California Conservative

Kevin Haslett has written a logical, compelling article on the drill vs. not drill battle. Here’s how he lays things out:

The economics of extracting resources is quite simple and intuitive. If you own property that has oil in the ground, then you have to decide how rapidly you wish to deplete your resource. If prices are low today, and you expect them to be much higher in the future, then you will hold off pumping a lot.

Open Spigot Now

If prices are high today and are expected to be much lower tomorrow, then you would rather open up the spigot now when profits will be higher.

Later in the article, Mr. Haslett opens both barrels on the D’s:

What about prices today? A vast body of academic literature finds that future prices and spot prices are intricately linked in a manner that could only occur if producers are constantly updating their plans based on expected prices.

A recent study by economists Param Silvapulle and Imad Moosa of Monash University in Australia found strong evidence of what is called bidirectional causality. Future prices and spot prices are inextricably linked.

Too Obvious

How strong is the case? My American Enterprise Institute colleague, former U.S. House Speaker Newt Gingrich, has been a tireless advocate of a more rational energy policy that allows for more drilling.

In a recent post at his influential blog, Gingrich noted that the top academic energy journal, aptly named, “The Energy Journal,” recently rejected a study by economists Morris Coats and Gary Pecquet of Nicholls State University in Louisiana that found that higher production in the future would reduce prices today.

The study, Gingrich reported, wasn’t rejected because it lacked academic merit. It was rejected because the finding was so well known. James Smith, the impeccably credentialed editor of The Energy Journal described it this way to the unfortunate authors:

“Basically, your main result (the present impact of an anticipated future supply change) is already known to economists (although perhaps not to the Democratic Policy Committee). It is our policy to publish only original research that adds significantly to the body of received knowledge regarding energy markets and policy.”

In other words, economists know that increasing oil production leads to lower prices. This isn’t considered rocket science; it’s considered an article of faith.

Let’s take this a few steps further. My hometown paper, the St. Cloud Times, ran an editorial by Susan Gaertner, which I posted about here. I noted that Ms. Gaertner has announced her candidacy to be the DFL nominee for governor in 2010, which I included so that people could determine for themselves whether there’s a political agenda involved in her LTE. Here’s what Ms. Gaertner said that I want highlighted:

In March, the Bush Administration’s Energy Information Administration issued a report that said even if ANWR was opened to drilling, it would be at least five years before the oil would begin flowing and 17 years before it could reach its peak flow. In addition, the EIA report said the projected amounts of oil produced from ANWR at peak would only reduce United States imports of oil by 4 percent and have little impact on the price of a barrel of oil.

I’ve said it before and I’m sure that I’ll repeat it often: I’d rather trust an economist than a lifetime bureaucrat when it comes to oil price projections. In fact, I don’t consider it a choice as much as I consider it a no-brainer.

Nonetheless, Harry Reid and Nancy Pelosi refuse to allow a vote on increasing oil production unless it’s in areas where leasing is already open. Sen. Citizen of the World’s policy is so similar to Reid’s and Pelosi’s that it’s impossible to tell them apart. It’s almost like they’re speaking from the same script.

Which leads to this question: Why do Democrats, whether they’re candidates for the US House or Senate, whether they’re incumbents in Pelosi’s mad House, or whether they’re part of the leadership or whether they’ve just fresh off a continent-wide coronation/campaign swing, insist that drilling can’t possibly lower prices? As much as I’m convinced that Harry and Nancy are the dimmest bulbs in a cheesy chandelier, I can’t bring myself to thinking that they’re that dimwitted.

The truth is that I think their minds are shut. They’ve drank the global warming kool-aid, which causes them to entirely to refuse to budge. I think it’s almost certainty that they really think that we’re destroying Mother Earth that they’ll do anything to prevent the plundering of ‘Mother’.

I further think that they’d rather limit people’s freedoms than allow them to make their own decisions based on logic and sound economic principles.

Reid’s and Pelosi’s rigidity is about to get them in trouble. It isn’t difficult to picture Ms. Pelosi’s rigidity costing her a bunch of House seats, though I can’t picture her losing her Speaker’s office…yet. I can see this issue costing Sen. Citizen of the World, aka Sen. Obama, the presidency.

That’s because I can picture factory workers in Bethlehem, PA and Youngstown, OH worrying far more about the cost of driving their car or heating their homes than they care if Europe likes us. What Sen. Obama offered is a stopgap measure at best. What Sen. McCain proposed in this interview is true relief:

Hannity: Senator, I know because everywhere I go, people talk to me about the high price of gasoline and the impact that it’s having on their lives, the economy. Most Americans are angry when they find out that we have more resources here in the United States that we’re not tapping into. I’ve even argued that we have a clear and present danger facing the United States, the possibility of an energy war. Am I overstating the case?
McCain: No. We’re sending $700 billion a year overseas to countries that don’t like us very much. Some of that money ends up in the hands of terrorist organizations. It’s one of the greatest transfers in wealth in history and I think you are exactly right on the mark when you say that Americans are starting to figure things out. Of course we have to drill offshore. Of course we have to exploit every means we have of bridging this gap while we make the transition to energy independence. I viewed a new automobile the other day, the Volt. I pray it succeeds. It could revolutionize the auto industry and I also want to mention that we all love wind, tide, solar, all of that, nuclear power…nuclear power. The French can build a nuclear power plant in five years. We should build 45 nuclear power plants by 2030 and that will create 700,000 new jobs and it’s clean.
Sen. Obama opposes offshore drilling. He opposes nuclear. He opposes a gas tax holiday. He opposes giving an award for a real battery-driven car. So he, uh…
Hannity: And coal.
McCain: And coal. And we’ve got to invest $2 billion a year in peer research and development, in clean coal technology. We are sitting on the world’s largest supply of energy in the form of coal reserves. We’ve got to have clean coal technology.

This isn’t a onetime thing with Sen. McCain either. Hannity interviewed Sen. McCain Monday to open his “Final Hour Free For All.” Sen. McCain was just as emphatic Monday as he was during last Wednesday’s TV interview. Sen. McCain also said that, though he didn’t like the option of drilling in ANWR, he’d keep that on the table during the debate. I’d prefer he simply declare that it was part of the solution but I like the fact that he isn’t rigid about this like Obama, Reid and Pelosi.

During Wednesday’s TV interview, Sen. McCain said that we must start challenging the notion that it’ll take a decade for us to get oil from new drilling. He said that oil executives have told him that it’s possible to see results within 2-3 years from shallow water wells.

It’s amazing to me that politicians are perfectly willing to ignore what economists take for granted. Those that take that errant position should be made to pay. These politicians should pay by getting retired this November.

Technorati Tags: Gas Crisis, Kevin Haslett, John McCain, Sean Hannnity, ANWR, OCS, Newt Gingrich, Nuclear Power, Coal to Liquid, Obama, Harry Reid, Nancy Pelosi, Environutters, Election 2008

Cross-posted at LetFreedomRingBlog

This entry was posted on Tuesday, July 29th, 2008 at 4:48 am and is filed under Author: Gary Gross, Election 2008, Energy, Environment, McCain, Obama, Pelosi, Special Interests. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.