Sure, Let's Drill Offshore -- After We Nationalize Oil

[Brad Kenney]

Call it the "One Point Plan for a Balanced Budget."

Just something that popped into my head while reading Mr. Flat Earth's column this morning. Turns out I'm not the first person to have thought of this, and it's even been suggested by members of Congress (although that's never an indication of an idea's economic strength, as evidenced by John McCain's gas tax holiday farce-a-thon or the current crop of lies from this administration and their Congressional cronies that offshore oil drilling will bring down gas prices in the near or long term).

It is somewhat disturbing to note that the very countries that have nationalized resources are among our biggest, 21st century global market competitors.

However, to an American born and raised on the principles of free-marketeering, reading about this type of move by any government anywhere always leaves an ugly aftertaste. As evidence, here's an *interesting* passage from a Kommersant article on Russia's moves along these lines, both for the parallels to the rampant anti-corporate populism we're seeing rear its head these days, as well as a certain nostalgia brought about by seeing an alarmist article crowing about puny 2007 price levels:

Revenge of the State

It so happened that at precisely this moment in time fuel prices rose to a level that, in the eyes of both the state and society, the oil industry began to be super-profitable (In 1998 oil cost less than $9 a barrel and the average price for 2003 was $26 per barrel, and by the end of this year is predicted to surpass $60 a barrel.)

By the second half of 2003 three tendencies had merged together: a desire by the officials to strengthen the state’s role in the oil industry, resentment towards Yukos and societal confidence in the justice of nationalizing profitable industries. A radical decision was made: to return Yukos to state property. The means was found immediately: unpaid taxes. Formally, Yukos had been using tax minimization as allowed by current law. And they were not alone in doing so. The judges had to apply maximum flexibility and refinement in order to legally validate the political decision.

And we all know what happened to Yukos, and its leadership (i.e., chained to a bed in rapidly declining health in an old-style Russian prison somewhere cold and lonely).

And to be sure, there are many, many arguments against such a move, as it would also nationalize the debt of these huge firms, would cripple investor faith in U.S. industry, among many other negative externalities.

However, the fact that resource nationalization will never happen here didn't make it any less interesting of an economics thought experiment for a Sunday morning over coffee.

And to take it one step further, maybe after we were done raking in all that cash, we could start our own sovereign wealth fund and invest in Beijing real estate!