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No, Actually, You Can Go

August 8th, 2008 · No Comments

So, DC conservatives are all (ahem) atwitter over #dontgo, a mobile social networking powered movement dedicated to attacking Congressional Democrats for adjourning without deploying their magical Congress-powers to “solve” the energy crisis. More specifically, the plan is apparently to make hay of the refusal to open up the continental shelf to offshore drilling, which is presumably part of some ecofascist plot by elitist Beltway types to stick the average voter with high gas prices. This is fairly silly, but since I’m an elitist Beltway type, preloaded with the requisite sneering contempt for the wisdom of said average voter, I’ll allow that it might nevertheless be an effective tactic.

The trouble is that reporting on this debate tends to mention the general consensus that authorizing new drilling now would have no discernible effect on near-term gas prices. Even once the platforms are built and the oil is flowing in a decade or so, we’re probably talking about an effect of a couple cents per gallon, by most estimates I’ve seen. So in order to obscure the point, we’re now getting analyses like this one at The Next Right or this from AEI’s Kevin Hassett. I’ll save you ten minutes: Both spend way too many words making the elementary point that current prices embed expectations about future supply and demand.

This falls into the class of observations I’ve previously dubbed outsights. Because just as future supply expectations are priced in already, when economists make estimates of short-term price effects, it’s probably safe to assume that they, too, have already factored in incredibly basic economic principles. Really, this looks like a bit of misdirection: Nobody sane denies that, generally speaking, future supply increases affect prices now. (Of course, the same goes for future demand reductions as a result of competition from alternative fuels.) The question is whether we’re talking about any decrease worth mentioning. Photons from the stadium lights may “affect” the arc of a thrown baseball, but as a rule, we don’t think it’s worth factoring in.

Hassett and others keep alluding to the 86 billion barrels in recoverable offshore reserves, but the same estimates place only about 18 billion of those (though that’s probably a conservative guess) in areas covered by the current moratorium. Nothing to sneeze at, I suppose, but in terms of annual output, a drop in the bucket in a global market. And we’re meant to think this it’s nevertheless going to shift current output, ten or twenty years out, enough to show up at the pump? I won’t say it’s impossible—futures markets are weird, and sometimes relatively small supply shifts generate disproportionate price swings. But I think it’s telling that I don’t see anyone making the case for why we should expect this to happen. The purely theoretical point is true, of course, but useless. Water is toxic at some dose; this isn’t helpful guidance as to whether I should swig any particular bottle of Dasani.

None of which is to say we shouldn’t open up at least some of those currently verboten areas to drilling. Sometimes, wacky as it may sound, it’s a good thing when policymakers look further ahead than the next cycle. But it’s depressing to see it pitched like some kind of late-night infomercial scheme for FREE MONEY NOW! And to make matter’s worse, they don’t seem to be hitting back as hard against actively awful (as opposed to merely ineffective) Democratic proposals, because it looks like McCain wants to get in on the anti-speculation demagoguery as well.

Tags: Economics



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