The View From 1776

Oil Prices Redux

Senator Kerry renews his call for economic mumbo-jumbo.

Oil prices have spiked again, and Senator Kerry is charging that the President has done nothing at all to help consumers facing higher gasoline and heating oil prices.

In fact, the President is doing the most effective possible thing: leave petroleum products to pricing in the free market.  See Gasoline Prices and Short-sighted Liberals, which discussed this issue last May, when Senator Kerry initially raised it.

Liberals in general, and Senator Kerry specifically, tend to prefer dealing with high oil and gasoline prices by reducing demand in order to reduce our dependence on imported oil.  To accomplish that aim they attack the so-called anti-social conduct of people who buy and drive SUVs, call for developing alternative energy sources, seek to impose gasoline taxes, raise Federal standards for automobile fuel-efficiency, and call for releasing oil from our Strategic Petroleum Reserves. 

At the same time, Senator Kerry says that the President has done nothing to make Saudi Arabia and other producers lower oil prices by increasing their exports.

Raising gasoline taxes and releasing oil from the Strategic Reserve might have some short-term effect on lowering prices at the gasoline pump, as would increased oil production.  The others will require years, possibly decades, to become effective.  Higher gasoline taxes would have some immediate impact, but there is no assurance that Congress would pass the necessary legislation very quickly.

This leaves us with a big question.  Are Senator Kerry’s charges of inaction by the President realistic, or just campaign flummery?

Let’s look at each of liberals’ preferred approaches. 

First, given the ever-present possibility that Islamic terrorists might blow up Saudi Arabia’s oil terminals and shut off the world’s largest single source of oil for weeks or months, do we really want to take oil out of our Strategic Reserve now?  It’s a judgment call, and Senator Kerry’s judgment in this case is questionable.  It reflects the Baby Boomer mentality that maxes-out credit cards and saves nothing for a rainy day.

Second, Saudi Arabia has already responded to the administration’s requests to increase oil exports.  But there is a problem: most of that increased output is sour crude, that is, oil with a high sulphur content.  And very few U.S. refineries are equipped to process sour crude.  This impasse results from decades of environmental regulations that make upgrading refineries a losing investment.  Moreover, NIMBY and environmental regulations have meant that no new oil refinery has been built in the United States in roughly thirty years.

Thus, even if more oil can be imported in the short run, refineries already operating at maximum capacity simply can’t process it.

Third, an increased gasoline tax is self-contradictory.  Liberals whine that higher gasoline and heating oil prices are hurting the middle class and the poor.  But what, pray tell, would a higher gasoline tax do?  It would raise prices and hurt the middle class and the poor.  Are we to assume that a higher tax would be less painful, because it is a socialistic, managed-economy approach?

What makes the gasoline tax idea still more ridiculous is the fact that we already have an automatic, extremely sensitive and flexible mechanism to regulate consumption of gasoline and heating oil.  It’s called floating prices determined by the free market, and it’s the fairest and most effective method of rationing ever devised.

Why not let each individual decide for himself whether he is financially able and willing to pay the gasoline pump prices?  Why not let individual consumers decide whether they want to buy SUVs and pay to fill their large gas tanks?

Liberals immediately respond, “What about all those poor people who can’t afford higher prices?”  This flies in the face of their litany of calls for conservation.

We might ask why can’t people whose pocket-books are pinched do what liberals are continually urging: use mass transit or car-pool?  Liberals thought it was just swell when President Peanut Carter appeared on TV in his cardigan sweater and told us we would henceforward, permanently have to keep our thermostats down and wear warmer clothing.

That, of course, will be called cruel, but it was liberal icon John F. Kennedy who called on us for sacrifices and said that life isn’t fair.

Fourth, alternative energy sources already exist.  Their cost, until recent oil price spikes, has been too high for them to be used in competition with petroleum-based energy.  The free market, by raising gasoline and heating oil prices and making alternative energy price-competitive, already is spurring thousands of individuals to exercise their ingenuity to find and exploit alternative energy sources.

One last note: the Grand Wizard of liberalism, Ted Kennedy, blocked attempts to build wind-energy plants on his home turf in Cape Cod.  And John Kerry owns and uses, not one, but several SUVs.