Paul Krugman writes about oil again, and makes sense
Paul Krugman writes about oil again in his New York Times column today, and this time he actually uses the entire column to write about oil instead of attacking the Bush administration. The New York Times > Opinion > Op-Ed Columnist: A Crude Shock. Maybe he read my blog and rewrote his column based on my complaints about his last column.
In fact, Kerry should read this column. Kerry has been complaining about oil prices being high, and blaming Bush for it. Here we have a ultra-liberal like Krugman actually talking straight and making sense.
The oil crises of the 1970's began with big supply disruptions: the Arab oil embargo after the 1973 Israeli-Arab war and the 1979 Iranian revolution. This time, despite the chaos in Iraq, nothing comparable has happened — yet. Nonetheless, because of rising demand that is led by soaring Chinese consumption, the world oil market is already stretched tight as a drum, and crude oil prices are $12 a barrel higher than they were a year ago.
Ah ha! Here we have Krugman admitting that oil prices are not high because of Republican policies, but because the Chinese are consuming too much, and supplies are limited.
What if something really does go wrong?
This is certainly a reasonable question to ask.
The International Energy Agency estimates the world's spare oil production capacity at about 2.5 million barrels per day, almost all of it in the Persian Gulf region.
Yes, in case you didn't get it before, oil prices are high because there is barely enough prodouction to meet demand.
But wait: basic economics says that markets deal handily with excesses of demand over supply. Prices rise, producers have an incentive to produce more while consumers have an incentive to consume less, and the market comes back into balance. Won't that happen with oil?
Yes, it will.
Yes, the basic principle of supply and demand. Free markets work. Imagine a liberal admitting that free markets work! Liberals like Kerry who think we use too much oil should be happy that prices are high, because high prices will give consumers an incentive to consume less.
Sustained high gasoline prices lead to more fuel-efficient cars: by 1990 the average American vehicle got 40 percent more miles per gallon than in 1973. But replacing old cars with new takes years. In their initial response to a shortfall in the gasoline supply, people must save gas by driving less, something they do only in the face of very, very high prices. So very, very high prices are what we'll get
Yes, once again an explantion of how high prices will cause people to conserve energy. People will drive less. What an interesting concept. Maybe instead of driving 30 miles to the big Walmart, they will walk to a nearby store. What a radical concept, people using their feet to get from point A to point B. Liberals have complained about how Walmart squeezes out the small businessman. High gasoline prices will give the small businessman a chance to come back. Liberals should be cheering the high gasoline prices. Why aren't they?
So oil prices will stay high, and may go higher even in the absence of more bad news from the Middle East. And with more bad news, we'll be looking at a real crisis — one that could do a lot of economic damage. Each $10 per barrel increase in crude prices is like a $70 billion tax increase on American consumers, levied through inflation.
Here is where Krugman is wrong. Because only about half of our oil is imported, that means that half of the $70 billion benefits American oil companies. Or shareholders of American oil companies. Who are these shareholders? I am one of them. I've made a lot of money (relative to the unfortunately small amount invested) from my investments in domestic oil and gas companies. I couldn't be happier that oil prices are high. If you had read my blogs and followed my investment advice, you too would own oil stocks and be as happy as I am.
[I]f there is a major supply disruption, the world will have to get by with less oil, and the only way that can happen in the short run is if there is a world economic slowdown. An oil-driven recession does not look at all far-fetched.
This is good news for Republicans! George W. Bush doesn't have a chance in hell of winning another term in office. So John Kerry will get blamed for the economic downturn, which means he will be a one term president, and then maybe if we are lucky, in 2008 the country will elect a genuine conservative Republican into office, one who believes in a small federal government, simplifying the tax code, eliminating burdensome regulations, keeping illegal immigrants out of our country, and all the other things that real Republicans believe in that W. doesnt.
It is, all in all, an awkward time to be pursuing a foreign policy that promises a radical transformation of the Middle East — let alone to be botching the job so completely.
It causes Krugman great pain to make it through a whole column without putting down the Bush administration, so he had to stick in a gratuitous insult at the end. But at this point, it's really like beating a dead horse. With Bush's approval rating at an all time low, and nothing looking up for him on the horizon, he's already like a lame duck.
posted Friday, May 14, 2004