In his last hours as President of the United States, Bill Clinton issued 140 pardons to various felons. However, none was more controversial than the pardon extended to Marc Rich, who fled the United States before ever facing trial.
Critics from the editorial pages of the leftist New York Times and the conservative Townhall columnists page have excoriated Clinton for granting legal absolution to the former oil trader who apparently violated U.S. oil regulations of the 1970s.
The Times called the pardon “a shocking abuse of presidential power and a reminder of why George W. Bush’s vow to restore integrity to the Oval Office resonates with millions of Americans who otherwise disagree with the new president’s politics.” Senate Majority Leader Trent Lott of Mississippi has even called for Senate hearings on the matter.
While I yield to no one in my contempt for the many criminal acts Clinton committed as president, in the case of Rich, he got it right. Perhaps Clinton was swayed by Rich’s ex-wife’s multi-million dollar donations to his political campaigns, or maybe he just liked Marc Rich, but whatever the reason he pardoned a man for committing crimes that never should have been crimes in the first place.
No doubt, Marc Rich is a slick character and one who most likely fits the profile of Clinton supporters, but before one condemns him for what he did, let us first revisit the Byzantine energy policies of the United States during the 1970s.
As the Wall Street Journal noted in its January 29 editions, the U.S. Government “sought to stabilize the market with a complex system meant to cap prices and increase domestic production.” This “complex system” consisted of a price cap of $8 a barrel for “old oil” that came from wells drilled before 1972, $10 for “new oil” that came from wells drilled after 1972 or producing at higher than 1972 levels. Oil that came from small “stripper” wells was permitted to sell at the world market price.
As any competent economist will point out, this system was not only one big disincentive to produce more oil, but would also create incentives for fraudulent bookkeeping as oil producers would try to “convert” their “old oil” into “new oil” or “stripper oil.”
Those of us who were driving automobiles during the 1970s can attest to the periodic chaos at the gas pump, as government price controls created shortages, panic buying, and long lines at the gas station. While the calamity was a treasure trove to politicians who gained votes by excoriating oil companies for “contriving a crisis,” government policies crippled the nation’s energy sector and lowered the standards of living for millions of Americans. Sanity returned to oil markets only after the price and allocation controls finally were repealed in 1981.
According to government officials, the idea was to hold down the price of crude oil in hopes that the lower price of that factor of production would lead to lower gasoline prices. However, Austrian economists from Carl Menger in 1871 to Ludwig von Mises, Murray N. Rothbard and others in the 20th Century have noted that factors of production gain their value from the final product that they ultimately help create, not the other way around. Thus, the government’s actions not only ensured that less crude oil would be produced from U.S. wells, it also helped force up the price of gasoline and other fuels, since less crude meant a lower supply of products that come from the raw oil.
According to the records of investigators, Rich (and other producers, for that matter) attempted to have “old oil” illegally reclassified into “stripper oil” in hopes of receiving the higher price for his product. It was not long before federal prosecutors were examining the books of one of Rich’s companies and found that, indeed, the firm was “cooking the books.” (Ironically, the lead prosecutor in the case, Morris Weinberg, was a friend of mine from high school.)
By then, Rich had fled to Switzerland to avoid prosecution and has remained there ever since, still involved in the oil business. He has been extremely successful and his personal fortune is said to be in excess of $1 billion. Weinberg and his boss, Rudy Guliani, who became famous as the U.S. Attorney in Manhattan, are still bitter that they were unable to snag their prey, who now can legally return to the United States.
While one can argue that Rich broke the law, one must remember just how ridiculous – and harmful – that law really was. There is no question that pricing a raw material according to the date the original well was drilled defies economic logic and is a recipe for disaster.
Furthermore, without that law, Rich would be a hero today in U.S. and world financial circles. It was Rich and his partner, Pinky Green, who developed the now-flourishing spot market for oil that helped break up the infamous “Seven Sisters” cartel of the 1960s. Thanks to Rich, world energy markets today work better than they did when Rich first broke into the business.
Yet, he is remembered for gaming a system, a system that never should never have been implemented. Columnist Stephen Chapman declared that the pardon was wrong because Rich has not “paid his debt to society.” What debt? For that matter, why have politicians not “paid their debt” for imposing these ridiculous price controls in the first place? Those politicians lowered our standards of living. Marc Rich helped raise them. Whatever “debt” he might have owed us, he repaid it long ago.
