“Common sense regarding gas prices” by Pat Slattery

Today’s Guest Saturday post is by Pat Slattery of the Free Market Project where it was originally published on March 19, 2012.


Common sense regarding gas prices

President Obama seems to want it all ways regarding gasoline prices. He says that the problem is world demand, but doesn’t see the wisdom in increasing supply by more domestic drilling. He doesn’t like the long timeline for drilling (no Democrat ever does… we’ve had decades of non-drilling supported by the argument that the drilling won’t make any difference for ten years), but he seems to be convinced that enough people can convert to electric cars fast enough to make an impact, that clearly not-ready-for-primetime wind and solar can generate plenty of power, and that algae can become a viable fuel in a timeframe quickly enough to make an impact on energy prices. He takes credit for leases put into effect by his predecessors, and for drilling done in places not needing the approval of the federal government, claiming that production is up on his watch when his administration’s approval of federal leases is down. He claims to have an “all of the above” approach, but it’s been long on money wasted (given to cronies, mostly) on green energy while slowing the rate of permits (except the occasional opening of some tract that nobody wants to drill on). He intentionally misleads people by saying we have only 2% of the world’s oil reserves, though he must know that in the US a “proven reserve” is a term of art with legal implications which means not only do we know the oil is there, but permits to get to it are also supplied. Oil in ANWR, for example, is not counted in that 2%. Offshore oil where companies know there is oil but can’t drill is not counted. Oil shale is not counted. On and on it goes.

The people, apparently, see through this charade. At least a bare majority does. From an article at Hot Air:

On energy, 58 percent say Obama’s policies will result in gasoline prices increasing, while just 20 percent expect them to cut prices — and by a 46-percent-to-36-percent margin, voters believe they will cause the United States to become even more dependent on foreign oil.

The question I have is, who are the idiots in the 20% of people that expect Obama’s policies to cut prices?

What does common sense tell us about gas prices? Put aside the weakened dollar (though Obama’s policies contribute to that too). In a world market for oil, prices go up when demand from such places as China and India increase and supply is controlled by such people as OPEC. In a market where speculation plays a large role in gasoline prices, instability in the Middle East–a large world supplier–causes prices to rise.

So, what would cause prices to decline? Increased supply, which means domestic drilling. It means granting permits. This would not only bring more oil to market, increasing supply, but just the knowledge that it is happening changes the way speculators look at the future. Suddenly a world hungry for oil is not at the mercy of Mullahs in Iran threatening to shut down the Straits of Hormuz because the hungry world could still be supplied by North American product (oil sands in Canada and new American oil). It changes the speculation when an increased supply is coming from a stable government in a stable part of the world, even when that supply is in the future.

Speaking of the Straits of Hormuz, there is a transportation component to oil too. Not only is there a question of whether or not some rogue regime can disturb the ability of oil to be transported, there is also simply a transportation cost. It simply costs less to transport domestic oil to refineries, or to pipe the oil down from Canada, than it does to ship it across oceans. Even more importantly, if the oil is domestic (or at least if it is coming from a friendly neighbor through a pipeline), disruptions in the ability to ship from the Middle East would not have as big an impact because we (the country demanding 20% of the world’s product) would not be the country affected by the disruption (prices would still go up, but when a fifth of the demand has stable supply, it won’t go up as much).

The side benefits alone of aggressive energy production in this country make Obama’s policy of limiting fossil fuel production an extremely stupid and destructive policy. Jobs are created when domestic energy is produced, and those jobs are created by private sector companies (oil companies) spending their own money. The country gets jobs and Washington doesn’t have to spend taxpayer money to get them. Simultaneously, money from leases and taxes on new wealth created (literally, the very definition of creating new wealth by pulling raw materials from the earth and making something useful with them) and the taxes on the wages of the workers, etc. brings vast quantities of money IN to the treasury. Plus, a tremendous amount of dollars now going offshore for imports stays in the economy and gets circulated.

There is absolutely no reason that a policy of aggressive domestic energy production has to mean we are not simultaneously working on alternative energy. It does give us a longer window, however, in which to be successful without damaging the economy in the interim and to find better solutions than forcing wind and solar down our throats.

The policies of the Obama administration absolutely result in higher energy costs, fewer jobs, less revenue, a worse trade balance, more government spending (which we can’t afford), and put us in a worse situation in terms of international relations (making us kowtow to despicable Middle Eastern regimes) and security. Obama is not the first, but he is the worst. The Democrats and even Republicans have had stupid energy policies for decades. Obama, in transforming the economy, has exacerbated the problem and has put us on track to another deep recession because his “new economy” is not ready for primetime while he is doing all he can (despite taking credit for the opposite) to do harm to what is proven to work and can do so much good.

Common sense tells us that Obama’s policies lead to higher gas prices, and many other destructive things. His tax policies alone (letting the Bush tax rates expire, and adding Obamacare taxes–two things that will happen if he’s re-elected) have us poised for another recession. His spending will make it worse. Adding his energy policies to the mix gives us a very bleak future with this guy in charge.



6 thoughts on ““Common sense regarding gas prices” by Pat Slattery

  1. I’m sensitive to the concerns of increased pollution with using more oil, but this method of trying to prevent pollution by fiat is untenable.

    And the weak dollar effect is two-fold. It decreases real savings which prevents capital accumulation which is incomprehensibly important when drilling for oil (it takes, from what I hear, decades for a drilling project to become profitable), and it also pushes prices up (the obvious effect). There is no way to overstate the negative consequences of fiat currency on oil prices and production.

  2. I’m glad to hear that 58 percent say Obama’s policies will result in gasoline prices increasing, more and more people are waking up to the reality of hope and change. Here’s to hoping it’ll be enough come election day.

  3. Many factors play a role in the price of gas (which is global), but there are 3 important ones. Inflation, speculation, and foreign policy.

    Inflation…to many dollars chasing to few goods. The Keynesian explanation.
    Inflation…MONEY PRINTING, or adding some 0’s to the computer data base. My explanation.

    Speculation (mostly by the FED!!!) is fueld’ largely by foreign policy (a war with… say Iran). Lets talk about those ‘evil’ speculators. Many of us speculate every day and hope it pans out. If you have a 401k, or some other retirement plan…you’re money is likely being speculated. However the major speculation comes from the BANKS, and financial institutions. The Federal Reserve who’s no more federal than federal express speculates heavily. In addition to this our government has given them to ‘ok’ to High Frequency Trade, and Naked Short. Look into these…yes the market is a total FRAUD.

    Its the economy stupid. Not aimed at anyone lol, but without and economy we do NOTHING. Which is why the economy should be at the TOP of everyones list. I just want everyone to know that our economy is like a car with four passengers. Those four passengers are ‘politicians’, who make suggestions to the driver (the FED). I laugh when typical mass media asks these politicians what they are gonna do to ‘fix’ the economy (lower taxes, less regulation, yada); the whole time IGNORING the Fed. The Fed CONTROLS every facet of our monetary policy…hence economy.

    Ron Paul is the ONLY candidate talking about this.

    I’m no economist but I do know a little about the economy.

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