WASHINGTON -- The law of supply and demand is the oldest and wisest axiom in free-market economics. Exceed the demand for something by overproduction and the price will fall. Sharply reduce its supply in the face of very robust demand, and the price will go up. Congress, well-meaning environmentalists, government regulators and assorted Malthusians seem to have forgotten this simple, fundamental rule, and the result is $120-a barrel-oil and $4-a-gallon gasoline.
The United States and the global economy will need a great deal more energy in the decades to come. It is said that within the next two decades we'll need about 40 percent more energy than we used in 2005. No one disputes this, and that figure is probably wildly underestimated. For the present time there are only a few major energy resources that can meet our needs until we develop new sources of power.
Oil is one area where we can significantly, safely and cleanly boost our supply in the years to come if we set ourselves on a course to encourage more oil exploration and more refineries. I totally agree with economics writer Robert J. Samuelson's commonsense, long-term supply and demand solution to the problem of ever-rising oil prices: "Start drilling." In the murky, demagogic debate over energy, his words were a fresh breeze amidst an overabundance of hot air.
"Any unexpected rise in demand or threat to supply triggers higher prices," Samuelson recently wrote in The Washington Post. "The best we can do is to try to exert long-term influence on the global balance of supply and demand. Increase our supply. Restrain our demand," he wrote.
It probably comes as a shock to most people that the United States is the world's third-largest oil producer. (Saudi Arabia and Russia hold the top two spots.) We produce a lot of oil and can produce much more. But we have hamstrung our oil industry by forbidding further drilling in Alaska, (where the Arctic National Wildlife Refuge could possibly provide for as much as 5 percent of our current oil needs) or in offshore oil fields in the Atlantic, Pacific and the Gulf where vast resources are believed to exist.
We have to get over this political myopia about oil companies and the money they make. Exploration and drilling is enormously expensive and requires vast amounts of money. The oil and natural gas (is there a more abundant energy source than natural gas?) industry says it has spent $1.25 trillion since 1992 on exploring, production, refining and distribution.