Minor Thoughts from me to you

Oil Sanctions and the Pretense of Knowledge

Oil Sanctions and the Pretense of Knowledge →

I mentioned last week that the recent rise in gasoline prices was most likely linked to the recent sanctions on Iran. Apparently, the sanctions were expressly designed to avoid an increase in gas prices.

U.S. sanctions, set out in Section 1245 of the National Defense Authorisation Act for Fiscal 2012 (HR 1540), apply only if the president determines “the price and supply of petroleum and petroleum products produced in countries other than Iran is sufficient to permit purchasers . . . to reduce significantly in volume their purchases from Iran”.

Sanctions do not apply if the president determines an importer has “significantly reduced” its volume of crude purchases from Iran, and the president can waive them altogether if it is in the national interest.

The law mandates experts at the Energy Information Administration (EIA), in conjunction with the departments of Treasury and State and the head of the intelligence community, to review the availability of alternative supplies every 60 days. [Emphasis added.]

So, what went wrong? Here's Sheldon Richman, with two of my favorite economics quotes.

The “experts” don’t know what they’re doing. They may think they do. They surely want us to think that. But they’ve got a problem: The matter they are grappling with does not permit the kind of knowledge they would need to design a plan calibrated to produce the results they seek. They’re up to their eyebrows in data, but what they need more than data they haven’t got, and there’s no way to get it.

The Problem Is People

Rube Goldberg had it easy. He had only to arrange a series of inanimate objects and an occasional parrot to create his problem-solving devices. The expert who tries to calibrate sanctions to harm only Iran, but not oil consumers, have to deal with people. He seems, Adam Smith wrote in The Theory of Moral Sentiments,

to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chose to impress upon it.

F. A. Hayek had something similar in mind in his 1974 Nobel lecture, [“The Pretence of Knowledge”][4]: “[I]n the study of such complex phenomena as the market, which depend on the actions of many individuals, all the circumstances which will determine the outcome of a process . . . will hardly ever be fully known or measurable.”