Did Jonah Goldberg Learn About the Economics of Oil from Dr. Newt Gingrich?
After several lines of sheer babbling Jonah treats us with this really funny line:
Even former House Speaker Newt Gingrich — who actually knows how markets work and is better at explaining them than any other politician today
No, I think Jonah really believes that Gingrich is a serious economic scholar, which likely explains this babbling:
The U.S. government has barred billions of barrels of oil from coming to the market by declaring huge petroleum reserves off-limits to drilling. Uncle Sam stores vast amounts in the Strategic Petroleum Reserve, in a petro-lockbox for a rainy day now called “election season.” Government — at the federal and state levels — drives up pump prices with gas taxes and regulations against increasing refinery capacity.
Never mind that the EIA has already analyzed the effect on oil prices from allowing more offshore drilling and that it will have no current effect and a very small effect in the future. The idea that the existence of taxes causes prices to rise is sheer insanity especially given the fact that the relative price of these taxes has eroded over time. This source shows that the share of taxes in the price of gasoline has fallen to only 10.6% as of May 2008. Also note that the share of the price gasoline that goes to the refinery margin was only 10% so Jonah’s line about regulations against increasing refinery capacity is not exactly on-point as far as the current price of gasoline. No – it is the price of oil not what the refineries are getting that is driving today’s prices.
Maybe we should turn the microphone over to a real economist – Jeff Frankel:
Once the long-term goal of “energy security” policy is properly seen to be amelioration of the economic effects of such a disaster, the Republican policy of “drain America first” is seen to be precisely the wrong response. We don’t want to maximize current domestic production. Rather we want to leave the oil underground (or underwater) for decades, until we really need it, until we are so desperate that the economic benefits really do outweigh the costs. (The costs are chiefly environmental, of course. But the Republicans have often been keen on giving oil companies access to nationally owned reserves at prices that are even below market costs. Same as hard-rock mining for mining companies, subsidized water for farmers, and grazing rights on federal lands for ranchers. But the hypocrisy of the self-reliance rhetoric in Western states — “get Washington off our backs” – is another story.) Thus the Democrats have it precisely backwards. The problem with Republican proposals to re-open domestic oil drilling is not that we desperately need the oil right now, whereas new oil discoveries would not come on line for 5 years or more. Rather it is that we might truly desperately need the oil in 20 or 30 years, and so don’t want to use it up over the next decade.
Update: At Movie Guy’s insistent request, let me cite this story:
SAN FRANCISCO (MarketWatch) — Crude-oil futures fell over $4 a barrel Wednesday, leaving crude with its biggest two-day drop in 17 years, after government data showed a surprise increase in U.S. petroleum inventories. U.S. crude inventories rose 3 million barrels to stand at 296.9 million barrels in the week ended July 11, the Energy Information Administration reported. Analysts surveyed by energy-information provider Platts were expecting a drop of 3 million barrels. “If there is anything that should keep the bulls in the corral while the bears feed in the berry patch, this EIA report is it,” said James Williams, an economist at energy research firm WTRG Economics … The unexpected gains in last week’s U.S. inventories “could indicate that the idea of real global demand destruction is finally beginning to take hold in the marketplace,” said Robert Arber, an analyst at financial information provider Stockhouse.com. EIA’s latest report showed fuel demand is falling. Over the last four weeks, U.S. motor gasoline demand has averaged 9.3 million barrels per day, down by 2.1% from the same period last year, the EIA said.
For some reason, MovieGuy felt justified to write the following:
If it is the case (and I don’t know how you would know any facts on this point) that announcements of future intentions will have no bearing on crude oil futures, why did the futures drop after the President’s announcement and Ben Bernanke’s testimony this week? You can’t have it both ways. Either bite the bullet on your position or perhaps back off if you think that you’re on questionable ground.
So let’s see: (a) I don’t know “any facts” on this issue; (b) the only reason for the fall in future prices is Bush’s call for offshore drilling; and (c) anything I or EIA has said to the contrary is simply wrong. This according to MovieGuy. Funny – the MarketWatch explanation did not support this contention at all!