Pandering at the Pump
If you want to find wisdom about gasoline markets, avoid Washington, D.C.
In the field of petroleum, location is everything. If you want to find oil, you don't drill in Rhode Island. And if you want to find wisdom about gasoline markets, you avoid Washington, D.C.
In good times, the confusion and folly of our elected leaders have only limited impact. But when pump prices rise to painful levels, as they have lately, you can safely assume that whatever politicians say and do will be poorly conceived and ill-motivated.
As of last week, the cost of regular gas nationally averaged $3.65 a gallon—up from $3.23 a year ago and double what it was when Barack Obama became president. In some places it exceeds $4.
The price of milk or ground beef may climb without setting off mass outrage, but gasoline is more visible and harder to do without. And the great advantage is that when fuel gets expensive, each party has ready-made villains to roll out.
For Democrats, it's capitalists, who are held in low esteem for their preoccupation with making money. The other day House Democratic Leader Nancy Pelosi—who has a net worth of at least $35 million -- announced that the price increases were the result of "Wall Street profiteering" and "speculators who care more about their profits than the price at the pump."
But as George Mason University economist Lawrence H. White has pointed out, blaming greed for a particular economic problem is like blaming gravity for a plane crash. Speculators and Wall Street executives were not any less greedy in the days when gas was cheap. If greed explained prices, they would always be high.
Speculation is just another term for trying to prepare for the future. Lately, fears have spread that tensions with Iran will lead to war, which would reduce the world's supply of oil. When supply declines, prices rise.
If the worst happens, speculators who bet on it will make money. If it doesn't, they will lose money. But they don't cause the ups and downs any more than surfers cause waves.
On the Republican side, there is only slightly greater understanding of how the market functions. Newt Gingrich brags that when he was speaker of the House, gas went for $1.13 a gallon, which is a powerful argument—for returning him to the House leadership, provided he can reinstall Bill Clinton in the White House.
Gingrich says that as president, he'll bring prices down as low as $2 a gallon. How? His plan is to "dramatically expand our capacity to produce energy." It's a variant on the 2008 Republican chant: "Drill, baby, drill!"
But if John McCain preached that mantra, Obama has practiced it. Since he arrived, the number of drilling rigs in operation has more than tripled. Domestic production, which fell by 11 percent under George W. Bush, has grown by 10 percent.
Yet prices have risen, because—surprise of surprises—the United States is only part of the global market. All sorts of events around the world, good and bad, affect oil supply and demand.
As we learned a few years ago, there is nothing like a brutal recession to make gasoline a bargain. As the American economy has recovered, our demand has picked up. Worldwide demand for oil has also risen steadily in recent months. Both help to account for the price jump.
The main explanation, though, is the prospect of a military confrontation that would cut off shipments from the world's fourth largest oil producer. Republicans blame Obama for not attacking Iran at the same time they attack him for high gas prices. But nothing would do more to raise prices than an attack on Iran.
Obama himself was in Florida Thursday delivering the message that, as a New York Times story recounted, "neither he nor anyone else can do much about oil prices." So true. But where did anyone get the idea that the president could affect oil prices?
Possibly from this president. Last summer, he released 30 million barrels of oil from the Strategic Petroleum Reserve—to make sure the upheaval in Libya didn't inconvenience American motorists filling up over the Fourth of July weekend.
Republican and Democratic officeholders in Washington disagree on many things. But on the proposition that they should decide the price of gasoline, unity prevails.
Steve Chapman blogs daily at newsblogs.chicagotribune.com/steve_chapman.
