July 23 2008
Connecting the Dots on Energy Policy
Over at Townhall.com, IWF's Carrie Lukas observes:
Undoubtedly, a variety of factors contribute to rising energy costs, but voters increasingly seem to understand that the central problem is one of supply and demand. In testimony before Congress this week, the Federal Reserve Chairman, Ben Bernake, explained it like this: "There are multiple causes, no doubt, for energy price increases. The most important cause is the global supply-and-demand balance. The fact that ... oil production has not kept up with the growth and demand for oil, particularly in emerging market countries which are growing quickly and industrializing."
That's as simple as it gets. Demand has gone up. Supply hasn't, so prices have gone up. The clear solution is to find ways to increase energy supply. Conservation, reducing our demand for energy, would also help, of course, but most Americans know the limits to their ability to reduce energy use. High costs have discouraged many from taking a summer road trip, but hasn't changed the need to get to and from work each day.
Unfortunately, many politicians are reluctant to admit this reality:
The Democratic Congress has been reluctant to acknowledge the need to allow an increase in energy supply. Their rhetoric and legislative initiatives seem designed more to confuse the voter about the root causes of the oil price spike than to actually solve the problem. For example, in an attempt to counter calls for more drilling, Democrats focused on how many acres are already available for exploration, suggesting that companies are letting vast supplies stay idle while prices surge. Yet surely the Democrats know that if oil was really readily available in these acres, the greedy corporations they complain so much about would be drawing supplies out now to take advantage of the record prices.
Democrats have also focused on the role of "speculators" in oil markets. But they misrepresent the role that speculators play. By buying commodities at low prices and selling when prices go up, speculators generally decrease price volatility. Moreover, if speculation was really the cause of high prices, there would be growing inventories of oil, and there's no evidence of such stockpiling. Legislative attempts to quash "speculation" will do nothing to change the root cause of high prices, which remains our limited energy supply.