In these tumultuous times, Americans seem to have trouble finding common ground. But it’s safe to say that most of us can agree that gasoline, at around $4 per gallon, is uncomfortably expensive.
The law of supply and demand would seem to suggest an effective solution to our problem. An increase in long-term supply would lead to a long-term drop in prices.
But that’s far too cut-and-dried for President Obama. “There are politicians who say if we just drill more, gas prices will come down,” he told reporters recently. That won’t work, he insisted, because Americans “use more than 20 percent of the world’s oil and we only have 2 percent of the world’s oil reserves.”
His preferred approach: greater federal intervention in oil markets.
The president wants to spend more than $50 million to hire more bureaucrats at the Commodity Futures Trading Commission. Obama calls that putting more “cops on the beat.” Here’s the problem with that approach: you can have as many cops as you want, but unless someone’s breaking the law, there’s nobody for them to arrest.
And there’s no evidence anyone is manipulating gas prices.
Last year, for example, the nation’s “top cop,” Attorney General Eric Holder, empaneled a working group to “explore whether there is any evidence of manipulation of oil and gas prices.” Holder hasn’t bothered to release a report, but it’s safe to say that he would have done so if his task force had identified any potential wrongdoing.
Just about every time gas prices go up, lawmakers demand an investigation into “price gouging.” And the results, time and again, come back negative. For example, in the aftermath of Hurricane Katrina, the Federal Trade Commission investigated and “found no instances of illegal market manipulation that led to higher prices during the relevant time periods.” Other federal investigations over the years have reached the same conclusion.
Oil prices go up, and they come back down again. The increases are usually driven by a jump in demand, and the decreases are usually triggered by a jump in supply.
In early 1998, for example, oil-exporting countries ramped up production in the belief that prices were destined to remain high and that they could earn even higher profits by producing more oil. Instead, a recession in Asia led to an oversupply of crude, and the price tumbled to about $10 per barrel.
Over the years prices increased again, until something similar happened four years ago. The rise of China and years of economic growth drove the price of oil higher and higher. Crude topped $147 per barrel in July of 2008. Then, in the face of worldwide recession, it plunged. By Christmas it was as low as $32 per barrel.
So while prices are indeed high right now, it seems likely that, by the time Obama’s extra bureaucrats could even be hired, gas prices will have cycled down again.
In fact, it’s federal intervention that tends to foul up markets. In his book “The Quest,” energy expert Daniel Yergin explains that price controls, implemented under Richard Nixon in the early 1970s, didn’t help consumers.
“They did succeed in creating a whole new federal bureaucracy, an explosion in regulatory and litigation work for lawyers, and much political contention,” he writes. “But the controls did little for their stated goals of limiting inflation – and did nothing for energy security.” Not surprisingly, oil prices tumbled after President Reagan lifted price controls, which he did with his first executive order.
President Obama is certainly correct that drilling more today wouldn’t instantly decrease oil prices. It takes years, after all, to bring a new well online and begin generating oil from it. As former Shell Oil president John Hofmeister puts it, oil companies think in “energy time,” while our national leaders think in “political time.”
By blocking construction of the Keystone XL pipeline and by limiting offshore oil exploration, for example, the Obama administration has shown it’s more interested in rewarding its radical environmentalist supporters than in adding to future oil supplies.
The entire country will pay more for fuel because of those decisions in the years ahead: that’s “energy time.” Meanwhile, attacking non-existent price gougers happens in “political time.” Will voters allow the president to get away with such transparent pandering? Only time will tell.