NRCC - Hitting Rock: Dems Oblivious on Oil

"The lack of even a basic grasp of economic concepts has led Democrats to oppose sensible policies that would begin to lower oil and gas prices. Instead, they push hair-brained ideas that make no sense."

"Then there is Rep. Carol Shea-Porter's pet policy: forcing oil companies to drill on land they already lease. Economists and oil industry experts have roundly criticized this proposal as completely useless. It would force oil companies to drill speculatively or where there is no or little oil -- or into oil wells that are already tapped! Meanwhile, she refuses to let them access America's largest untapped oil reserves."

"Because the party that controls Congress has no idea how the economy works, it looks like we are going to be stuck with high oil and gas prices for a long, long time."

Hitting Rock: Dems Oblivious on Oil

New Hampshire Union Leader
Editorial
July 13, 2008

MAYBE THE quickest way to lower oil and gas prices would be this: Immediately enroll every Democratic member of Congress in an entry-level economics class.

The lack of even a basic grasp of economic concepts has led Democrats to oppose sensible policies that would begin to lower oil and gas prices. Instead, they push hair-brained ideas that make no sense.

Senate candidate Jeanne Shaheen howls incessantly about speculators. She claims that speculators trading on electronic exchanges and overseas are driving up the price of oil and if only we cracked down on them the price would fall.

But here is what Walter Lukken, chairman of the Commodity Futures Trading Commission, said about that idea last week: "We haven't evidence that speculators are broadly driving these prices."

To the extent that futures trading is increasing prices, the major culprits are not unregulated traders, as Shaheen keeps saying. The real problem is that with demand continuing to outstrip supply, traders see no end to rising prices. The value of a barrel of oil today stays high because traders believe it will be more valuable in the future.

Any step Congress takes to produce a large increase in future supply -- opening the outer continental shelf to drilling, for example -- will reduce current prices. If there will be a lot more oil 10 years from now, a barrel of oil today loses some of its investment value, and its price falls.

As Harvard economics professor Martin Feldstein wrote in The Wall Street Journal on July 1, "Increasing the expected future supply of oil would also reduce today's price. That fall in the current price would induce an immediate rise in oil consumption that would be matched by an increase in supply from the OPEC producers and others with some current excess capacity or available inventories."

This is pretty basic stuff. And yet Democrats are oblivious. They adamantly oppose more domestic drilling, claiming that it won't affect prices for decades. Clearly, they have yet to grasp the basic concepts of supply and demand.

Then there is Rep. Carol Shea-Porter's pet policy: forcing oil companies to drill on land they already lease. Economists and oil industry experts have roundly criticized this proposal as completely useless. It would force oil companies to drill speculatively or where there is no or little oil -- or into oil wells that are already tapped! Meanwhile, she refuses to let them access America's largest untapped oil reserves.

The solution offered by Sen. Barack Obama and other Democrats: Impose a windfall profits tax on oil companies. But of course, that will do nothing to increase the supply of oil or reduce demand.

Because the party that controls Congress has no idea how the economy works, it looks like we are going to be stuck with high oil and gas prices for a long, long time.