Jewish World Review June 2, 2004 / 13 Sivan, 5764
Gas whiners don't believe in or trust markets
Whenever the price of gasoline increases significantly, liberals complain
If in power, they launch investigations. If out of power, as is mostly the
case today, they demand that investigations be launched.
Why this is so is a bit of a mystery.
After all, the need to reduce reliance on fossil fuels is an article of
liberal faith. Particularly so for the United States, the world's largest
consumer of petroleum products.
Liberals propose all sorts of government programs to reduce reliance:
efficiency standards for cars and appliances, massive government subsidies
for the development, production and consumption of alternative sources of
Nor are they necessarily opposed to higher prices, provided they result
from taxation with the money going to government rather than someone who
might actually use it to produce more energy.
Yet when prices increase without the intervention of government, they
The only explanation is that despite the protestation of there being a
neo-liberalism and New Democrats, at heart liberals still don't really
believe in or trust markets.
I have heard both Arizona Gov. Janet Napolitano and Attorney General Terry Goddard
complain that they don't "understand" gas prices and their movements.
I suspect that they don't "understand" why toothpaste costs what it does
In general, commodity prices cannot be completely "understood," in the
sense that Napolitano and Goddard mean. That's part of the nature of a
market and why prices are always in a state of adjustment, constantly
sending signals to producers and consumers.
Any commodity is the culmination of a supply chain, with each component
subject to its own fluctuations in supply, demand and price. There are
simply too many moving parts for such a comprehensive understanding, even
Consider the futures market for oil. For every transaction, there is a
buyer and a seller. Which means that even among these very sophisticated
market traders, an equal number think the actual price will be more or less
than the future transaction price.
Liberals also cite the runup in profits by oil companies as prima facie
evidence of market manipulation. But the recent strong surge in profits
only puts them around industrial averages.
Nothing has changed the basics of the oil business: high capital costs and
relatively low to mediocre rates of return.
That's why investment in the industry has been stagnant for some time and
there is little redundancy in the system. Production and refining worldwide
are both running at in excess of 95 percent of capacity.
Liberals tend to acknowledge market forces are partly responsible for gas
price increases, but suggest they shouldn't be as high or as sticky as they
That presumes they know what the clearing price for gasoline should be in a
competitive market. It would interesting to hear them reveal and explain
Of course, there's more than a little political opportunism going on as
well. John Kerry is trying to tie high gas prices to George Bush.
But the only short-term fix he offers is for the federal government to stop
buying oil to stock the Strategic Petroleum Reserve. Napolitano joined that
call during a beat-up Bush media event Kerry sponsored.
But SPR purchases constitute less than one percent of domestic consumption,
and only about two-tenths of a percent of world consumption, the more
relevant context. In other words, consumers wouldn't notice the difference.
For the long-term, Kerry argues that the United States should become energy
independent. That sounds nice and patriotic, but even if feasible, is it
truly a desirable national objective?
Canada and Mexico currently provide about a third of U.S. oil imports. Is
it truly important and beneficial for the United States to cut them off?
The United States allegedly needs to become energy independent to eliminate
a dangerous dependence on Middle Eastern oil. But the U.S. gets less than
10 percent of its oil from the Middle East and the purpose of the SPR is to
provide a cushion to cover a significant disruption in the availability of
Kerry, of course, wants to spend billions to subsidize alternative fuels,
trying to dictate the nation's energy mix.
Americans currently spend in excess of $700 billion a year on energy.
Markets, rather than politicians, can best sort out the appropriate fuel
With a stretched supply chain and a poor investment climate, one market
characteristic is likely to be greater price volatility for petroleum
If liberals could get over their distrust of markets, they should regard
this as good news.
JWR contributor Robert Robb is a columnist for The Arizona Republic. Comment by clicking here.
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