Rich Lowry

/> But the two words Democrats are loath to utter about oil are "supply" and "demand." Sen. Byron Dorgan, D-N.D., rose on the floor of the Senate last week, outraged that we have a Commodity Futures Trading Commission to protect the public from fraud and abuse, and yet here the price of oil still has gone up. The Senate bill would require the commissioners to be "the referees for this marketplace."

Sen. Dorgan adduces wrongdoing from the sheer fact of the precipitous price increase. But oil is susceptible to big spikes and drops because demand and supply are "inelastic," i.e., they don't adjust easily.

Despite the explosion in the price of gas, miles-driven has declined only 1 percent in the past year. Likewise, new production takes years to come online.

Sen. Dorgan is exercised that the number of speculators has increased "from 37 percent to 71 percent," which he deems "pretty substantial evidence." Of what, exactly? The amount of speculation proves nothing.

As The Economist has noted, speculation in nickel increased recently as the price of the metal dropped by half, while the price of commodities like iron ore and rice not traded on any exchanges has increased.

The Senate bill would only introduce genuine distortions into the oil market, and make life more difficult for oil consumers who are quite reasonably using the futures market as a hedge against higher prices.

If Congress wants a scapegoat for the run-up in oil, it should revert to the ancient practice and literally expel a goat from the U.S. Capitol.

Atavistic, yes, but no less irrational.

Rich Lowry

Rich Lowry is author of Legacy: Paying the Price for the Clinton Years .
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