How to Bring Down Oil Prices Now
Raymond L. Richman
Economists have ignored in the name of free trade the unfortunate consequences of the trade deficits which are rapidly converting us into a second-rate power and turning our enemies and potential enemies into industrial powers. Imports of oil are responsible for nearly half of the trade deficit so far this year. Market forces will bring down the price of crude oil a little if you count as market forces the subsidized substitution of ethanol for gasoline, subsidized wind power for coal, oil, and natural gas, subsidized hybrid vehicles, etc. Much more likely to bring down the price of crude oil in the short-run is ending the prohibitions on offshore drilling in the Atlantic and Pacific, in the Alaskan Wild Life Refuge, and on public lands. The price of crude oil would fall substantially if the world believed U.S. actions to increase the domestic supply of oil and oil substitutes were to be effective even though such efforts would not reduce the importation of oil for several years.
The key is credibility. Prof. Martin Feldstein in his op-ed, "We can Lower Oil Prices Now," (WSJ, 7-1-08) has rendered an important service by arguing that credible steps by the U.S. to reduce future consumption and increase the future supply of oil will lead to lower prices of oil immediately by changing the expectations of oil-exporting nations with respect to the expected rate of growth of demand and supply of oil. Unfortunately, history since the oil shocks of the 1970s, demonstrates that this country's decision-makers simply have not considered our dependency on imported oil a problem. Any benefit-cost analysis would have to weigh the supposed benefits and costs of fewer carbon emissions against the real impact of the trade deficits on the dollar, on jobs, and on the economy, which have been very serious as we show in our book, Trading Away Our Future.
Sen. Obama and Congressional Democrats support the current prohibitions against drilling off-shore and in the ANWR. Unfortunately, the Democrats, at this moment of time (July, 2008), appear likely to win the 2008 presidential and congressional elections, Sen. McCain, who likewise supported these prohibitions, recently changed his position and is calling for permitting off-shore drilling. President Bush has called for legislation eliminating the prohibitions against drilling off-shore and in the ANWR. Republican legislators have introduced such legislation. Pressure is building on Sen. McCain to endorse such legislation. This would lend credibility that the U.S. will adopt measures to reduce the importation of oil substantially especially if it becomes an important issue in the current election campaign.