The Economics and Politics of the United States Oil Industry, 1920-1990: Profits, Populism, and Petroleum.

True enough. But this was a small subset of the qualitative insights drawn from economic analyses during the period. Generally, the period since the early 70s was an awkward period in the U.S. relationship to the world market. The initial problem was perceived as dependence, which had led to high prices and massive redistribution of wealth both domestically and internationally. The policy remedies initially proposed were attempts to reverse these effects, with a complicated domestic price control and allocation scheme designed to insulate the domestic market by defeating the effects of international market changes. Economic analysis played a key role in exposing the fundamental flaws in this failed paradigm, which since the late 70s has been progressively replaced by a systematic reliance on markets to adapt to inevitable increases in oil import dependence. In such a new paradigm, prices are not the problem, but rather the key signal for allocation of resources. When high, they will induce conservation, new supply, and reduced dependence, precisely what was called for during the 70s, but systematically defeated by misguided policies. But when low, they will reduce conservation, trim high cost supplies, and increase dependence. This was the key lesson of the 70s--that despite the shortcomings of oil markets (concentration, cartelization, externalities, redistribution effects), the guidance provided by the market mechanism is more reliable than government controls (however well meaning) in managing interdependence with the external world.

The failure to adequately capture this central theme leaves Isser with a seriously flawed premise that unfortunately is of key importance to the relevance of the remainder of the book. Chapter 5 traces the development of public opinion toward energy policies through the 70s. Chapter 6 examines Congressional voting on a selected number of key energy bills from the late 30s through the 70s. Chapter 7 presents a theoretical overview of interest group rent seeking behavior, and a detailed (but highly uneven) chronological account of energy policy formation from the 40s through the early 90s. The weak thread integrating this lengthy and rambling account with the earlier chapters is the contrast between the government willingness to protect the domestic industry with import controls in the 50s and its unwillingness to do so in the 80s. In a very confusing final chapter, Isser argues that "interest group, public choice, economic regulation, and rent seeking theories were all found to be inadequate explanations of the structure of oil policies adopted during the past few decades." Why, then, he asks, is the oil industry unable to implement an oil import fee? He casually dismisses the notion that industry might not want such a fee, and asserts that "certainly the national security argument for limitation of oil imports is far more legitimate in the 1980s than in the 1950s." The alternative explanation he offers is that:

"The inability of party leaders to discipline their membership makes it

impossible to pass unpopular legislation even with Presidential

support ... Energy policies which depend on price signals to encourage

conservation or to limit dependence on foreign oil are unacceptable,

since the problem is price ... The political immaturity of the American

people presents a difficult dilemma as pursuit of good policy is often

bad politics."

Despite the obvious effort that went into preparing this book, and the meticulous attention to detail apparent in parts of it, Isser has totally missed the central theme of oil policy development in the U.S. over the past several decades, namely the increasingly successful reliance on market signals to adapt to a world of increasing international interdependence. His narrow and repeated focus on the need for "higher" energy prices to encourage conservation, independent of market conditions, betrays a failure to grasp that key theme. Moreover, the simplistic nature of his conclusion, and its weak relevance to the detailed body of the book, is disappointing to the reader.

With editing, this book could have been assembled successfully as an informative and valuable set of essays, each touching on the subject of the development of U.S. energy policy. As it stands, a vain attempt to integrate those essays with a weak thread of U.S. import policy has provided a whole substantially less than the sum of its parts. Edward D. Porter American Petroleum Institute Washington, D.C.