The Conspiracy To Lower Gas Prices
During the Clinton years, right wing nut jobs made a mint by propagating theories of a drug-addled president, who was responsible for offing Vince Foster and his own Commerce Secretary. They were ludicrous theories, of course, but they still made money. Supporters of Clinton, as well as non-partisan moderates like myself, rolled their eyes. Several years later, left wingers are showing that they can be just as unhinged. Theories of a GOP-led conspiracy to manipulate gas prices prior to the election are just as misguided as those suggesting that they were manipulated on the way up. Unfortunately, USA Today reports that about 42 percent of respondents believe it. I say it is unfortunate not because a Democratic takeover of Congress would be necessarily bad. It is unfortunate because it distracts from the real energy policy outrages.
In case you missed it, moreso than any other issue, including the Iraq War, George W. Bush's approval ratings are tied to gas prices. The charts of each could be mirror images. Clearly, the drop in gas prices puts a cork in the Democrats' champagne bottles. The conspiracy stems from the proximity of the price drop to the elections, along with a mysterious move by Goldman Sachs to decrease oil's importance in a widely followed commodities index. The new Treasury Secretary, Hank Paulsen, just joined the administration from Goldman.
Let me be clear on this. Nobody is able to manipulate global oil prices enough to account for such a steep drop. Not Bush. Not Exxon. Not the Saudi Royal Family. Not even OPEC. Financial markets players, especially those in a commodity market so large, are just too greedy to let it happen. Whenever prices get too far away from reason, other players will fill the gap to bring prices back to normal. Not doing so would cost them money, or at least cause them to miss an opportunity (which they view as one and the same).
Gas prices are going down for several reaons, just as they went up for several reasons. The increase of the last 2 1/2 years was brought about from pretty good economic growth in the world's largest consumer country (the U.S.), torrid growth in two economies that account for 1/3 of the earth's population (India and China), supply disruptions in Venezuela and Nigeria, supply disruptions from Gulf hurricanes, and instability in the Middle East in the form of wars in Iraq and Lebanon. The new thing about the last round of increases was the speed, brought about by an army of speculators flush with hedge fund assets. The speculators amplify and speed up changes that would have occurred eventually, but they, too, are incapable of manipulation. In fact, speculators often cause prices to overshoot the reasonable targets, which usually creates a bloodbath in the pits.
This year, economic growth is beginning to cool in the U.S., China, and India. Not only is the supply that was knocked offline by the Gulf hurricanes coming back, no new hurricanes have exacerbated the problem. Fears of a World War III-like blowup in Israel and Lebanon are subsiding. Iraqi oil production has just surpassed pre-war production levels. Add to this the worldwide scramble to bring new supply online while prices are high, and you have the classic, market-driven antidote to high prices. This time, the speculators were caught off-guard. When the weather services announced that, counter to previous reports, the Gulf Hurricane season would not be as severe as thought, billions upon billions of long hedge fund money evaporated nearly overnight. One large fund, Amaranth Advisors, blew up completely to the tune of $9 billion.
One reason commodities are such an enduring asset class is the length of their up and down cycles. Because of permitting, environmental studies, building infrastructure, and other reasons, suppliers in extractive industries will always take awhile to meet demand after it becomes apparent. Last month's alleged (and I do mean alleged) find off the Gulf Coast will take years before we see the first drop.
Even OPEC is almost powerless when it comes to setting prices. They were somewhat successful during this last upswing only because every member except Saudi Arabia was pumping at their capacity. As oil prices started dropping, the Saudis called for production cuts from their members, and were promptly given the bird by the other members. If a small number of countries who have benign (or otherwise) dictators are unable to cooperate, how could the administration marshall multiple oil companies with shareholders to answer to and operations all over the planet?
It may be fanciful to expect the electorate to grasp complex principles, or that politicians will embrace facts and reason instead of pandering. But, I believe the conspiracy business detracts from what are real Bush Administration energy policy failures. Taxpayers still shell out billions in drilling subsidies to oil companies at a time when prices require no such subsidy. The infernal tax writeoff for SUV's still gives people an incentive to buy the most inefficient gas guzzlers. Much of the energy legislation is not only supported, but actually written, by energy companies. And, government subsidies to the alternative energy technologies that can really help ween the country off oil are but a fraction of the aforementioned oil drilling subsidies. Leave the conspiracy talk to Oliver Stone.