I read an editorial today in the Wall Street Journal by James Woolsey, the former director of the CIA and now head of a consulting group on national security matters.  In it, he espoused a comprehensive government approach to eliminating our dependency on foreign oil.  He said, as has been said by countless other well intentioned experts, that with oil heading higher we need a huge new set of government incentives from nuclear to natural gas to wind to solar and the list goes on.  I know that you have all heard this before and maybe even thought, as I have, that it is a good idea.  It is, well, until you really think about it.

First, is there really a problem with foreign oil at all?  Or in other words, if it is so expensive, why haven't other technologies already replaced it?  I mean, wouldn't the free market, which constantly seeks no profits and potential, be already cashing in if there was really a problem of too much being charged?  Of course they would!  The reason that we don't have a landscape littered with windmills, solar farms, and nuclear power plants is that without government "incentives" meaning subsidies, all these forms of energy are MUCH less efficient than fossil fuels and MUCH more expensive.  It is as simple as that.  We use oil because it is the most bang for the buck, period.

As for the foreign element, without getting too much into the weeds of detail about how oil is purchased, suffice it to say that those that are worried about foreign suppliers just don't understand the business.  Oil is not bought from countries; it is bought on the world spot market.  It is a free exchange and the price is affected by supply, demand, and most relevant to us right now, the value of our currency.  Oil is over $80 and heading higher because we are debasing the dollar, not because the Arabs are holding us hostage.  Heck, it is just not in their interest to overcharge as to do that absent the market forces would mean that the free market would make alternatives more attractive and put them out of business.  So, they need to keep producing to keep prices as low as they can and keep their customers happy.  Think about it; can Wal Mart just arbitrarily raise prices without considering how much less they would sell, as the price drives customers away?   God, it makes me ill to read opinions of seemingly smart people who consistently get this whole thing so wrong!

So what should the government do?  Defend the currency and eliminate all regulation on domestic production of oil and gas.  That would make oil cheaper and gas the clean and nearly perfect power source that it already is.  No huge programs, no subsidies, no bureaucrats, lots of cheap energy.  Why don't we do it?  Politicians need to justify their existence and accumulate power.

It is as simple as that.