Wednesday, May 03, 2006

Pelosi and Hastert: Playing Dumb and Dumber.

What I have to say is sadly we are living in a new era of robber barons. The American consumer is paying record prices while oil companies make record profits and make record contributions to the Republicans.

House Minority Leader Nancy Pelosi, May 2, 2006, as reported on Fox News Channel’s Special Report with Brit Hume

Anybody can go to the market and buy what they have to do, so it is disconnected to supply and demand. We need to know why that’s happening. And, if somebody is manipulating the market or the futures market to make sure those prices go higher and higher, we need to be able to stop it.

House Speaker J. Dennis Hastert, May 2, 2006, as reported on Fox News Channel’s Special Report with Brit Hume

Sadly, we are now living in a new era of bi-partisan demagoguery. Large numbers of Democrats have little understanding of how markets work or they at least often speak as if they do. Large numbers of Republicans usually speak as if they have a reasonably good understanding of how markets work. However, with gas prices soaring recently, many Republicans have lost their minds, essentially, and have taken to mimicking their Democratic counterparts.

Minority Leader Pelosi would have you believe that American oil companies recently acquired monopoly power, allowing them to reap monopoly profits and then contributed a portion of those profits to Republicans. Speaker Hastert, going along with this mumbo jumbo, talks as if he thinks Minority Leader Pelosi is right and he is about to crack down on “market manipulators.” Of course, hedgers and speculators perform a useful function when they obtain information, e.g., declining supply projections, and communicate it to the market by offering to buy various amounts of oil at higher futures prices. Those higher prices provide appropriate signals to the market participants to try to increase supply and decrease demand.

You would think that Hastert and Pelosi would know something about the cartel of oil producing countries [OPEC], outside of the U. S., that restricts the production of oil, pushing the price of oil above the level that would exist in a completely competitive world market. That cartel has existed for decades.

The existence of such a cartel means that American, or more accurately, multi-national private, oil companies outside of the OPEC cartel are price-takers instead of price searchers. That is, they don’t set the world price, but they adjust to what it is. In other words, they “take their price,” from the world price for oil, which is influenced, to a large extent, by the above referenced OPEC cartel, of which American headquartered oil companies are not a part.

In recent years, world wide demand for oil has grown rapidly, reflecting large economic growth rates for countries like China that have a major effect on current and projected growth in the demand for oil, worldwide. The growth in world wide supply of oil has not kept pace, in part because of restrictions on drilling in and around the United States, imposed in large part by Democrats, joined by small numbers of Republicans, including Presidential brother and Florida Governor Jeb Bush, who has practiced NIMBY [not in my back yard] politics and helped block new drilling off the coast of Florida. These restrictions reflect, in large part, unjustified environmental concerns.

Senator Barack Obama [D-IL] has argued that drilling, such as in ANWR, would take ten years to have an effect, and he claims the impact would be small. However, he neglects to tell you that Republicans passed legislation in 1995 to drill in ANWR, but the legislation was vetoed by President Bill Clinton. Had Clinton not done so, that production would be “on line,” now and perhaps mitigating the gasoline price spikes. Further, there are other geographic areas in which drilling has been prevented based on environmental concerns, many of which are not sound. Taken together, the impact on oil and gasoline prices of the restrictions on drilling in and around the U. S. might be more substantial than Senator Obama is willing to concede.

There is a similar story to tell on the restrictions on growing refinery capacity in the U.S., but we will leave that for another post.

In sum, if Speaker Hastert can’t find it in himself to make arguments such as the above, perhaps it is time for the Republican Party to find itself a new Speaker. If it doesn’t, come January, Republicans in the House might be disappointed to find that their new responsibility is to pick the new Minority Leader. That’s what happens when you start playing dumb and dumber.
Jeff Berkowitz, Show Host/Producer of "Public Affairs," and Executive Legal Recruiter doing legal search can be reached at