The OPEC cartel is legal. Its thirteen members, major oil exporters all, agree to production limits about twice a year and post them on www.opec.org. These limits strongly affect the price of oil, and a $10-a-barrel price increase costs Americans an extra $70 billion a year. That’s $40 billion extra profit for foreign oil and $30 billion for domestic oil. Forty billion dollars is a thousand times more than President George W. Bush spent on his clean-coal program in its first five years.
The Organization of Petroleum Exporting Countries, OPEC, is legal, but isn’t there something we can do about it? As the 2001 recession got rolling, a reporter asked President Bush, “OPEC is about to cut production 1 million barrels a day [to raise the price]. What is that going to do to our struggling economy?” Bush replied,
It is very important for there to be stability in a marketplace. I read some comments from the OPEC ministers who said this was just a matter to make sure the market remains stable and predictable [emphasis added].
Of course, the OPEC ministers always say they are just “stabilizing” the price. But for some reason, they usually stabilize the price up, not down. And by the way, Mr. President, in the United States, it is illegal for a cartel to “stabilize” prices. Instead, we prefer what we call free competition.
Today, the U.S. government has no plan to challenge OPEC and apparently no serious desire to do so. Some people say the oil-consuming nations just can’t agree on things, so we may as well let OPEC take us to the cleaners. Others, who know that cartels are not free-market institutions, think it would be wrong for us to organize a cartel—even though the OPEC cartel is eating our lunch. Surprisingly often, liberals take this point of view.
But America was not always like this. At one time, organizing a consumers’ cartel to challenge OPEC was the highest priority of the U.S. government. It was only a partial success, but we can do better.
Could a consumers’ cartel really work?
This book says it can. We can fix the climate and charge it to OPEC. To back up this claim, I must show that cutting the demand for oil will bring down the world price of oil—significantly. This is not as easy as it should be, because essentially no research is being done on designing a consumers’ cartel.
But the estimates I need to show the power of a cartel are, in fact, buried in many official reports, and at the end of this chapter I expose several of these to the light of day. They show that the action of a consumers’ cartel would have the required impact and perhaps much more.
Economists make such numerical estimates, so it would be reassuring to balance these numbers against the opinions of experts—preferably ones with deep roots in the world oil market. For such confirming testimony I turn to OPEC itself. Of course, they argue against a consumers’ cartel, but in the process they tell us just what we need to know.
Although history provides useful lessons on how to organize a consumers’ cartel, this chapter cannot answer the question of whether we can do better this time around. That answer must await Part 4 of this book. That will show that global warming has fundamentally changed the political climate. In fact, the Kyoto Protocol is a weak consumers’ cartel, and success with the climate will require a stronger one. But first, we need to learn something about how cartels work and the history of America’s effort to form one.
