In all of the discussion of the price of oil, Americans are treated to a variety of explanations about what is driving it ever higher. And like all other issues in the public policy arena, myriad factions are commenting authoritatively on what the problems and solutions actually are.
Some say price gouging. Others sky-high taxes. Some cite the lamentable lack of refineries. And still others point to a dearth of oil exploration. Ethanol mandates… Inflation… Overspeculation – all these are among the plethora of explanations the American people are being told to consider as the root cause of gas pains.
In a recent Talking Points Memo from April 22nd, commentator Bill O’Reilly, a good guy who is right about many things, has found one issue about which he is dead wrong. He clearly finds himself in the smack in the middle of the Blame-Big Oil camp:
“The most important problem facing the USA right now is oil prices, and none of the candidates can do a thing about them. They say they can, but that’s complete bull. The oil cartel is going to charge as much as it can. The Arabs, Chavez and the others are going to gouge the world and we can’t stop them. The American oil companies are not going to build more refineries and the candidates can’t make them. Big oil sees the inevitable shift to alternative energy as going for the big dollars right now.
“The Democratic Party opposes most drilling, nuclear energy that liberal countries like France and Sweden have and aggressive action to protect foreign oil supplies. The Republican Party pretty much lets big oil do whatever it wants and refuses to rein in corrupt speculators who drive up the price of oil.”
The Arabs and Chavez? Corrupt speculators? Powerless politicians? O’Reilly clearly invokes the vision of third-world dictators sitting around a table plotting to drive up the price of oil, much like images of the 1970’s OPEC oil embargo. He also conjures up the image of Wall Street investors inflating the price of oil by investing in it. And of unwilling or incompetent politicians who simply go along for the (increasingly costly) ride.
The American people probably believe O’Reilly’s conspiracy theory. But to quote him, “that’s complete bull.”
Are the Arabs and Hugo Chavez really hunched over in some offshore hideaway plotting increases in the price of oil? No. Those prices are set on the market. Are the smarmy speculators driving up the price of oil simply buying and selling oil it in the open market? That’s absurd to even rationalize. Again, the market dictates the prices, not the other way around.
Oil is a commodity, and it is sold on the commodities market. Along with that is the oil futures market, where gutsy investors can bet on the future price of oil. Futures markets are an important part of the free market system. They provide a vital mechanism for maintaining the velocity of both further investment and cash flow into the markets as well projecting the price into the future. Plus, they have the effect of stabilizing prices by virtue of establishing parameters.
Very importantly, the futures markets are a highly risky investment to make. The gains can be considerable – but so can the losses (which of course you won’t hear much about from the Blame-Big Oil crowd).
Now, it may make for good political theater to blame “evil” oil executives and speculators for making “record” profits, but that is just the media broadcasting big numbers. Those dollars being earned are not worth nearly what they were 20 years ago, precisely because of inflation.
Fadel Gheit, a senior oil analyst for Oppenheimer & Co. notes the effect that the sinking dollar has on the price of oil:
“’We continue to watch the value of the dollar drop as the Fed drops interest rates, driving up the cost of oil, which is traded in U.S. dollars,’ said Fadel Gheit, senior oil analyst for Oppenheimer & Co. in New York. The cheap dollar makes oil less expensive for buyers with foreign currency and attracts investors looking for an alternative to stocks.”
In other words, the real culprit for all of these inflationary pressures on the price of oil is Big Government.
Which leaves O’Reilly’s bit about the powerless politicians who can’t seem to do a thing to improve the market. Actually, they could. The question is, “Will they?” Have those “powerless” politicians in Congress and the States cut or eliminated gasoline taxes? Removed regulations making it next to impossible to build new refineries or to engage in new oil exploration? Removed the ethanol mandate which adds to the price of production? Has the Federal government stopped stockpiling oil? Has the Federal Reserve brought inflation under control?
No. No. No. No. And no.
Those “powerless” politicians only add fuel to the fire by making the laws that place exorbitant gasoline and diesel fuel taxes onto every gallon Americans purchase … the laws that prevent refineries from being built and new drilling from occurring … the laws that mandate inefficient ethanol be put into our fuel … the laws that empower the Federal government to stockpile oil in reserve … and the laws that enable the Fed to drive down the value of the dollar.
The problem is not the “free” market because there is no true free market in the first place. That’s an ideal when it comes to energy that has been severely undermined by overregulation, overtaxation, and oversaturation of the U.S. currency worldwide. In short, if the salons in Washington want to find the real culprit in the energy crisis, they need only look in the mirror and repeat after Pogo: “We have met the enemy, and it is us.”
ALG Perspective: It’s not that Big Government cannot act to improve the free market system which it has spent decades undermining. It’s that it won’t. Pure and simple.
