Watching and reading excerpts of the hearings today on high oil prices, it amazes me that hundreds of years after the publication of the works of Adam Smith and other classical economists that the workings of markets remain such a mystery to so many people. This is especially egregious a sin among lawmakers who stop at nothing in the relentless pursuit of demagoguery.
It is especially bizarre to watch Democrats propose solutions that are diametrically opposed to their stated goals and not even realize that such a conflict exists.
For example, Democrats typically tale the lead in harping about the horrors of the United States purchasing a large percentage of its oil from foreign companies and markets. But what do they propose to do when domestic oil companies, after decades of weak performance, actually achieve high profits? A windfall profit tax. Yeah, that’s certainly the best way to promote domestic rather than foreign production.
Jimmy Carter signed such an measure in 1980, and the result was the U.S. government took in an additional $80 billion over the seven years the measure remained law, and domestic oil production fell by up to 1.6 billion barrels.
It is also a bit odd to see Democrats outraged over the price of oil and gasoline given their constant whining about global warming and other environmental concerns. How can anyone take these people seriously about the need to implement something along the lines of the Kyoto Protocol when they act like $3/gallon gasoline is the end of the world? As the U.S. Department of Energy noted in a 1998 study of the likely impacts of Kyoto,
The carbon price required to reduce U.S. energy-related carbon emissions ranges from $67 to $348 per metric ton in 2010 (1996 dollars) (Figure 2). In the more stringent reduction cases, the carbon price will decline by 2020 as more efficient and lower-carbon technologies become economically available and penetrate later in the forecast horizon. Due to the carbon price, the average price of gasoline could be between $0.14 and $0.66 per gallon higher in 2010 than it would be otherwise, and electricity prices could increase by 20 to 86 percent.
So even if you assume very optimistic increases in energy efficiency, Kyoto would cause huge permanent (since they are not, like the current increases, the result of temporary market fluctuations) increases in energy prices. Democrats who believe implementing Kyoto should be a major priority should openly welcome high gasoline and energy prices, as they are a de facto way of slowing U.S. carbon emissions. But when the rubber hits the road, Democrats are horrified at the thought of even temporary hikes in energy prices.
Personally, I’m hoping for a return to 1998 when oil was $10/barrel, gas hit an all-time record low price in real terms, and oil stocks made the dot.com implosion look like a bull market. But I’m not sure why those ostensibly worried about global warming wouldn’t want even higher energy prices (this guy’s got the right idea if you’re serious about reducing carbon emissions).
Finally, I always wonder why there aren’t these silly Congressional investigations during periods like the late 1990s when oil and gas prices were at record lows. Grab a few drivers and subpoena them to testify. Then grill them about receiving windfall savings and taking advantage of the international glut of oil. Perhaps even propose stupid federal gas taxes that would punish consumers for daring to trade freely in gasoline and for conspiring with other consumers to find the lowest possible prices.