On Wednesday, Cambridge Energy Research Associates' Dr. Daniel Yergin told the Democratic chairs of the Joint Economic Committee (JEC) to do what they have long refused. They should let the oil companies start drilling.
"Investment [in oil] needs to be stepped up to play a vigorous game of catch-up," Yergin announced. He paid some lip service to alternative fuels, calling for an "ecumenical approach" to the problem, which includes things that both Daniel Day Lewisian conservatives and fuzzy liberals want.
Mostly, though, he reminded them of the very stark "reality that over 60 percent of our energy today comes from oil and gas," and that that figure isn't likely to budge much in the near term.
Yergin knows something about the subject. He's an expert on oil markets whose book The Prize: The Epic Quest for Oil, Money, and Power won a Pulitzer.
But it's likely that his measured advice will be ignored by the Democratic-controlled Congress in favor of populist policies -- such as the windfall profits tax, suing OPEC, authoritarian regulation of oil markets, and massive subsidies for alternative fuels -- that most of those who lined up to testify warned would be disastrous.
YERGIN EXPLAINED that markets are more than capable of solving America's current energy problem without the kinds of government interventions the JEC's vice chair, Rep. Carolyn Maloney (D-NY), has proposed.
He illustrated the point by telling a tale of two oil shocks: the seventies oil crisis under Jimmy Carter and the drop in production following Hurricane Katrina.
Under Jimmy Carter's price controls the supply of gas dwindled, leading to those infamous, hated "gas lines." In 2005, however, the market was left alone and the price mechanism ensured a "smooth" supply response, limiting shortages and only temporarily boosting prices.
Yergin labored to dissuade Maloney from a witch-hunt for speculators. She, along with Rep. John Larson (D-CT), has proposed an insane bill that would allow only those who are able physically to receive barrels of oil to participate in oil futures markets as a way of kneecapping those markets.
Rep. Kevin Brady of Texas called such plans "gimmicks." Other Republicans piled on with stronger language. Retiring New Mexico Sen. Pete Domenici even warned that the U.S. might face "economic destruction" if we don't allow more domestic production, according to the Hill.
Utah Sen. Bob Bennett said of the Democrats' reluctance to open up the reserves in the Alaskan National Wildlife Refuge that the caribou would just love to play in the new oilfields. At least, I think that's what he was saying.
"I've been to Alaska. I've seen ANWR. I've also seen the Naval Petroleum Reserve...[T]here's more wildlife in the petroleum reserve than there is in the wildlife refuge, and there's more oil in the wildlife refuge than there is in the oil reserve," Bennett claimed.
ONE OF THE things that became abundantly clear in the hearing was just how much trouble the U.S. would be in if we had clamped down on the market more tightly.
John Laitner of the American Council for an Energy-Efficient Economy explained that efficiency has doubled since 1970. Thus the greatest gains have been in "the energy that we don't see in our daily lives," and that people are not now forced to foot the bill for at these higher rates.
Frederick Joutz, professor of economics at the George Washington University, explained that Americans used less oil per dollar of GDP in 2007 than they did in 1973. There have been some regulations passed, but most of these gains are the result of the free market responding to changes in price.
Yergin noted that American demand for oil actually peaked in 2007. He said that if the price of oil continues to rise, the U.S. could conceivably decrease daily consumption by 600,000 to 900,000 barrels a day without causing great discomfort or disrupting daily life.
The message that these distinguished panelists tried to send Congress, in other words, was 1) Don't panic; and 2) Loosen your grip. For that reason, they'll probably be ignored.
When government decides it's necessary to take an activist role in matters of supply and demand -- when it's assumed that some guilty party must pay for that $4 a gallon gas -- our elected representatives tend to forget that the free market is a viable option.
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