By Isaac MacMillen
Back in 2005, Congressman Ron Paul (R-TX) lamented the “sharp spike in gas prices” that was impacting the nation. But rather than call for more regulation, he stated that “we must understand that high oil prices are not the result of an unregulated free market. On the contrary, the oil industry is among the most regulated and most subsidized of U.S. industries.”
It was the heavy regulation imposed by the government, restricting free enterprise, which was causing the spike, Rep. Paul said. “We need more competition, which means we need less government.”
Fast-forward three years, and observe a nation that has encountered its highest gas prices since the Carter-era embargo. Was Paul’s theory right? Would cutting back on restrictions in turn reduce the “pressure at the pump”? We now know the answer.
After President Bush removed the executive ban on offshore drilling, and—under pressure from House and Senate Republicans and the public—Congressional Democrats allowed the moratorium on offshore drilling to expire.
The effects have been astounding. Prices have dropped from their record highs approaching $150 down to lows of $62 (and dropping). With government regulation out of the way, the free market is regulating itself. Supply is catching up with demand and forcing prices down.
As ALG News reported earlier, opening up additional property in which to drill will only help the economy. It was time for the offshore drilling ban to expire once and for all.
The dropping price of oil puts to lie the Hard Left’s most oft-repeated bromides:
• “Speculators were responsible.” Not true. Speculators are merely investors who look for top profits in commodities (gold, silver, oil). Contrary to the popular idea that they conspired to drive up the price, a quick overview shows that they are too independent to collaborate on a large scale and, in many cases, are comprised of investors simply seeking to diversity their portfolios.
Additionally, as Fed Chairman Ben Bernanke pointed out, “Policymakers and other analysts have often relied on quotes from commodity futures markets to derive forecasts of the prices of key commodities. However, as you know, futures markets quotes have underpredicted [sic] commodity price increases in recent years, leading to corresponding underpredictions [sic] of overall inflation.”
In other words, speculators aren’t the problem.
• “Drilling didn’t help.” That, in a word, is baloney. Yet even Speaker Nancy Pelosi (D-CA) still states on her website that “[n]ew drilling won’t lower prices for years to come.” Years? Americans have seen prices plummet in…months. According to the Daily Fuel Gauge Report, the highest recorded price for regular unleaded was just over $4.11/gallon in mid-July. It’s now the end of October, and the current average is under $2.70/gallon—a $1.41/gallon drop in just under three-and-one-half months.
Of course, it will take some time for the oil to actually be recovered from the new drilling areas, but the realization that new competition is on the way has already caused oil producers to lower prices in anticipation.
• “Price gouging is responsible for the high prices.” Where is that price-gouging now? With break-even prices in the Gulf as high as $40/barrel, reports that oil could fall as low as $48/barrel do not bode well for the oil companies—or those who would accuse them of profiteering.
(Also of note: If the Democrats had imposed an “excess profits tax,” the ability of oil companies to cope with hard times would be greatly lessened. Additionally, the extra tax cost would have been passed—in part or in whole—onto the consumer, further driving up gas prices. That’s simple economics.)
• “The oil bubble was going to burst anyway, so drilling didn’t help.” While the housing bubble and the tech (or dot-com) bubble both popped due to the over-valuing of their respective products combined with lack of demand, oil faces no such long-term demand shortfall. Yes, Americans have cut down on miles driven (largely in response to the high gas prices and the economic downturn) and may not return to pre-2008 oil usage levels anytime soon, but the rest of the world will continue to have a great need for oil, especially in developing countries such as India and China.
Thus, even if there is a temporary worldwide slump in oil demand, unless the world population drops or nuclear fusion is discovered, there will be a long-term increase in demand for energy. If it truly does take 5-10 years for new oil production to begin, then the key is to start working now to ensure that America has enough energy once the next increase in demand occurs.
(Of course, 13 years ago, if Bill Clinton had signed into law the Republican Congress’ drilling expansion, Americans likely would not be having this problem right now.)
In light of the great benefits provided by allowing offshore drilling, Congress must respond by passing legislation to ensure that private companies are able to increase production in accordance with demand. Without this legislation, this liberal Congress could choose to go back on its word. We’ve seen it done before. (Remember the Fairness Doctrine? Well, they refused to impose a permanent ban on its resurrection, and are now talking about bringing it back.)
Top Democratic officials have already hinted that they may pursue a new drilling (or, more likely, non-drilling) policy after the elections. It is up to the American taxpayer to ensure that the extremist envirolobby doesn’t win this fight. America must have an energy policy that protects the free market principles that best serve the American people. And solidifying the freedom to drill offshore is one very big step in the right direction.
Isaac MacMillen is a contributing editor of ALG News Bureau.
