil people kill people.
Russ Roberts
May 18 2016 at 2:32pm
Doug T (and others),
Suppose a gang of well-organized and financed thugs took over the fracking sites across the United States and quickly built defenses around the perimeter of these sites. As a result, thousands of people are trapped inside these perimeter areas against their will.
The thugs then export the oil and gas they have commandeered. That would be nearly impossible in any volume but ignore the transportation challenge. Assume they can get that oil and gas to Canada and China and Europe. Actually, let’s have them load up rail cars and trucks from the fracking areas and sell oil and gas throughout the United States at entryways that are highly guarded and secure. That might be do-able.
The thugs use the money from their sales to reinforce their defenses and to prevent any gangs from within the fracking areas to displace the thugs and keep the prize of oil and gas revenue for themselves. The people stuck inside the perimeter are not allowed to leave. They are eager to revolt against the thugs but they have few resources. The thugs, meanwhile, get richer every day. They vigilantly keep an eye on the people stuck inside their borders. They are happy to torture them from time to time in arbitrary ways to induce fear. The local population inside these areas mostly cowers, intimidated by the violence. They are able to do some work, making poverty-level substance wages.
Suppose the relatives of the trapped people try to convince the US and the nations of the world not to trade with the gangsters who have expropriated the resources. Their argument is that it is morally wrong to trade with thieves. It is morally wrong to finance oppression. When critics point out that not everyone will follow this decision, the relatives point out that it may take a while, but taking a moral stand in this kind of extreme case is worthwhile just on the chance that civilized people will eventually join in and subjugate their economic interests to a higher cause. And do you really want your money to go toward torturing and intimidating and occasionally murdering innocent people?
That is what I take Wenar to be saying. There are obviously a lot of problems with it. Perhaps there is no consistent way to hold Wenar’s view without hurting lots of innocent people. But the value of what he is saying is to remind us that trade with nation-states (rather than among private entities) can have some not-so-pleasant consequences. I encourage you to read the book.
joe forshaw
May 18 2016 at 4:24pm
Boy, this could get complicated for our rulers:
“Well, we can put duties on Chinese goods as they come into the United States. So, let’s say China buys $3 billion worth of oil from Equatorial Guinea. Then we’ll put $3 billion worth of duties on Chinese goods as they come into the United States, and we’ll save that money in a bank account for the people of Equatorial Guinea and give it back to them once they’ve got a minimally decent government in place.”
Pie in the sky? More like intergalactic bakeries.
John Roesink
May 18 2016 at 5:43pm
Russ-
What if the thugs took over the citrus producing regions of the United States or, God forbid, the cheese production in Wisconsin? The guest utterly failed to establish that there is anything unique about repressive governments and oil production and I’m not seeing it come through in your hypothetical, either.
Besides all of the examples of Type I and Type II errors given in the posts above (don’t forget the Duvaliers in Haiti), there exists another glaring problem with Wenar’s conclusion. Namely, that we could trust the government to craft a solution to the perceived problem. I can think of two recent examples that should be cause for concern. Libya, a country with vast oil reserves and attendant state wealth, was finally tacking towards the West and using some of its oil wealth to improve the lives of its citizens (health care, education, food and water, etc.) when our government facilitated his execution. Now, the oilfields are on the precipice of falling entirely in to the hands of ISIS. Oops. Second, we learn more daily of the corruption at the highest levels of the government in Brazil that no doubt has had an adverse impact on the wealth and freedom of the Brazilian people, yet they would never have failed Wenar’s ethical test and in fact would stand to benefit greatly by our reduced trade with other oil exporters (bootleggers).
I’m with Doug T, I think this may have been a cleverly crafted game of “Spot the Sophist”. Let’s hope this turns out to be the most specious argument presented on EconTalk in 2016.
Russ Roberts
May 18 2016 at 10:30pm
John Roesink,
The only thing that’s different about oil is that it’s just a little more in demand than tangerines. So controlling it generates a lot of money. It’s a big prize.
I agree that government will struggle to avoid unintended consequences.
I just think what Leif Wenar is saying should give you pause about your purchases of gasoline. It made me uneasy. Can we do something collectively, privately or publicly about it that makes the world a better place? No easy answer there.
Todd Kreider
May 18 2016 at 10:48pm
Russ wrote:
But we know this isn’t true based on the solid growth of all of the oil producing countries except Venezuela, and their post transfer gini coefficients. Granted, I would need to provide the 1990 gini as well — and Saudi Arabia isn’t even recorded — but the other countries haven’t become more unequal by much since 1990.
Or one could I guess make the case that the thugs really did retain profits but that oil was never that important for growth in the first place — but they all grew.
I think part of the problem is that when we think of “oil producing states that aren’t the U.S. and Canada”, we quickly focus our minds on the situation in Saudi Arabia where the gini coefficient isn’t even available.
Dan
May 19 2016 at 9:38am
Iraq was one of the clearest examples of a brutal regime profiting off oil at the expense of its people. But it isn’t obvious the people of Iraq are any better off today post-Saddam Hussein. For all of Saddam’s abuses, he brought some measure of stability to the region and as it turns out was a better (though still horrible) alternative to the ravages of perpetual war and ISIS.
The unavoidable problem is we simply aren’t very good at exporting our values to certain areas of the world. It may be they lack some fundamental record of stability or existing wealth or the right culture and traditions for democracy to thrive. We also have clear counterexamples of dictatorships like North Korea where there is no resource curse and the populations live in perpetual poverty without even having the table scraps oil-rich regimes distribute out for basic public welfare. It seems they only become more cloistered and brutal as the world sanctions and shuns them.
As the guest pointed out, everyone already knows this is a problem. But I was not convinced that impoverishing these countries further, along with ourselves, is likely to bring any positive change to these parts of the world. And we could easily see things becoming worse.
Mark Crankshaw
May 19 2016 at 3:38pm
I lost count of the times Mr. Wenar referenced the term ‘the people’. It would be nice if this term were actually defined. It would be even better if the term actually could be defined. Unfortunately, the term ‘the people’ is both vacuous and content-less, a literal Rorschach test that informs a lot about the ideological disposition of the people that use it but nothing about reality it is supposedly describing.
This, of course, is no accident. Much like with socialism or communism–and ‘democratic’ statism, the concept of ‘the people’ is conjured up by an elite with the view of ‘speaking for’ the rhetorical fiction they themselves have created. Religions have been doing this since the Stone Age with the concept of ‘God’.
Jw has made a nice list of the multitude of conceptual and logical issues I have with Wenar. I’ll add one more: the idea that ‘might makes right’ has been made forbidden by any government on this planet is simply, absolutely and laugh-out-loud absurd. The West may spout empty platitudes about being “minimally” accountable to ‘the people’, whatever that is supposed to mean. But since ‘the people’ is such a vague, ill-defined, perhaps even undefinable term, what exactly are the governments accountable to? On the contrary, government fundamentally is, by nature, a ‘might makes right’ machine. Even in Norway.
The means of popular control in the West may indeed differ quite radically from their less politically secure totalitarian counterparts. This has a whole less to do with the “morality” of Western governments and much more to do with their relative “security”. The economic/social ruling classes in the West have little fear of regime change. Sure, their well-paid political henchmen and lackeys may rotate in and out of office from time to time, administration of the regime may change hands, but their is little chance of a violent loss of political and economic power for the ruling elite, the regime they control (for example, “the US Government”, the “French government”, etc.) is meant to stay perpetually in power. Any newly elected official can and will soon be for sale.
Not so for their totalitarian counterparts. I wouldn’t ascribe the term ‘evil’ exclusively to the leaders of these authoritarian regimes. The worst types of people tend to take control everywhere. What makes the totalitarian leadership particularly reptilian is not their morality (or lack of it) but the very high stakes of regime change. At best, a regime change for them implies exile and greatly diminished wealth and status. Usually, however, the cost of regime change to a totalitarian leader is violent death.
What’s ironic is that all Mr. Wenar’s political ‘efforts’ are all ‘might-makes-right’. No doubt he believes this political course coincides with the ‘Will of the People'(and it probably does with ‘the people’ that exists only in his imagination). I, however, doubt this is so with the flesh-and-blood that exist in reality…
jw
May 19 2016 at 4:14pm
Well this is quickly going down the rabbit hole…
So if “Their argument is that it is morally wrong to trade with thieves. It is morally wrong to finance oppression.”, then where is the line?
Is it torture and murder? Is it political oppression (there goes your iPhone)? Is it thievery (hmmm, ECB and BoJ negative interest rates can easily be morally categorized as thievery, so there goes your Toyota and Bordeaux)?
So is the larger question: In order to lead a moral life, I cannot trade with an immoral entity? Or is it: I lead the most moral life that I can, and since I am human, I will sometimes fail, but I will trade with immoral people if I have to, but pray (or insert an alternative solution here) for them to change?
As discussed above, you cannot boycott gas since once the oil gets here it is combined and refined into truly fungible gas (except for Venezuela via Citgo – which I personally boycott). So the only alternative is, as Wenar states, to have the government control the boycott, which then removes the personal moral choice from the equation.
So just like politicians spending other people’s money in no way increases their moral standing, a moral boycott does not increase the moral standing of the vast majority of Americans who are either ignorant of the boycott or could care less.
As shown above, boycotts rarely, if ever, change a totalitarian state (and I am under no illusion that my boycotting Citgo is helping to destable Venezuela), so is then increasing the cost of gas to the poorest of Americans for an extremely low probability of moral victory itself moral?
“Why, sometimes I’ve believed as many as six impossible things before breakfast.”
― Lewis Carroll
Leif Wenar
May 20 2016 at 8:55pm
This is Leif Wenar. Thanks very much to everyone who has contributed to this discussion—and to Russ also for creating this terrific forum.
Since I’ve said a lot already, I’m really curious to hear more from those of you who have already generously contributed your views. So, if you’re so inclined, I’d be very interested to hear your opinions on some issues that I’ve also worked on. (If you want more from me, please just check for Blood Oil at your local library.)
There’s just one thing I’d like to clear up on my side before starting, which is what I’m advocating is a 100% peaceful change in our own trade rules. In my view we shouldn’t be invading other countries to promote democracy—it’s up to the people of other countries to decide their own politics. Our priority should just be to align our own laws with our own principles, so that we’re no longer buying oil from those we believe have no right to sell it—so that we’re no longer buying stolen oil.
OK, so now just a few initial questions for you, given what’s been said so far in this forum. Since a lot of the discussion has focused on ownership rights and what counts as a free market, let’s start there. Of course please just reply to any question(s) as you feel so inclined.
1. For those folks who believe that property in, say, America was rightly originally acquired by individuals independent of the state. Can you point to a specific piece of land, owned by some actual person now, that was acquired outside of the authority of some state (i.e., where the title was not granted by the British government, a colonial government, the Spanish or Mexican government, etc.)? On your telling, what’s the actual history that led from an act of justified individual acquisition to today’s legal title for that specific piece of land?
2. A few months ago, Shell found 100 million barrels of oil in the deep water off the coast of Louisiana. Who do you think originally owned that oil? My view is that the American people (i.e., the citizens of the US) originally owned that the oil. Cutting through the details, under laws authorized by Congress—by officials who are at least minimally accountable to the people—the right to develop that oil was sold to Shell, and the proceeds from that sale went into the US public treasury. If you don’t think that—if you don’t think that the people originally owned the oil–then what’s your view of the correct story here? Did Shell own all the oil because they found it first? Or did the US government own the oil—but completely independently of the American people? In your view, was the US government’s sale of the rights to that deep-sea oil legitimate at all?
3. Have a look at this Executive Order from the US government, issued during Libya’s Arab Spring:
https://www.treasury.gov/resource-center/sanctions/Programs/Documents/libya2_gl5.pdf
This is the US government saying that Americans can legally buy Libya’s oil from Libya’s rebels—so long as no money goes to Libya’s government (Gaddafi), i.e., so long as no money goes to the government of the state we recognized diplomatically. This shows that the US, as a sovereign state, can decide its own rule for its own citizens about who it’s legal to buy a country’s oil from—from the government, from someone else, or from no one.
So, in your view, what is the justification for the US deciding (as it now does) that it will buy oil from, e.g., the Saudi regime (or from the Putin regime)? Under what principle does the US declare that this regime should have the right to sell the oil of that country to Americans? The Saudi regime says that its rights over Saudi oil come from the Holy Quran and the sayings of the Prophet—is this the principle that the US is using to justify its decision that it’s legal for Americans to buy Saudi oil from that regime? If not, then what?
My view, as you know, is that the US is using the principle of Might Makes Right to locate the Saudi regime as the vendor of Saudi Arabian oil. But Might Makes Right is a straightforward violation of market principles: on basic market principles bare coercion violates property rights, it can’t create property rights. So the US is choosing a principle that violates basic market principles (as is every other importing country). By market principles, the Saudi regime has no more right to sell us oil than they have a right to sell us slaves: in both cases, they lack the right to sell that to us. That’s why the US is importing stolen oil when it imports Saudi oil—we’re buying from someone who, by market principles, doesn’t have the right to sell. Not buying oil from the Saudis is actually the policy that respects the most fundamental principle of markets. Making it legal to buy from them only legitimizes their power to steal.
I understand that this isn’t everyone’s view—but if it’s not, what’s the alternative perspective? Under what market-based principle is the US declaring that the Saudi regime should have the right to sell that country’s oil to Americans?
GP
May 20 2016 at 9:06pm
Wenar’s analogy with slavery and stealing is compelling.
The problem I see is this: ‘coal divestment’ is advocated by many due to climate change, nearly all environmental NGO’s and Green Parties despise nuclear power, many conservationists are ambivalent about hydropower, anti-frackers are against gas. On moral grounds, arguably, the oil case is the most powerful, but where is our energy to come from?
Warren
May 20 2016 at 10:48pm
1) Jefferson never said that our country is owned by the people. It is not. He talked about our government being elected by and responsible to our people. That is very different.
2) Our country is not a socialist country – it does not own the resources in, under, or above the ground.
3) Our citizens own the ground and the resources incident to it. Each citizen individually or jointly owns property privately, and it’s incident resources.
4) The legal industry concluded early in the a8the century that “you can not legislate morality”. Nor do we want to. We are a FREE country.
5) The resource producers obtain the original resources from individual private owners. And it should stay that way. If Wenar wants consumers to behave differently than they do, he can attempt to influence their buying habits.
Virginia
May 21 2016 at 12:29am
Warren,
The question is how to conduct ourselves toward oil-selling governments that are not elected by and responsible to their people.
Wouldn’t Jefferson want citizens of other nations to have a fighting chance of setting up representative governments? Our current oil-buying habits stack the deck against that outcome.
Yes! That’s the beauty part. We benefit greatly in the US because our government is accountable to us, and hence we’ve been able to demand and defend our property rights.
Okay. We don’t actually need a moral argument. Even from a purely self-interested perspective, our current oil procurement process is – all things considered – too costly in terms of defense dollars. It also taints our reputation; the US is seen as a low-down, dirty oil pimp, and that drives jihadi recruitment. We can’t afford the status quo, and individuals can’t change it.
I agree that legislation ought not regulate individuals’ behavior. I’ll grant you that the federal government is overly involved in just about every aspect of our lives. Yet my rights end where your nose begins.
By buying the oil that props up a dictator, we’re collectively bashing the people of Equatorial Guinea in the nose. (Best believe they’re going to hit back, too, once the radicalization sets in.) So a matter of national security, how can the US gov’t stand aside when it could stop the punches?
In the US, yes. With dictators who take power and oil by force, not even close.
Wenar’s proposal is to do business with places that operate more closely to your ideal, so that in the long run, our world will have MORE places resembling your ideal and FEWER disenfranchised people whose governments prevent them from owning and benefiting from resources.
Virginia
May 21 2016 at 12:37am
I get the feeling many of my fellow commenters would disapprove of the colonial boycott of British goods…
jw
May 21 2016 at 6:02pm
Prof. Wenar,
First of all, thank you for contributing to the comments, it is rare that a guest does and it is appreciated.
1. I am surprised by this question. Property rights have been generally established in the US for quite some time (although they are continually under attack – see Kelo). It is not just the implied might makes right question of the US vs native Americans, who owns a random plot in London? The Saxons? Romans? Celts? The House of Saud conquered Arabia and owns the land and resources under their law.
Saddam invaded Kuwait and if the US had not prevented it, Kuwait would still be Saddam’s “25th state”.
Mao took over mainland China and we boycotted them for decades but now we have accepted that might makes right reality as well.
2. Not unlike the Saudis, the US government claimed all offshore drilling rights by declaration. Shell legally leased exploratory rights. I’m sure their contract with the government spelled out their developmental rights in detail IF they found anything (as usual, one has to keep in mind the unseen costs of failed explorations). As compensation for this risk, they will develop the tract and then “prop up” our government by paying billions of dollars in royalties and then billions more in taxes.
An aside, since the Saudis do not agree with US morality, should they boycott us?
3. Again, is economic warfare any more moral than military warfare? And is it moral to take money out of the pockets of Americans least able to afford higher gas prices in the extremely unlikely event that a boycott will affect the Saudis?
Feel free to believe what you like and personally act on those beliefs or influence others with your book. More power to you if you succeed with a popular boycott. There is NO reason to involve the government on this, in fact, going to the government demonstrates that there is not a groundswell of support.
Warren,
4. There is no such agreement or statute, we legislate morality all of the time. Murder and rape are moral judgements with vastly different cultural norms. Just look at the Saudis again or even ISIS. In my view they are reprehensible, but in their view they are acting upon their highest moral calling.
RMR
May 22 2016 at 10:29am
I struggle with the issue of the origin of property rights. It all goes back to “might makes right” in the end, does it not? How to the Europeans who settled North America come to have legitimate claim to the land and resources here?
In the course of history, there was a time when an unpopulated land became populated. And in most places, there have been many times since when that land has changed possession as a result of the use of force and/or coercion. Where does legitimate possession originate? How far back must we go before it becomes OK to ignore the means by which control of the land was established?
Greg G
May 23 2016 at 9:19am
Professor Wenar,
You ask great questions above about what establishes ownership rights and what constitutes a free market?
But the thing that makes them great questions is that they expose the fact that we don’t have good answers.
I think we give so much weight to existing ownership arrangements simply because loss aversion means that, if we didn’t, there would be a lot more violence. So that (reasonably good) motive causes people to tie themselves up in knots making theories that give a lot of weight to existing arrangements which have a lot to do with who has the most brute power.
And of course, the “free” market is a theoretical construct like the perfectly straight line or the frictionless plane.
Mark Crankshaw
May 23 2016 at 10:36am
Thank you for your questions.
No we can not, and for good reason. The State, as I see it, is merely a shake-down operation conducted, through a perpetual threat of violence, at the behest of a ruling oligarchy that controls a particular State. This oligarchy invariably believes that it owns all the persons and property within their jurisdiction. All States follow this basic extortionist pattern, with no exceptions. Land title through the so-called ‘authority’ of the State is conditional on perpetual rent payments being made to that State. Another name for such action would be extortion and racketeering (what the State would deem the actions of private competitors–i.e., organized crime– when they attempt to take a ‘piece of the action’). There is nothing about the State that isn’t ‘might-makes-right’. I’m afraid, in my view, you overstate the ‘accountability’ of the State to its subjects by several orders of magnitude.
From this extortionist model of the State it is quite clear that the oligarchy that controls the US State believe that they own the oil. The 300+ million people that are mere subjects of the US oligarchy do not own the oil, they never have and they never will. The subjects of the Saudi royal crown hves no less say than the subjects to the US government as to how the ruling class will behave with respect to profiting from resource extraction. You seem to believe that there is a great contrast there–I see none.
Of course the proceeds of the sale of this oil was credited to the US Treasury, where it will be dispensed by the political class to serve whatever interests or whims the oligarchy chooses to pursue. Is this ‘legitimate’? Well, who exactly is going to stop them from doing so? The subjected ‘people’? Nope, too distracted, too divided in their interests, too powerless. It would be easier to herd 300 million cats. Might makes right is how all governments always roll.
The political oligarchy that controls the US government does indeed ‘make it’s own rules’ regarding what its’ citizens can or cannot do. The ‘minimal’ accountability that would have often referred to is precise that: quite minimal. Your friend on the Left, Noam Chomsky, can fill you in on the details. Accountability can easily be by-passed and consent manufactured. This oligarchy considers its’ subjects as mere cattle to politically exploit. Whatever maximizes their political control and maximizes their financial, social and personal interests will be ruthlessly pursued come what may. Consistent philosophical considerations will not be pursued. You can see this with Saudi Arabia, China and Russia– how do you fail to see it elsewhere when it is so overwhelmingly obvious?
And the US government and the oligarchy that controls it cares because…? The US government has a long a checkered history of straightforwardly violating ‘market principles’ when it feels that such a violation is deemed necessary (or merely convenient). All governments of every-type will violate rights and principles of any kind if that be deemed in its short-term interest. They operate solely amorally on a “Might-makes-Right” basis. What I find amusing about Chomsky and yourself is the belief that ‘the people’ (whoever they are) would act any differently. Human beings, as species, have and will continue to violate any and all principles if the reward is deemed greater than the cost of doing so.
In the “Might-Makes-Right” world we actually inhabit, all that matters is that the Saudis have a legally recognized right to sell. Legally recognized by the same political extortion rackets that operate on the same moral plane as the Saudis. The US government ‘appropriated’ their authority the same way the Saudis did– solely through war, conquest, and by possessing enough military might sufficient to subject and control their subjects and sufficient to repel the predation of other States.
I’d turn that one around: under what political principle would the US government have to block Saudi oil from [their] American [subjects]? Only one: you got it, might-makes-right.
Hunter Hustus
May 23 2016 at 9:06pm
I’ve listened to every EconTalk episode and this was not only my least favorite (one has to be least), but the first time I was dismayed. In my opinion, the guest employed undefined terms (e.g., natural resources) unfit analogies (e.g., slavery), and trafficked in policy hand-waving. I was dismayed that the guest was not held to a higher standard of argument. It seems he was pushing on an open door and a strange door at that. I think Russ has shown more skepticism with free trade advocates, which I applaud him for to address confirmation bias, than with this top-down advocate for policies to fix poorly defined problems.
Scott V
May 24 2016 at 8:35pm
Here is how I would change the authors argument to make it more convincing to me and hopefully to others of a classical liberal persuasion.
1. It is legitimate to push government to reform that use violence to oppress their populations.
2. Economic boycotts can be effective tools to encourage governments to reform, but general boycotts also tend to impoverish the very population they are intended to help. Extractive industries are an exception because they easily become monopolies of the state.
3. Technology has increased the supply of oil and reduced the cost of a boycott.
4. Consequently we should be willing to pay higher energy prices to encourage government reform.
5. This policy would be a reversal of the US policy of supporting repressive governments to assure global oil supply. It would better align US government policies with its rhetoric and with the beliefs of its people. It would also reduce the perceived need for massive military spending.
I think this captures the authors main arguments without falling down the rabbit hole of who owns the oil and gas within a country. My concerns about this policy now involve the political process. Governments will face huge pressures to shape these policies to benefit local oil producers at the expense of consumers and to punish countries that take political actions they disagree with.
Physiocrat
May 25 2016 at 4:52am
A major issue with Wenar’s argument which hasn’t been raised is this- the Minarchist Dictatorship.
In principle, it is possible that a dictator arises who turns a country, say Kuwait, into essentially minarchist society with two exceptions: 1. He pays himself a salary of £5m p.a. from tax revenue mainly from oil exports. 2. Any actual attempts (rallies calling him to go to are tolerated) remove him from power will result in the dissidents being made an offer they can’t refuse.
Under your proposal of minimal political accountability, this Kuwaiti state would fail so we should ban their oil exports. However from a free market position, this is absurd since it is the free-est country on the planet despite no accountability to the people.
Therefore, the minimal political accountability criterion needs to be scrapped. Thus a more general, consequentialist criteria is practical. So in the case of Gaddafi, far from a great guy, if we were to ban his oil exports to essentially become more democratic would this lead to an improved situation? From the evidence, democracy in North African and Middle Eastern countries leads to a worse outcome than before- note Egypt. Also from all reports Libya is a far worse place now than under Gaddafi although you could claim that if it was a peaceful economic pressure rather than bombs that wouldn’t be the case.
Finally, if the USA/UK want to remove their reliance on oil they need to lift the restrictions on domestic oil extraction. Also allow coal (still the best energy generating source per £) to be used in power stations as it will reduce energy costs thereby making electric cars more viable.
Robert Swan
May 25 2016 at 9:03pm
Must be a very well written book; I got the impression that Russ found his live interview with the author rather less compelling than the book. Like other commenters, I thought Wenar’s reasoning was pretty weak.
As many have pointed out, it’s easy to give examples of all four permutations of well/poorly run and do/don’t sell oil. Seems to me that looking at administrations through the lens of oil just distorts the view.
He failed to address the problem of scale. How a nation behaves is an emergent thing — depending on the behaviour of the people in power, yes, but also depending on the people not in power, on how other nations react to them and, no doubt, umpteen other things. An individual, even the central dictator himself, has about as much effect on the nation’s behaviour as an individual cell has on the behavior of the whole human it’s part of.
Many earlier commenters have pointed out the plain truth that “might makes right” IS the policy — everywhere. We in the “civilised” societies don’t routinely see our police in jackboots. They give us a chance to comply quietly with their commands. But the jackboots are there in the background for those who don’t.
I found it interesting to muse over what made the forceful state adopt this gentle facade. I think it might have evolved as the value of individuals grew with specialisation. To the state, a peasant was a peasant and it didn’t matter that they might have had the makings of a Leonardo, a Shakespeare, an Einstein. Later, when blacksmiths and wheelwrights and stonemasons had developed their skills and formed guilds, it turned out that compulsion was no longer the best way for the state to get the most out of these people. The “all peasants are equal” creed was revised, and has continued its retreat to today.
So the Baptist reason for today’s gentle treatment of citizens, that it is “fair and just”, masks the bootlegger truth that treating them more gently is, for now, the best way for the state structures to remain unthreatened.
Might be that Mark Crankshaw winning me over!
Mr. Econotarian
May 27 2016 at 4:59pm
The author misses a key item, and that is that trade helps to cement relationships between countries (for example, see the Cato report “Trading Tyranny for Freedom: How Open Markets Till the Soil for Democracy”).
The US traded with the USSR, and there was massive political change. The US did not trade with Cuba or North Korea, and there was very little political change.
Saudi Arabia might not be the country that we want it to be. But if there were not 100,000 westerners working there, if we were not trading with them, it might be even worse!
BTW, there has been some political reform in Saudi Arabia (such as the Saudi Municipal elections that started in 2005). But indeed, it is not just a government, but a culture that needs to change, and given the horrifically violent failures of democracy in that neighborhood, maybe slow change is the best kind.
Victoria
May 29 2016 at 4:32pm
Leif and Russ, two problems I have yet to see you address from the comments are:
1. Trade embargoes don’t lead to political or economic liberalization, as Mr. Econotarian notes. Observe Cuba, North Korea, etc.
2. All states pimp and predate upon their people, as jw says. If not buying goods sold by such states should be a principle, we won’t be trading much. Leif’s suggestion is that we use the “minimally accountable” criterion so that there is still a long list of acceptable trading partners; but can we all agree there is no principle in that approach, just pragmatism and choosing to draw the line “somewhere”?
Mr. Econotarian
May 31 2016 at 5:54pm
I would like to add…
“The curious task of Foreign Relations is to demonstrate to men how little they really know about what they imagine that they can influence in foreign countries.”
Brian
Jun 2 2016 at 9:36pm
It was nice that Leif Wenar replied but I am disappointed he completely ignored the most important argument, oil is mostly fungible (there are some additional transportation cost). It does not matter if we agree with every single one of his premises, the funigblity of oil pretty much erases almost any policy we could have that would help decrease these countries economic taxing power.
So even assuming we agree with the problem I don’t see any solutions other than ones that only might slightly decrease a nations revenues. The exception are embargo’s like the one on Iran that pretty much all the power players agreed to. The embargo really reduced the money Iran had to buy the people off and limited their ability to project power outside their borders. However their is a direct cost related to it.
So unless you plan on using force (I believe the Brits did it with the slave trade) there really is going to be limited solutions.
Ironist
Jun 13 2016 at 12:36pm
Russ, I appreciated your pushback against Wenar’s absurd calls for government-led trade embargos on “evil” nations. Your attempts to suggest that the actual “political” results would no doubt negate the theoretical moral benefits. Your example of a trade embargo against nations where goods are produced with workers receiving less than the US minimum wage, for instance, was on the money. One thing you did seem to buy into, though, was the idea that “the people” own the natural resources of any nation. In the US, we have a better idea – the landowner owns the resources on or under the land. As you say, there is no “we.” Otherwise, the government could decide to whom we sell any product produced in the territory of the US; I’d trust the workings a free economy anytime before I’d trust the US government to make “moral” decisions on my behalf.
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