Jewish World Review June 2, 2004 / 13 Sivan, 5764

Robert Robb

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Consumer Reports

Gas whiners don't believe in or trust markets | Whenever the price of gasoline increases significantly, liberals complain bitterly.

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 energy.

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 cavil. Why?

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 either.

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 by experts.

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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 are.

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 it.

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 oil imports.

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 mix.

With a stretched supply chain and a poor investment climate, one market characteristic is likely to be greater price volatility for petroleum products.

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.


05/10/04: Border reforms fail on black-market issue
05/07/04: It wasn't Bush's recession nor Bush's recovery
04/28/04: Arizona to become test market on immigration as a political issue
04/23/04: Accusations that the Bush administration has been shredding civil liberties are hyperbolic
04/16/04: Learning the limits
04/14/04: Aug. 6 memo is not even a water pistol, much less a smoking gun
04/11/04: Once 9/11 Commission's political theater ends, we must debate real security issues
04/09/04: Fact checking Kerry's federal budget plans
04/08/04: Should the transfer of sovereignty in Iraq be delayed beyond the current deadline?
04/02/04: Kerry's tax epiphany makes some cents
03/31/04: What could have prevented 9/11
03/26/04: Knock off the high-stakes blame game
03/23/04: McCain a ‘straight talker’? Who is he kidding?
03/17/04: Bin Laden makes distinctions?
03/12/04: In the dangerous neighborhoods, cause for hope, if not yet optimism
03/01/04: Greenspan view scary, but Dems in denial

02/27/04: How not to achieve a mandate

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