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Wrong Way Hearing
Last week the Senate Judiciary Committee called upon many oil industry executives to defend themselves on the matter of high oil prices:
It's good to know that I can always depend on my elected representatives to get things completely wrong.
It's not a simple matter of choice to reduce oil prices. And even if it were, the companies represented at the hearing are a small minority of producers in the world oil market. Extractive commodity prices are set by demand and by expectations of future demand. If the price fell artificially, there would be shortages, and shortages would be dangerously worse than high prices.
I do not hold the oil companies completely blameless. They have been asking the government for permission to expand their production (whether that be more refineries, drilling in ANWR, the outer continental shelf, etc.) for years. It was an error merely to ask. They should have insisted on setting a crude oil price at which development would have been allowed.
Think about drilling in ANWR. If we had a free market (we don't), that land would be bid for both by oil companies who want to drill, and by environmentalists who want to preserve it. There would exist some price of crude oil above which the oil companies' expectations of profit from that development would be enough to overcome the potentially high cost of the land (as bid up by environmentalists). Then it would be developed.
The environmentalist lobby is very influential. They have prevented the development of this land without regard to its economic value. But this is wrong, morally and methodologically. Whatever value the undisturbed wilderness has — whether you think that's a little or a lot — ought to be rationally weighed against the value of the alternative uses of that land. If we accept arguendo that it wasn't worthwhile to drill in ANWR with crude oil at $25/bbl, that conclusion may no longer hold with crude oil at $125/bbl. The case for development is, in fact, five times stronger than before.
By blocking the oil companies from increasing production, Congress is responsible for the trouble of ordinary Americans struggling to afford gasoline. The oil companies are trying to increase production, but Congress isn't letting them! When people damn oil companies for high prices, they are literally blaming the victim. When they encourage Congress to enact a windfall profits tax, they are praising the villain.
It's clear that no single development (such as ANWR) will make a large difference in the price of oil. The market is too big and the new production would be a tiny fraction of the total. But that's not a reason to block it! Everything happens at the margin.
To Senator Durbin:
To Congress generally: