Tuesday, July 1

1970s and 1980s oil shortage here we come again

Congress just voted 402 to 19 (yes those were all Republicans who voted against it) to regulate the futures trading on oil somehow thinking that anticipating a price hike will contribute to a shortage of supply.

This article from the Washington Post says is well:

So it's time for a quick refresher: Richard Nixon's price controls in the early 1970s were a disaster. Administering the controls on energy alone took an estimated 5 million man-hours per year and punished motorists with gas lines. Repeating this experiment by clamping down on oil trading is like burning your hand on a gas stove and then sitting on a barbecue....

Most fundamentally, Nixon's heirs forget that the "speculators" they attack are often trying to reduce risk, not embrace it. Pension funds have piled into oil because they are trying to protect themselves from inflation. Small investors who load up on retail oil funds are mostly doing the same. I know my family will consume several thousand dollars' worth of oil this year, so I logged on to Fidelity's website and locked in my price. Does Congress think I'm irresponsible?

What completes the ironic circle of the economic lunacy is that one of the primary reasons why the Democrats won't open up off-shore drilling is that it won't come into production for up to ten years.

Conclusion? Democrats believe that speculators could put prices up but don't believe that opening up markets in the future could bring those prices down. Even more deadly is the myth that regulating speculation will keep prices down and not just create a shortage.