President Bush’s speech on gasoline prices Tuesday danced around peripheral issues but failed to address the underlying problems. Congressional responses were about as irrelevant.
The measures these officials proposed were largely symbolic. They might give the general public some impression that government is responding to their complaints about escalating prices, but they will have little effect on prices now or in the long run.
Why? Some things are simply beyond U.S. control. Oil prices are high because of booming demand and the widespread supply disruptions in other nations.
The president’s announcement that the U.S. Energy Department will temporarily stop adding oil to the Strategic Petroleum Reserve will provide about 15 hours’ worth of consumption over the next 150 days. Officials said the measure is intended to send a signal to the markets, but the signal might well be one of government impotence.
The measure could be interpreted as a sign that the administration might order actual withdrawals from the reserve rather than merely stop additions. Here’s a reality check: The entire reserve would cover total national use for only five weeks or so. The reserve was originally set up to deal with a true emergency of blocked supplies — not just high gas prices.
Meanwhile, the threat of a true oil crisis is in the offing as the Bush administration continues to tell Iran it ultimately is willing to go to war over Iran’s nuclear program. Drawing down our emergency oil stocks now would send Iran the message that our threats are not really serious.
Moreover, a drawdown would limit our options if conditions in the Mideast deteriorate further. Between the attacks on an Egyptian resort and a U.N. observer force in the Sinai Peninsula, the situation is becoming more volatile every day.
Bush also called for government investigations of price fixing and gouging and a temporary lifting of state mandates for specific gasoline blends.
Under Democratic presidents as well as Republicans, the Federal Trade Commission has investigated gas price abuses for years and has failed repeatedly to find any of significance. But Bush’s call, echoed by senators from both parties, caters to the popular notion that the oil industry is uniquely monopolistic.
Banning requirements for “boutique fuels” such as Minnesota’s 10 percent ethanol blend might lessen price differentials within the country but won’t do anything substantive about prices as a whole.
The president’s call for ending special tax credits for the oil industry was a good one, but will have no discernable effect on oil availability.
Congressional responses were even less inspired. Republican majority leaders Bill Frist and Dennis Hastert added their own pious intonations about investigating price gouging, knowing full well that such inquiries never turn up much.
Other Republicans blamed Democrats for the defeat of bills to allow oil drilling in the Alaska National Wildlife Refuge. They conveniently ignored the fact that many key Republicans, including Minnesota’s Sen. Norm Coleman, also opposed the measures. They also overlooked the fact that daily output from the refuge would be a miniscule increment to the global production levels that drive oil prices.
The Democrats offered their own spins.
House Minority Leader Nancy Pelosi made quite the stretch with her conclusion that gas prices are high simply because President Bush and Vice President Dick Cheney have worked in the oil industry. “It is cause and effect,” she said.
Note to Pelosi: Real oil prices — adjusted for inflation — were just as high when Democratic peanut farmer Jimmy Carter occupied the White House in the 1970s.
Sen. Robert Menendez, D-N.J., called for a temporary holiday from the federal gas tax. This would send exactly the wrong message if oil really is scarce and government wants to encourage alternatives. Plus, it would add some $100 million a day to an already bloated federal budget deficit.
Several Democrats trotted out their party’s oldest chestnut, an “excess profits tax” that applies only to oil companies. None thought of applying it to Archer Daniels Midland or the farmer co-ops now earning high profits distilling ethanol.
No one dared to state the simple truth that oil prices are high because of booming demand in the United States and China and widespread supply disruptions. Venezuelan output is down, despite assertions to the contrary. Increasing violence has reduced Nigerian production by 25 percent. Iraqi production remains below 2002 levels and far below the output common in the 1980s before the first gulf war. The Iranian president makes daily pronouncements that increase world fears of even broader fighting around the Persian Gulf.
High prices ultimately cure high prices just as low prices bring an end to low prices. Oil users cannot cut back much in the short run, but the longer prices remain high the greater the adjustments users can make. Oil producers cannot ramp up production much in the short run but they can in the long run.
Political conditions in Nigeria and Venezuela are beyond U.S. control. Our policies in the Persian Gulf region have more impact, but the thrust of these policies points toward more unrest over the next few years — not less.
Winston Churchill had blunt advice for the British people at the height of German bombing in 1940: “Get used to it.”
The United States would be better off if our leaders possessed the same honesty.
© 2006 Edward Lotterman
Chanarambie Consulting, Inc.