Gasoline Prices: Russert Tries Demand & Supply

Arianna Huffington should consider John Derbyshire to do her Russert Watch:

Watching Meet the Press roundtable on the gas price kerfuffle. Russert, challenging Energy Secretary Sam Bodman: “Oil demand is up. Supply is down. So why are prices rising?” Er………..

OK – Rachel Sklar did a nice job echoing something CalculatedRisk observed:

Bodman says that oil prices are high because demand exceeds supply, explaining that there’s more demand than there is supplyBodman says that oil prices are high because demand exceeds supply, explaining that there’s more demand than there is supply

The MTP transcript has the words:

MR. RUSSERT: Mr. Secretary, if, if demand is up but supply is down, why are the profits so high?
MR. BODMAN: For that reason.
MR. RUSSERT: No, think about that.
MR. BODMAN: You know?
MR. RUSSERT: Play it out.
MR. BODMAN: Demand is up.
MR. RUSSERT: Correct.
MR. BODMAN: Right?
MR. BODMAN: So you’ve got more demand, you’re going to force price up.
You’ve got, you’ve got limited supply, and you’re going to have…
MR. RUSSERT: But that’s a decision by the oil companies.
MR. BODMAN: No, it is not. That is a decision—those are—oil is traded every minute of every day, and it’s traded basically 24-by-seven. And it’s, it is determined in marketplaces in New York and London and Tokyo, all over the world. That’s the, the—the oil companies do not determine the price of oil; the producers determine the price of oil.
MR. RUSSERT: They determine, they determine, help determine the price at the pump. And if the, if their profits are going up, they have made a decision to add on the cost at the pump at such a level to guarantee higher profits.

You might note that Derb did not quote Russert exactly – but his paraphrasing did capture Russert’s utter stupidity. The transcript, however, did not capture Bodman’s initial reaction – which was a blank stare, which was my initial reaction to Russert’s question. Russert, however, got Bodman back by showing what George Bush said on September 21, 2000 when Al Gore suggested tapping the strategic petroleum reserve:

Today, my opponent, in response to public outcry, proposed that our nation tap into the strategic petroleum reserve. That’s bad public policy. The strategic reserve is an insurance policy meant for a sudden disruption of our energy supply or for war. Strategic reserves should not be used as an attempt to drive down oil prices right before an election. It should not be used for short-term political gain at the cost of long-term national security.

Bodman’s reply?

MR. BODMAN: Tim, this, this president has been very consistent in his, in his application and management of the strategic reserve. We have not used the reserve for interruptions in supply. We have been asked by the Democrats when oil was $60 a barrel to remove oil from the reserve and put it into the marketplace in order to drive prices down. We declined to do that. Now we have oil at $75 a barrel. You know that the, the movement of prices is a function of the, the supply and demand as we’ve already talked about and it is not something that is, I think, going to be meaningfully affected by whatever happens to the strategic reserve. He has taken the position at this point in time to suspend the, the repurchase until the fall after we get through the driving season. So I, you know, it’s a, it’s a modest effort, it is a symbolic effort, but it is something that I think may help.
MR. RUSSERT: In all honesty, it’s a political effort before the midterm elections.
MR. BODMAN: I think it’s not. I wouldn’t call it a political effort. I would say that it’s an effort to, to affect the, the supply of gas, of oil in the, in the system and to, and to make a contribution to the reduction of price.

While Jim Cramer was consistently goofy, Daniel Yergen was consistently good. It’s a shame he had to share the hour with Russert and the rest of the guests.

The New York Times and James Hamilton both deserve praise for covering the political pandering of the gasoline tax cut/subsidy proposals. Dr. Hamilton and fiscal conservatives are both noting that these proposals will increase an already very large deficit, which means they are tax shifts – not cuts. Dr. Hamilton also suggests that the incidence of the tax cut will accrue to suppliers.

But even if the supply elasticity is not as low as Dr. Hamilton assumes, Brad DeLong might ask – why are we trying to encourage more consumption of oil? (for some reason, his permalink to Party of Stupidity Watch I goes to Party of Stupidity Watch II – but check out both). In an endorsement of the CAFÉ proposal, Kevin Drum suggests an answer to Brad’s question – the politicians are “Idiots”. Derb would add that certain members of the press are also idiots.

Update: Arnold Kling notes that the foreigner will receive a portion of the gasoline tax cut:

So…for every gallon of gas we consume at the market-clearing price, we will pay less in taxes, leaving more to go into Iran’s pockets. And if that does not help our friends overseas enough, we’ll raise taxes on our own oil companies, so they won’t drill so much. I wish we could suspend the Senate until September 30.

Update II: Thomas Nugent tries to make three points: (a) there is no gasoline crisis; (b) James Hamilton must have the incidence of the tax issue backwards; and (c) when Arnold Kling frets over the Iranians receiving the incidence of the tax cut – we are all Iranians:

A windfall profits tax? Oil corporations will pass this tax back to consumers, thus penalizing consumers … If consumers are indeed poorer over gas-price increases, then somebody else is richer – namely oil producers and refiners. In this sense, an increase in the gallon price is a simple wealth transfer between two economic entities, a transfer that has both short- and long-term effects.

What was Kevin’s term again?