The great oil scare of 2005

Yesterday, several top oil executives were called to testify before Congress on high energy costs. Specifically, they were called to explain why they were making so much money of late. You can read the story here. What business is it of Congress how much money a legal company is making? Ok, I’ll grant you that Congress should be concerned about price fixing, gauging of the consumers. But that is not what is going on here, and it is clear to anyone who paid attention in high school economics.

There is an enormous worldwide demand for oil right now. We all know that supply is stickier than demand –it takes longer for supply to catch up (assuming in this case it can catch up) to rising demand. If the markets are not allowed to work freely, which is what several legislators are calling for with this silly idea of a “windfall profit tax”, we will see temporary price decreases, but we will also experience energy shortages. We all know how that worked back in the 70’s, right? If you are a producer of oil, and you are going to get taxed at x% over a certain profit – why would you continue to produce oil once you hit that profit mark? You wouldn’t – and that will lead to an even thinner oil supply. It makes no sense. What makes even less sense is that this tax would only affect the U.S producers (a small percent of world production). If you are an investor, why would you invest in a U.S oil firm that is getting taxed at a higher rate when you can just invest in an overseas firm – you wouldn’t? Are you starting to see what nonsense this “windfall profit tax” is?

But wait, there is more. Some of the same legislators who summoned the oil executives for show and tell - as of yesterday, decided not to open parts of ANWAR to oil drilling – and decided not to allow drilling off the east and west coasts. Specifially, the decided not to allow the States to decide on allowing drilling off thier coasts! So long Federalism. The Senate last month included ANWAR drilling in their budget bill, and the House removed it from theirs yesterday. It will be interesting to see how this shakes out in joint committee. But it strikes me as hypocritical to lambaste big oil for high oil/gas prices while at the same time refusing to allow the domestic expansion of oil/gas production at home. Not to mention that a new refinery has not been built in the U.S since the 1970’s!!

So, who is to blame? Of course, the usual Democratic suspects, but this time, a few Republicans have succumbed to the hysteria as well. I have been thoroughly disappointed in the Republican Party this year. Grow a spine for crying out loud! Republicans have a majority, and not by just one vote either. Quit trying to play nice. Democrats don’t know what nice is.

As I re-read this, I realize it isn’t super coherent. But writing it down was certainly therapeutic for me. I am just really sick of liberals crying about oil/gas prices as they drive the cars (that use gas) down the freeway (made with petroleum products) to their office (heated and cooled by petroleum products), while at the same time refusing to allow the U.S to tap a fraction of its natural resources that can be used to help alleviate the supply problem.