The title of an op-ed published in The Wall Street Journal claims: “A Flex-Fuel Mandate Is Pro-Market.” The ethanol industry has made this argument time and time again, that somehow forcing private corporations to adjust their products in a way that will pad the wallets of certain energy sectors is somehow pro-market. Unsurprisingly, his argument relies on the notion that OPEC controls significant portions of oil output, so thus, the U.S. government ought to intervene to level the playing field:
The price of oil is set by a foreign cartel. The Organization of Petroleum Exporting Countries (OPEC) owns almost 80% of global oil reserves yet produces only 36% of daily global supply. This dominant position enables OPEC to raise or lower their production to maintain the global supply-demand relationship that suits their interest. If U.S. oil companies produce more, OPEC will produce less.
Let’s open our market to good old American competition. Friedrich Hayek and Milton Friedman stressed that the foremost economic duty of government is to eliminate cartel pricing. Bills are now pending in both houses of the Congress (HR 1687 and S1603) that seek to do exactly that by requiring car makers to enable fuel competition in their own product lines—adding flex-fuel, all electric, hybrid electric, or any other way auto makers choose to implement the law.
Again, cartel pricing implies that consumers are getting hosed because the cartel has an absolute monopoly over the provision of a good where there are no substitutes. This is a clear example of where this logic does not apply, because as the op-ed notes, there are plenty of alternatives to oil that vehicles can run on but they are not cost competitive.
Furthermore, a monopoly tends to imply that the price is set higher than it would be in a competitive marketplace. A higher price of oil makes the alternative fuels more competitive, so it can’t really be used as an argument to imply cost savings (or silly fears of sending money overseas) from new fuel sources, as they’re almost certainly still more expensive.