Hooray for high oil prices?

Posted: May 07, 2006 12:05 AM

The way politicians talk, it's as if we all agree on oil. And we're all stupid.

They talk as if we all demand low prices, for starters. You may want lower prices and I may want lower prices, but most of us know the difference between what we want and what we may ask from our government. Unfortunately for you and me, we don't make a quorum, much less a consensus.

Late in April, President Bush, our Oilman-in-Chief, had the chutzpah to order a federal investigation into soaring oil prices. He didn't have the honesty of Charles Krauthammer, whose column on why "Gas prices shouldn't surprise us" provided a heady mix of oxygen, nitrogen, and carbon dioxide, in breathable proportion. Why have prices risen? "Supply is down and demand is up." Yup. That's about right.

Krauthammer ignored one reason for the supply crunch in his column, though: war. Iraq is not exactly at peak oil production.

George W. Bush, more concerned, perhaps, about the war of public opinion, went so far as to call higher gas prices a "tax." And then he quickly spoke of how hard he's working to reduce those taxes.

But this is one form of "taxation" that the market should take care of. And if our leaders would honor that division of powers, that would give them time to continue to work on the area that the market can't quite solve, the seeming inability of politicians to reverse their spending habits. Wouldn't it be something were our president and congress to tackle the issue of future taxes, by cutting spending now?

A few days later, the Senate Finance Committee announced it would do something, too: Investigate the actual, factual, non-metaphoric taxes paid by oil companies.

The fact that oil companies are making money as prices rise has scandalized the nation . . . a nation that has apparently forgotten that it is the business of business to take profits. And that when businesses don't make money off what they sell, then they go broke. And then those same people call on the government to bail out the businesses and . . we get the vicious (or, seeing as it's about oil, should I say "viscous"?) circle of out-of-control government.

Andrew Sullivan's response to the oil-price pandering was nicely drastic: "[C]onservative government really is dead, isn't it? A conservative government would simply say: we have no control over global oil prices; consumers reap what they sow; companies should be left alone; and if your wallet is empty because of all that gas in your SUV, you've learned a useful lesson in self-government. If only Margaret Thatcher were around to punctuate that lecture with a swipe of her handbag."

I'm tempted to agree. But he prefaced these remarks whistling a different tune: "these high gas prices are . . . one of the best things to happen in a long time. I hope they go much higher. Soon. If they don't, the government should force them higher with a big fat gas tax."

Markets are good, by this "logic," because they sometimes lead to higher prices, which Sullivan wants, so that people will stop driving SUVs and businesses will switch to other forms of energy production.

Of course, Sullivan has an SUV-load of ideological companions, all wanting oil prices high so that people will suffer more and use less and then "act greener."

It's quite an attitude. But I catch this whiff: Lots of these people (most of them much further left than Sullivan) want higher prices for oil just so long as they're the ones doing the raising — and reaping the rewards. You get the feeling, when talking with these folk, that what burns them most about today's current prices is that they're not responsible.

Still, they don't seem wholly displeased. They have this theory called "peak oil," which says that from now on oil will get just scarcer and scarcer until it's too difficult to obtain any longer. They want this to be the case, since this would force governments as well as private enterprise to invest in alternatives to petroleum.

But they're hedging their bets. They are also working mightily to sew up America's remaining untapped oil resources from further exploitation. A theory like "peak oil" is easier to hold when you, yourself, act to make it so. Sociologists call this "the self-fulfilling prophecy." I call it a scam.

In the midst of all the oil blather, a recent report by the Federal Reserve Bank of Dallas, titled "Running on Empty? How Economic Freedom Affects Oil Supplies," offers some much-needed clear-headedness on the question of oil availability and prices. It takes a practical view of production and distribution. Free markets work better than government-run markets, and the report notes that only three major oil producers rank high in terms of economic liberty: the United Kingdom, the United States, and Canada. For some reason the report lists not only Kuwait but also Saudi Arabia as "mostly free." (Yeah, I did a double take on that last one.) It turns out that most of today's oil producers are either listed as "mostly unfree" (like Russia) or "repressed" (like Iran). And Iraq, beleaguered in war and strife, doesn't even rise up to measure on the freedom scale.

Suffice it to say, the bulk of today's oil supply is controlled by governments with twisted incentives to bring product to market. So we shouldn't expect steady markets and low prices as long as most of the oil producing nations remain unfree.

That makes a certain amount of sense. So I hope you'll forgive me for asking my next questions:

  • Will America's anti-oil environmentalists turn on freedom completely?
  • When will they see that authoritarianism and totalitarianism elsewhere provide the easiest means to increase prices?
  • And will they support measures in America that would make us less free?

Oh, and one last question: Should I have phrased the above questions in the past tense?