Drive energy policy by markets, not politics

Star Parker

6/23/2008 12:00:32 AM - Star Parker

Energy is too important to be left to businessmen and markets, right? We need people who we really can trust to get things under control.

Like politicians.

I'm looking at Carpe Diem, the blog of Dr Mark J. Perry, an economics professor at the University of Michigan. He compares prices of gasoline from 1919 to today against price changes of a first class postage stamp.

At four dollars a gallon, today's gasoline price is sixteen times higher than its price in 1919, 25.5 cents. Over the same period, first class postage went from 2 cents to 42 cents, a 21-fold increase.

And postage prices never went down. Only up.

From 1970 to 1980 there was about a 10-fold increase in oil prices. However, by the mid-1980's prices had dropped by two-thirds and remained relatively unchanged for the next 15 years. Now prices are up by six-fold since 2001.

History, particularly near-term history, is not difficult to access. Search newspaper and magazine articles of the late '70s. The headlines were about the "energy crisis." The world was supposedly running out of oil. We were at the alleged beck and call of Arab oil producers who stood at any moment to use the "oil weapon" against us.

Oil companies were being attacked, as they are now, for the amount of money they were making. When prices sharply dropped in the mid-1980s, these same firms had to cut back, lay off folks, and oil towns like Houston went into depression.

Politicians who want to punish firms with a "windfall profits" tax when prices go up don't propose "loss subsidies" when prices go down.

Our real crises occur when we believe those who challenge what makes this country work -- people, markets, and freedom.

Back to Perry's blog. He shows that with the 10-fold increase in oil prices in the '70s, our energy consumption patterns changed dramatically. Today we consume half the energy to produce $1 of output than we did in 1970. We're now twice as energy efficient as we were.

Yes, markets work when we let them.

Think the guys who drill in 10,000 feet of water offshore looking for oil and gas earn too much?

According to a BusinessWeek survey, median compensation for the CEOs of the 12 largest oil firms in 2007 was $15.4 million. The CEO of the largest, ExxonMobil, earned $21.7 million. Top earner was the CEO of Occidental Petroleum at $33.6 million.

All chump change when we look at the Celebrity 100 list published by Forbes Magazine.

Over the last year, for example, Oprah Winfrey earned $275 million, rapper 50 Cent $150 million, Steven Spielberg $130 million, and Beyonce Knowles $80 million.

With oil prices more than doubling in the last year, we are going to get a market response both with supplies and with how much we consume if we keep politicians at bay.

The "energy independence" goal is pure political baloney. As renowned energy economist and MIT professor emeritus Morris Adelman writes, "It does not matter how much oil is produced domestically and how much is imported." It's a global market and new supplies from any source will depress prices.

Although we import two-thirds of our oil, it comes from well over twenty countries. And despite conventional wisdom, our two largest suppliers are Canada and Mexico.

Appreciate that environmentalism belongs to the Hollywood elite who make their millions and then contribute to Democrats who tell us we shouldn't invest in carbon-based fuels.

Climate change is politics, not science. As environmental scientist S. Fred Singer recently wrote in the New York Sun, 30 percent of climate scientists surveyed were "skeptical" of claims about global warming caused by human activity. "More than 31,000 scientists" have signed a petition questioning the UN's science on all this and opposing the recent "cap-and-trade" legislation in Congress.

Tens of millions of working folks need cheap fuel for their homes, their cars and their trucks.

Yes, drill offshore, drill in Alaska, mine oil shale, and build nuclear plants. Leave all options open.

But let free markets and businesspeople drive these decisions. Not politicians.