Is the High Price of Oil a Conspiracy?

Karen Campbell /

Why is the price of oil a difficult concept for some on the left? They want to come up with some grand conspiracy theory and rush to command-and-control legislation claiming that Americans have a “right to lower gas prices.” This is at best silly but at worst dangerous.

This mentality hinders future economic growth by giving people a victim mentality and stifles the entrepreneurial spirit by making it seem as though government is the only one who can solve the problem. Congress is now fixated on speculators. If Congress wants to weed out speculators, it should allow more potential supply. Anticipation of increased supply will put downward pressure on future oil prices and hence the prices of these future contracts will decline. If these markets have run amok with speculators, these speculators will immediately see the value of their contract decline. (No one is going to want a speculators contract to buy a barrel of oil at $130 when they expect the price to be $100.) Hence Congress quickly punishes speculators in the most efficient way possible — using the market’s discipline rather than holding committee meetings and investigations and then imposing fines and then collecting fines and then who knows what.

High gas prices are not a conspiracy, they are a signal. Modern economies run on energy. As more countries’ economically develop the value of energy increase. Resources are scarce. (Despite what some say, conservatives are not hoarding all the world’s resources.) This means there is a cost to using resources (labor, land, capital) to supply a product. The high price is telling consumers that the resources needed to get more oil supplied are getting more costly. This may be due to oil running out, but it is more likely the cost for extracting oil has significantly increased. This is especially true when there are oil reserves that could be inexpensive to develop but are currently considered off-limits.

The “new” idea on the left is to allow drilling BUT only where Congress commands — no matter if exploring an oil reserve makes economic sense or not. The argument that the oil companies already have permits to drill in areas and they are currently not doing so. The left has taken to a “use it or lose it” mantra. To use their exercise metaphor, people “lose it” because exercising is hard and that makes it more costly to “use it.” The fact that oil companies have these permits and have not been “using it” must indicate that the benefits have not outweighed the costs. Oil drilling is hard and costly. If we want the price of oil to decrease, why do we want companies’ to drill in places where it is the most costly to do so?

How do we deal with our current economic woes? The economy does not need to be solved. It is not a Suduko. An economy simply describes a group of people with values, skills and resources and any technology and institutions they use.

But there are rules. For example, the market mechanism is one rule.

A market gives incentives to entrepreneurs (whether employed within a firm or on their own) to find ways to bring costs down. To the extent we let them do so in the case of oil production, the consumer will ultimately be the beneficiary. Entrepreneurs have brought cell phones that can email, E-Z passes on highways, self-cleaning ovens and endangered animal tracking devices. Shouldn’t we listen to what they think is the solution?