General Economic Policy

The Politics of “Energy Independence”

Oil prices are in the headlines at the moment. This may not a big surprise given that gasoline is above four dollars a gallon in many parts of the country. (Although it could be worse, we could be in Germany.)

Economists like James Hamilton and Olivier Blanchard and Jordi Gali have looked into how oil prices affect the economy. But oil is also interesting because it matters to politics.

Given the panic at the pump, we thought it might be interesting to highlight some work that Francisco Flores-Macias at LCM Commodities and I did recently. Paco and I were interested in finding out what makes legislators votes for or against measures that support the domestic oil industry. (You can download the working paper version here.)

In the past week, for example, the Senate rejected (51 – 47) a proposal to eliminate subsidies for the major companies producing oil in the United States. President Obama has also argued that oil companies are hitting Americans in two ways: with high prices at the pump and by taking large tax cuts they don’t need. (Incidentally, the U.S allocates over two and a half billion dollars a year to promote petroleum production.)

The question is why. We could think of a few explanations. It’s possible, for example, that “Big Oil” is behind U.S. policies, as is often suggested. There are a lot of jobs at stake in the domestic energy industry, which is also likely to matter.

But we also wanted to know if ideas mattered. In particular, we wondered whether more hawkish senators, we thought, might be prone to analyze the international environment in terms of conflict and would be more skeptical about relying on the international market for the supply of a strategic resource like oil as a result. Dovish senators, in contrast, would see less of a problem in letting the global market continue to supply a large amount of the country’s petroleum needs.

In fact, we did find a fairly robust association between oil production in the state with voting in favor of domestic oil, suggesting that the jobs argument holds water. But we also found that if jobs matter, so do ideas. As it turns out, the “hawkishness” variable affected vote choice even after controlling for a broad range of confounding factors, including party identification and the state’s oil production levels.

In yesterday’s Energy Committee hearing Senator Joe Manchin (D-WV) lamented that: “We are held captive by global markets that we have no control over.” He then voted for eliminating subsidies for the oil companies, yet our analysis suggests that the votes with similar sentiments to him may be up for grabs. Skepticism about global markets, after all, seems to have been what is needed to tilt Democratic senators from non-oil producing states towards voting for subsidies for the oil industry in the past.

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