One good argument against the Keystone pipeline and a bad one for it

by Eric Shierman

Filled with charity, we Americans voluntarily give to those in need at a higher rate than any other society. I’m feeling charitable, and progressives find themselves more than a little needy when it comes to arguments against the Keystone pipeline so I would like to supply them with one: property rights. The Keystone pipeline leans heavily on the Kelo v. City of New London expansion of eminent domain to support private economic development. The Sierra Club and the Environmental Resources Defense Council are throwing their vast legal resources in the defense of a Texas farmer that is facing the condemnation of her family’s property to force the sale of an easement to TransCanada. If these environmental groups were able to delay the Keystone pipeline by overturning Kelo, that would be change I can believe in.

Last week I pointed out what a no-brainer the Keystone pipeline is on its merits as a fountain of wealth and job creation with negligible negative externalities; not once did I mention the price of gas. The pursuit of the “right” price of any commodity should not be the aim of policy makers. So I cringe when I hear this touted as an argument.

Price stability for the macroeconomy should concern policymakers very much, but I cannot help but remember that most Republicans were happy when the Fed was devaluing the dollar ten years ago. Only now when the Fed does it for a Democratic president do we hear much outcry. It is important to note that domestic demand for gas far outstripped our growth in domestic supply in the 1990s yet prices remained rather stable until the Fed began its bold countercyclical moves in 1998 for the collapse of LTCM, in 1999 for that irrational fear of the Y2K bug, and every two years that followed another rational for maintaining a loose monetary policy always popped up. The behavior of traders of oil as a commodity and traders of the dollar which is also a commodity has been determined by our monetary policy. Its affect on the long-term price of petroleum products like gasoline has been predictable:

gasoline 1

Oil is and will remain a valuable global commodity. Even under a more sound monetary policy, there are no guarantees its price will not grow faster than inflation. No one has a human right to low gas prices. When Newt Gingrich panders to southern voters who feel entitled to $2.50 a gallon gas, he continues to reveal his Nixon-like disregard for free markets when the futile attempt to control them will buy him a vote. Perhaps this is why Newt seems to attract support from the buffoon wing of the Republican Party:

What do you suppose a President Gingrich would do upon the discovery that after having maxed out our domestic oil capacity, the price of gas at the pump did not budge because the producers of refined product exported it to meet demand abroad rather than depress prices at home? Perhaps he would take advice from the likes of Bill O’Reilly:

Perhaps Rush Limbaugh would chime in, calling the oil companies prostitutes. To prove it’s “looking out for you” I could see a Gingrich administration banning petroleum product exports. When this simply disincentivizes the exploitation of the very domestic production they were eager to authorize, I could see him reverting to price controls too.

Why beat a dead horse like Newt Gingrich? Though he was as much a loser at the beginning of this presidential primary as he was last Tuesday, he speaks for a constituency in the Republican Party that Nixon tried to cultivate with his southern strategy. I have twice been a delegate to the Oregon Republican Party’s state conventions, and I observed we have more than our fair share of these people in the Union State. These voters cheer applause lines that speak of a free enterprise system, and then equally cheer when private equity firms are denounced as “vulture capitalists.” These are the kind of people that show up to Tea Party rallies with signs that say “get your government hands off my Medicare!”

medicare

America desperately needs a strong GOP with a coherent philosophy of liberty. For many folks out there, I think it’s time to turn off the Fox News and crack open a few books. Start with John Stewart Mill’s On Liberty. Read Ludwig von Mises’ Human Action, and Friedrich Hayek’s The Constitution of Liberty (particularly his last chapter). Otherwise, I’m afraid we’ll continue to get the candidates we deserve.

Eric Shierman lives in southwest Portland and is the author of A Brief History of Political Cultural Change, and also writes for the The Oregonian’s My Oregon blog.

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  • Bob Clark

    Mr. Shierman is missing something in his argument here about increasing domestic oil supply and domestic oil price.  Certain regions like the U.S Midwest and on down to the Gulf coast states are already enjoying a price advantage of $10 per barrel or so in oil price and also gasoline price (relative to other Coastal states and world oil price as marked by Brent crude oil price); and this is because of expanding domestic oil supply in places like western North Dakota, plus expanding natural gas liquids production east of the Rockies.  But more importantly, and this is a crucial point Eric’s argument misses:  Presently, Saudi Arabia and OPEC are producing at near full oil capacity; whereas, between the mid-1980s and late 1990s, Saudi Arabia in particular set aside a large portion of their oil producing capability to maintain a targeted level of oil price globally.  In fact, rumor has it the Clinton Administration and Saudi Arabia had an unspoken agreement to increase oil prouction to moderate the effects of temporary supply disruptions.  So, monetary policy is probably not the biggest driver of oil price over the last decade.  In fact, to make such argument is to ignore the natural economic growth in Asia, driving world oil demand higher (soaking up the remaining spare OPEC oil capacity).  Admittedly, the correlation between oil price and monetary policy has picked up since the Great Recession (December 2007 and June 2009).  But this has more to do the recovery of demand for all goods in general.

    But with little spare oil capacity worldwide, growing North American oil production should have some moderating influence on domestic market oil price and gasoline price.  There is still some geographical oil price differences because of transportation costs and other factors.

    I would agree with Eric’s argument concerning property rights except for the fact Secretary of State Clinton has voiced support for the Keystone XL Pipeline for national security purposes which could be considered rightful cause for eminent domain.  What’s interesting is the eminent domain battle is in Texas, and yet this leg of the Keystone pipeline has approval from the federal government; and Obama has intimated TransCanada may reapply for the northern leg connecting to this link after this November’s election (this southern link is said by company to be proceeding).

  • Sprintman

     Superficially a pipeline built by private interests is the same as a shopping center where property rights are concerned. But the nation’s interest in better energy supplies is the deal maker. So a Texas land owner holding up an international energy source is a bit unrealistic. I must admit I am not sure what the best decision is here. I am sure the Sierra Club etc does not really care about the Texas farmer beyond their needs (for whatever reason) to stop an energy supply improvement project. And that private investors are planning on making money (which I cheer). Shopping centers are not a public good, a pipeline to help our nations energy supply is. I would equate this to a highway which is a public good private or state owned.

    • 3H

      If land is going to be condemned for the public good, then I think that the pipeline should be owned by the government and used for the benefit of the people.  Using eminent domain to enrich the private sector is a horrible idea.

      • Sprintman

        I would look at how the job could be done the most economically. The issue to me is if it is in the public good. As I said earlier a shopping center is not a public good while the keystone pipeline is. Don’t you think the people will benefit from the pipe line no matter who owns it? Or do you think public good to be income to the government? I would think individuals would have a better chance of individually getting money from a private enterprise effort as they could buy stock in the company(s) that are building and operating the pipeline. If it is owned by the government I would bet I would never see a check from said government.

        • valley person

           The argument that the town in question made is that the shopping center was a public good because it would increase tax revenues that would support public facilities and services. If anything, they probably had a stronger argument than a pipeline in that regard. And the Supreme Court agreed with them.

          The benefit of the pipeline to “The people” is indirect except for those who actually build or operate it. Yes, one could buy stock, but that only benefits the stock buyer, not “the people.”

          If it was owned by the government and they charged rent to the oil company, then the benefits would be broadly shared. Just as in Alaska where they tax the oil companies at the well head and fund their state budget that way.

          • Sprintman

            So the public is really the government. And public good is income to the government. The benefit of the pipeline is indirect just like the indirect income from a shopping center. And the pipeline will return more in taxes. If the pipeline was in Alaska you might have a point, but in the lower 48 I am unaware of any similar arrangement.

          • valley person

             Wyoming also collect major royalties from oil and gas drilling. I imagine North Dakota is doing the same. Even Texas does to an extent.

            Yes, I think “public good” is generally the same is “the government,” since our government belongs to and provides services to all of us, unlike any particular business.

            The pipeline will probably return more in total taxes, but the Kelo development project was only for one small city, not a nation and multiple states. 

            I guess the point here is that eminent domain to benefit a private developer seems ok to conservatives if it is about using oil, but not if it is about gaining tax revenue. I think this says more about conservatives than it does about the appropriateness of using eminent domain for private sector projects.

        • 3H

          “Don’t you think the people will benefit from the pipe line no matter who owns it?
          Not necessarily, or not enough benefit to the public to justify taking property through eminent domain.  

          If the government owned the pipeline, Alaska aside, I think you’re right: you most likely wouldn’t see a check.  However, revenue from the pipeline could go to mitigate damage to the environment.. or spent on other public programs.   

          This is not to say that I think the government should be involved.  I think the Kelo decision was a bad one.  Eminent domain, in my opinion, should be used sparingly, and when used, should be for a project that is demonstrably for the public good.  I don’t think it should be used to transfer property from one private party to another.   

  • valley person

    Interesting piece Eric.  Keep this up and Catalyst heads will start exploding.

    There are good environmental impact arguments against he Keystone pipeline, or any pipeline for that matter. You can’t build a project like that without having impacts. But ultimately these will be seen as reasonable tradeoffs, and the Obama Administration will approve it. Once approved and built, the impact on “jobs” and gasoline prices will be next to nil however. But personally I’d rather get oil from Canada than the Middle East.

    I wouldn’t so easily dismiss the “vulture capitalism” arguments. There is a difference between investing in a business to create or improve a product or service, and raiding a companies assets to dismantle it and profit from the sale of the parts. Romney’s company did both, and it is fair to call attention to the latter.

    • Anonymous

       Holy Cow, I actually agree with Some of what VP is saying here..  I would add though that Oil from Canada is going to the Gulf Coast as we speak…. How? By Tanker truck and Rail..  They also have an impact on the environment…  It might be interesting to check on who is profiting by keeping the Status Quo on Truck/Rail method…  It might be interesting to compare the impacts of Pipeline versus Truck/Rail and the volume limits…

  • HBguy

    Articles like this are why OC is more interesting than Blue Oregon or NWrepublican. I don’t think you’d see a BO contributor posting about why maintaining a Tier 1 PERS is anti-progressive and hurts the low income people that government is meant to serve. And if you did, I can only imagine the comments.

  • David Appell

    It is far from clear that the Keystone pipeline will lower US fuel prices, and there is good reason to think it will increase them. A 2009 report prepared for Transcanada predicts US fuel bills will rise $4B/yr with the pipeline, because it paves the way for higher exporting of Canadian oil, removing an oversupply in the US markets that has kept prices down: 

    “Existing markets for Canadian heavy crude, principally [the US Midwest], are currently oversupplied, resulting in price discounting for Canadian heavy crude oil,” concludes a 2009 analysis on behalf of TransCanada by Purvin & Gertz, Inc., an oil economics firm based in Houston. “Access to the [US Gulf Coast] via the Keystone XL Pipeline is expected to strengthen Canadian crude oil pricing in [the Midwest market] by removing this oversupply. This is expected to increase the price of heavy crude to the equivalent cost of imported crude.”Christian Science Monitor, 3/9/12http://is.gd/95Ie2e

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