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Economic Nonsense and Keystone XL

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With this week’s vote and debate on whether or not to proceed with building the Keystone XL pipeline, most of the arguments have centered around economic claims, in particular the pipeline’s impact on oil prices and jobs. Personally, my support for the pipeline has nothing to do with either of these things. It stems from the fact that, in a free society, owners of property have a right to do whatever they want with that property, including run a pipeline across it. In this case it so happens that following this principal will mean more commerce and more trade which will, happily, be good for the economy. But this is an aside.  

A recent post on Reason’s Hit & Run blog by Scott Shackford makes a couple of interesting points. The first one is fleshed out pretty well by Shackford, and I will not dwell on it here. This is the claim by some foes of the pipeline that most of the jobs that will be created are temporary. The point isn’t that this claim is false but that, in some sense, as an argument that would advance the cause of the pipeline’s opponents, it is too true. As Shackford notes, this is true of all infrastructure projects. Most of the jobs are in construction, and once the bridge, road, railroad, etc, is constructed the vast majority of the jobs go away. This is particularly true of the eco-left’s favorite infrastructure projects, the building of wind and solar power plants. As Shackford points out:

There is now a talking point that KeystoneXL maybe isn’t so great because it actually doesn’t produce a bunch of jobs. The job numbers people are tossing about are only temporary. This is technically true, but the absurdity comes from these same folks pushing other infrastructure and energy projects that have the same fundamental "flaw" (scare quotes because it’s not a flaw). Most of the jobs touted by these projects are only temporary. Fixing roads and bridges, something Obama keeps hammering about? Those are all temporary jobs. The "homegrown energy" projects Obama mentions? Mostly temporary jobs!

The second point probably needs a little more explanation than Shackford provides. The real economic absurdity relates to the following statement made by Obama:

Understand what this project is: It is providing the ability of Canada to pump their oil, send it through our land [As far as I know Obama owns none of the land], down to the Gulf, where it will be sold everywhere else. It doesn’t have an impact on US gas prices. (emphasis added)

Now it is not clear whether the president is once again trying to "Gruber" ("To ‘gruber‘ is to lie to someone because you think they’re too dumb to know any different.") the American people by taking advantage of what he perceives to be their ignorance of economics or if it is he who is ignorant. My suspicion is that it is the former. I do think Obama is a smart man and does understand the basic workings of supply and demand.

The idea that the there will be no benefit to American consumers because the oil will be sold elsewhere is downright silly. The price of oil is set in world markets, no matter who a particular barrel of oil is sold to. Any increase in the supply of oil that enters market exchange anywhere will depress the price of oil everywhere. If the oil from Canada is sold in the US it will mean that American refiners, who will be purchasing the oil, will have less demand for oil produced somewhere else, putting downward pressure on global oil prices. If the Canadian oil instead enters world markets and simply goes to the highest bidder, then the increased global supply will also put downward pressure on oil prices, redounding to the benefit of American consumers. Of course the president knows this and, as he did when selling Obamacare, is trying to pull the wool over the eyes of an American public that is as much in favor of the pipeline as they were against the Affordable Care Act.

As an aside, the president is right in one respect. There will probably be little difference in oil and gasoline prices if he allows the pipeline to be built, but the reason for that is quite different from the reason he gives. The fact of the matter is that Canada is going to sell that oil no matter what. This means that the oil will still enter world markets and Americans will still benefit. The question is will American citizens enjoy the economic benefits of being part of that production and distribution process? If the pipeline is allowed, the answer will be yes, and if it isn’t, the answer will be no.

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In June 2019 Roy Cordato retired from his full time position as Senior Economist and Resident Scholar at the John Locke Foundation and currently holds the position of Senior Economist Emeritus at the Foundation. From January 2001 to March 2017,… ...

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