Students of energy policy despair, and at times believe that Dante's inscription on the entrance to hell should be emblazoned on the entrances to the Capitol and the White House, "Abandon hope all ye who enter here."
Our president has just gone to Saudi Arabia to grovel before the royal family in the hope of persuading the kingdom to open its taps just a bit to bring soaring oil prices down. The caribou lobby in the Senate has voted down a bill that would have opened a small portion of Alaska's untapped oil fields to exploration and development. (Hillary Clinton and Barack Obama voted to continue the restriction, and John McCain would have joined them had he not been out of town reveling in the applause for his speech promising to lead the fight on global warming.) And the farm and ethanol lobbies are prepared to crush the groups calling for an end to the food-for-fuel mandate that requires motorists to use nine billion gallons of ethanol (auto fuel made from corn) this year.
A good part of the energy policy muddle stems from a tendency to ask the wrong questions. Ask the wrong questions, and you get the wrong answers. The question now being asked by Hillary Clinton, John McCain, and other politicians whose notion of the long run extends only for the six months until the November election is, "How can we lower gasoline prices?" Their answer: Reduce the approximately 18 cent-per-gallon federal tax on gasoline during the summer
driving season. The reasons that is exactly the wrong policy are too many to list. One is that oil producers, or oil companies, or service station operators would raise prices by an equivalent amount. Hillary Clinton, in her new populist incarnation, might dismiss this as the ranting of pointy-headed economists, but it is nevertheless true. But give the pandering pols the benefit of the doubt, and assume that prices would go down. The right question would have been, "Is it good policy to lower gasoline prices?" The right answer is "no."
Higher prices seem to be persuading Americans to use less gasoline, witness the increased use of mass transit reported in many cities around the country. Lower gasoline prices would encourage Americans to drive more, use more of the cheaper gasoline, emit more pollutants, and increase the demand for crude oil. So regimes hostile to the United States would sell us still more oil. Venezuela's Hugo Chávez, whose government owns some 8,000 Citgo gasoline stations in America, must be astonished to learn that leading American politicians are eager to increase his revenues so that he can step up his propaganda campaign against America. And the Saudi financiers of jihadists and of the Wahabbi mullahs who fuel anti-Americanism would be pleased to have a few extra hundred million. So would Vladimir Putin. Better that, figure our politicians, than to take the political risk of increasing taxes on gasoline, reducing demand, and getting to the consumers' wallets before OPEC and its allies do.
The wrong question--how do we lower prices?--also led Congress last week to pass legislation ordering the president to stop buying oil for the Strategic Petroleum Reserve. The reserve now contains 701.3 million barrels, a record. Bush wants to fill it to its capacity of 727 million barrels this year, and eventually double the capacity. Stop buying oil, critics, including John McCain, tell President Bush, and demand pressures will ease. Better still, start selling off some of the strategic reserve, and increase supplies of crude oil. The notion that the government can outsmart the market by buying low and selling high is, to put it mildly, questionable. As is the assumption that it is smart enough to distinguish a shock, which might justify use of the reserve, from a trend, which should be allowed to play itself out so that the economy can readjust to the new prices. Besides, oil companies are likely to increase their own inventories when the government stops stockpiling, stepping up purchases of imported crude oil in order to do so. Net effect of all of this on demand and supply: nil. Net effect on our ability to withstand a supply cut-off: substantial.
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