Abolish the terror tax

People who hate America are flush with money from oil sales -- we should stop subsidizing them by becoming more energy independent.

By James P. Pinkerton

Published June 15, 2004 9:56PM (EDT)

When I think about Ronald Reagan's legacy, one question haunts me: Was his national energy policy also, inadvertently, a terror-subsidy policy? A quarter-century later, it appears that Reagan's presidency helped bring to America a plentiful supply of energy -- and also oil-financed terrorists.

In 1973, during America's first energy crisis, brought on by the Arab oil embargo, President Nixon declared a national goal of "energy independence" by 1980. For the rest of that decade, Republican and Democratic presidents alike emphasized such independence, to be achieved by a combination of statist means -- price controls, conservation decrees, Uncle Sam-funded ventures such as the Synthetic Fuels Corp. But they didn't work. In 1973, oil imports accounted for 26 percent of U.S. consumption; seven years later, in 1980, imports had risen to 38 percent of the national total. In the meantime, oil prices had soared 1,300 percent.

Enter Reagan, a free marketeer and avowed opponent of "utopian schemers." On July 17, 1980, as he accepted the Republican Party's presidential nomination, he declared, "Those who preside over the worst energy shortage in our history tell us to use less, so that we will run out of oil, gasoline and natural gas a little more slowly." The Gipper continued, "Well, now, conservation is desirable ... But conservation is not the sole answer to our energy needs. America must get to work producing more energy." Reagan's idea was to liberate the oil companies from controls, as part of his belief in "getting government off our backs." In my role as a low-level staffer on his campaign, I cheered those libertarian words.

And I cheered more as the newly inaugurated 40th president swept away all the Nixon-Ford-Carter-era rules and regulations -- although he also helped kill off solar-power programs, a legacy of the loathed Carter presidency. Yet at that time, few complained. Indeed, what came next was a miracle of the marketplace: During Reagan's two terms, oil prices fell by three-fourths, and the real output of the U.S. economy grew by a third.

Lower prices? More wealth? What's not to like? Only this: The market produces miracles, but it's nonetheless blind; it makes no distinction between a barrel of oil pumped in Oklahoma and a barrel pumped in Saudi Arabia. If the foreign crude is 1 cent cheaper, that's what Adam Smith's "invisible hand" selects. Oil, said the Reaganites, is just another commodity; it doesn't matter where it comes from. So while the economy boomed, the vision of energy independence withered.

And thus the catch: The free market lowered the price of energy, but since the United States was a high-cost producer, domestic production was a big loser. And the long-term decline in U.S. oil production -- accelerated, too, by environmental concerns -- continued through the Reagan years and has kept on ever since. Today, the United States imports 59 percent of its oil; it has gone from being one-quarter dependent on foreign sources to three-fifths dependent.

And what happens to the dollars we export in return for this oil? Many of them go to our mortal enemies. New York Gov. George Pataki, referring to the trillions that the United States and the West have sent to Arab "oilocracies" over the past 30 years, has spoken of a "terror tax." That is, we send them money and they send us al-Qaida. And the problem could get worse. Even assuming that Saudi Arabia follows through on its plan to increase production, the desert kingdom could easily take in $100 billion in the coming year, around a quarter of that from the United States.

Yet despite -- or perhaps because of -- all that money, Saudi Arabia is becoming "Osama Arabia." In light of the continuing attacks on Americans and other foreigners working in that nation, it is worth taking a closer look at what it is doing with its petrodollars. The desert kingdom recently announced a crackdown on "charities" caught funding terror, but the targeted groups were relatively small. The just-dissolved Al-Haramain Islamic Foundation, for example, distributed a mere $50 million a year. Meanwhile, the Saudis are promising to set up a new, "transparent" philanthropic entity, the Saudi National Commission for Charitable Work Abroad, which is to give away $100 million a year. Even assuming that that $100 million is all "clean," one is left wondering what the Saudis will do with the other $99.9 billion they'll receive for oil over the next 12 months. A Washington source told me that Saudi Arabia has in fact given an average of $4 billion a year in "foreign aid" over the past decade.

Where's all the money going? Nobody really knows. And nobody -- at least in the United States -- seems very interested in finding out. On Saturday, the New York Times reported that a task force on Saudi terror funding at the Council on Foreign Relations is about to announce that Riyadh has "not fully implemented its new laws and regulations, and because of that, opportunities for the witting or unwitting financing of terrorism persist." But, the Times notes, one sentence was deleted from the task force's final document -- "The Bush administration has done very little to push the implementation of the rules and regulations" -- possibly at the behest of the Bush White House.

Thus even after 9/11 and the resulting war on terror, the U.S.-Saudi relationship appears fundamentally unchanged. Saudi Arabia sells us oil while telling us -- via high-priced P.R. spokesmen and lobbyists -- that it is our ally. In return, America offers the Al-Saud family a geopolitical security blanket and a cloak for financial transactions.

The consequences of the free market's "invisible hand" are now visible: People who hate America are engorged with American money. Having worked for the Gipper for five years, I believe that if he were in office today, he would concede that blind fealty to the free market has brought unintended consequences -- big-time. And so he would take a second look at renewable energy. Although Reagan believed in free markets and limited government, he was pro-science; he strongly supported the space program, for example, and the never-built superconducting supercollider. Reagan also would understand what was required to win the war on terror -- the de-funding of those who are funding terrorists, even at the risk of upsetting big GOP constituencies.

It's time for a geostrategic shift -- and a return to the idea of energy independence. It's time to revisit energy conservation; we must get serious about hydrogen, solar, wind and other renewable-energy sources.

It won't be easy to gain complete energy independence from the oilocratic foes we are financing, but at least we can start reducing the terror tax. After a long detour -- and after realizing that the free market is paradoxically aiding our worst enemies -- we can get back on the path to energy independence.

James P. Pinkerton

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Related Topics ------------------------------------------

Middle East Ronald Reagan Terrorism