June 18, 2008
U.S. Senators are blaming oil speculators for our pain at the pump. The truth is Congressional leaders speculated that continued access to low-cost foreign oil would allow them to appease the environmental lobby indefinitely. Now, the American consumer is left holding the bag. These Senators are really, really good—at the blame game. To paraphrase P.T. Barnum, no politician ever lost an election by underestimating the intelligence of the American public.
Under the gun for high energy and food prices, Senator Lieberman seems to be the most willing to throw the commodities markets under the bus. Lieberman makes the case by opining that, “This unbridled growth raises justifiable concerns that speculative demand—divorced from market realities—is driving food and energy price inflation, and causing a lot of human suffering.” The good senator should realize that government intervention in markets completely divorces a market from reality causing even more human suffering.
Senator McCain is a bit more cautious, but is no stranger to the value of a good Teflon deflection. He feels that, “There’s a certain speculator effect here; how big that is is impossible for me to judge. There should be a thorough investigation.” It’s worth noting that campaign realities spurred McCain to discover a newfound federalism this week in suggesting that each state be allowed to decide whether to drill off its coast.
And now, Bill Nelson, one of my Florida senators, who routinely beats the anti-offshore drilling gong and who is most adroit at fending off criticism, has joined the chorus stating, “Clearly, unregulated speculators have bid up oil prices to unbelievable and unacceptable highs. Congress needs to step in. We need to shine a light on all the participants and put an end to excessive speculation and any unlawful market manipulation.”
What Nelson, Lieberman and the other anti-drilling members of Congress need to do is put their arms around the shoulder of a radical environmental lobbyist and gently tell them, “We stayed with you as long as we could, but now its time to give the American consumer access to the energy they need.”
Of course, Obama and his fellow liberal Democrats in Congress would not dare do that. They are holding to Speaker Pelosi’s mantra that, “We can’t drill our way out of this problem. But we do have unlimited amounts of sunshine, wind, biofuels, biomass and geothermal heat...” Just how do I fill up my Ford F-150 pickup with sunshine, wind or geothermal heat? The American consumer is tiring rapidly of dreams of “flower” power.
Remember, prices convey a lot of information and prompt complex market activity that bureaucrats can never get right. To anyone who has really stopped to consider this idea that commodities “speculation”’ is somehow bad, it is evident today that commodities markets—and speculators—are actually beneficial to consumers in a free market economy. Hedging (think Southwest Airlines and jet fuel) and speculation (think your pension/mutual fund managers) are the free market mechanisms that result in pricing commodities realistically, accelerating conservation, increasing supply and stimulating entrepreneurial interest in substitute or alternative energy sources.
We should thank the speculators and commodity markets for providing what is in reality market stability, not instability.
Before we jump on speculators, we should recall that one of the first measures taken up by the U.S. Congress in 1789 was whether to pay speculators full value on government bonds that were sold to finance the revolutionary war. Even though the speculators had acquired the bonds from the original holders at a discount, the Founding Fathers understood the importance of the role of speculators and voted to pay them in full.
In the final analysis, today’s Congress speculated on the false hope of perpetual access to cheap energy and thereby committed a national sin. We are left vulnerable and dependent on those who do not share our national best interests. Like under-performing speculators, the obstructionists in Congress should lose their jobs. Unfortunately, they’re too clever for that, and so the American consumer will continue to suffer with an underperforming national energy portfolio.