[COLUMN] Market will correct itself

Oil prices declined? How can that be? How can that happen without government intervention? Are you telling me the free market actually works? Demand went down, supply went up and prices dropped. Wow. Imagine that.

Liberals must really hate it when the market self-corrects. It really shows how economically ignorant liberals can be.

While economics can, in detail, be much more complicated than rocket science, its basic principals are simple and even a government-educated fifth-grader should be able to grasp the idea.

Still, for some reason, otherwise very intelligent and well-educated people just don't seem to comprehend it.

It is frightening, really, when people such as U.S. Sen. Barack Obama, a Harvard-educated attorney, a member of the U.S. Senate, and possibly the next president of the United States, says silly, incomprehensible things like, "We can't drill our way out of this."

Nonsense.

Increased supply means lower prices. Period.

What we can't do, and what Obama should have said, is regulate our way out of this. What the Congress needs to do is stop interfering with the market and let it correct itself. It needs to lift restrictions on off-shore oil drilling and drilling in the Arctic National Wildlife Refuge. It needs to lift the onerous regulatory burden on companies wishing to build oil refineries and nuclear power plants.

Instead, the Congress has become a prisoner of special-interest groups that are hellbent on wrecking the American economy in the name of environmentalism.

Some argue that we don't need the oil in the refuge and that it would contribute so little as to have little or no effect on world oil prices.

Even if that were true, which it is not, that is no reason to deny drilling. As part of a comprehensive energy plan, including off-shore drilling and the construction of oil refineries (the last refinery built in this country opened in 1976), it would certainly play a part in reducing world oil prices. More importantly, however, it would increase domestic production, which is always a good thing.

Instead of having a common-sense energy policy that permits safe drilling, liberals in Congress would rather blame oil companies because of some false belief that oil companies are making too much profit, as if there were such a thing.

Oil industry profits are in line with other industries. Yes, in absolute dollars, the numbers seem high. But, the real measure of profit is net income on each dollar of revenue. During the last five years, the oil industry's net income was 5.7 cents per dollar of revenue. That compared favorably to the 5.5 cent average for all industries.

Additionally, the oil industry is more heavily taxed than other industries. For example, ExxonMobil reported after-tax earnings of $40.6 billion in 2007, but it paid $30 billion in corporate taxes. That means that 40 percent of all oil profit is seized by the government.

If the Congress is serious about reducing the price of gas and moving this country toward alternative energy sources, it needs to do several things.

First, for the short-term, it could introduce a gas-tax holiday and offset any revenue loss by putting a moratorium on diverting money from state highway funds. That will give short-term relief.

For the long term, the Congress needs to reduce the number of boutique fuels required by federal law, including requirements for ethanol and other biofuels; reduce restrictions on coal, natural gas and oil development on public lands, including off-shore drilling; remove the regulatory burden for building nuclear power plants; and remove laws that require utility companies to purchase highly subsidized wind power and other alternative energy.

While we will eventually get to the day when our world is powered by something other than oil, that is no reason to jump in front of the bus today in a misguided attempt to bring that change about before it happens naturally.

Americans need to simply trust the invisible hand of the market instead of trying to control the uncontrollable. Only then can the transition from oil to a cleaner and cheaper energy source go smoothly. Or we can continue to think government is the answer instead of the problem and the transition, which will happen anyway, will take longer and be more painful.

Which do you want?

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category | Column
author | Lucente

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