Obama em­braces the seamy sup­ply side

The Washington Times Weekly - - Commentary - Tony Blank­ley

It is said there are no athe­ists in fox­holes. In that con­text, the re­cent rise in oil prices seems to have turned the Obama ad­min­is­tra­tion into true be­liev­ers (at least rhetor­i­cally) when it comes to the best method to keep gas prices down and the Amer­i­can econ­omy grow­ing.

With oil cost­ing more than $100 a bar­rel, the White House an­nounced last month that it was go­ing to in­crease oil sup­ply by with­draw­ing 30 mil­lion bar­rels from our Strate­gic Pe­tro­leum Re­serve and putting that oil into the world mar­ket.

As Trea­sury Sec­re­tary Ti­mothy F. Gei­th­ner use­fully ex­plained, “[C]ostlier en­ergy and less vig­or­ous world­wide growth would keep U.S. eco­nomic growth to around a 2 per­cent an­nual rate in the first half this year. These re­serves ex­ist to help mit­i­gate those kinds of dis­rup­tion.” Putting ad­di­tional oil sup­plies on the mar­ket, he said, was a “sen­si­ble pol­icy” that should give a lift to a slowly ex­pand­ing econ­omy.

This has not been the anal­y­sis the Obama ad­min­is­tra­tion, un­til now, has brought to the is­sue. Over the past few years, the ad­min­is­tra­tion has ar­gued that gas is too cheap. The pres­i­dent’s en­ergy sec­re­tary, Steven Chu, has said, “Some­how we have to fig­ure out how to boost the price of gaso­line to the lev­els in Europe.” When gas went up to $4 a gal­lon, the pres­i­dent was asked on CNBC whether $4-a-gal­lon gas prices were good for the Amer­i­can econ­omy. He replied: “I think that I would have pre­ferred a grad­ual ad­just­ment.” In other words, he wants the price of gaso­line in Amer­ica to go higher, but he would pre­fer that it go up grad­u­ally (pre­sum­ably so that the new grim re­al­ity could sneak up on the pub­lic slowly and with lit­tle at­ten­tion paid to the steady in­crease.) One has to com­mend the pres­i­dent for that re­mark­ably frank state­ment.

Cer­tainly the ad­min­is­tra­tion’s ban and de­lays on off­shore and new Alaska drilling, its op­po­si­tion to let­ting Amer­i­can oil com­pa­nies de­velop and rapidly bring on line the vast sup­ply of newly found shale oil and shale nat­u­ral gas, the EPA’s ef­fort to force many of Amer­ica’s coal-fir­ing util­i­ties out of busi­ness and the pro­posed spe­cial tax in­creases on Amer­i­can oil com­pa­nies are con­sis­tent with the ad­min­is­tra­tion’s afore­quoted pol­icy of re­strict­ing en­ergy pro­duc­tion in or­der to raise the cost of en­ergy to Amer­i­cans. (Full dis­clo­sure: As I have stated in pre­vi­ous col­umns, be­liev­ing as I do in free mar­kets and high lev­els of en­ergy pro­duc­tion for Amer­ica, I give pro­fes­sional, com­pen­sated ad­vice to Amer­i­can en­ergy-pro­duc­ing cor­po­ra­tions.)

Of course, the rhetor­i­cal sur­ren­der to ra­tio­nal­ity that Mr. Gei­th­ner of­fered up last week — that a larger avail­able sup­ply of oil will lower gas prices and in­vig­o­rate the econ­omy — was only gained un­der the duress of a tank­ing econ­omy and an up­com­ing pres­i­den­tial elec­tion.

Im­por­tantly, the pol­icy sur­ren­der was lim­ited. The only method of in­creas­ing oil sup­ply the ad­min­is­tra­tion is will­ing to en­dorse is the tap­ping of the Strate­gic Pe­tro­leum Re­serve. Of course, that is oil that al­ready has been dis­cov­ered, ex­tracted and stored in our Gulf States. This pol­icy does not add even a sin­gle gal­lon of new oil to our re­serves — in fact, it re­duces our re­serves by con­sum­ing them now rather than sav­ing them for a sup­ply emer­gency (such as an Or­ga­ni­za­tion of Pe­tro­leum Ex­port­ing Coun­tries boy­cott, a war in the Mid­dle East that cuts off sup­ply or a nat­u­ral disas­ter like Ka­t­rina that cuts off sup­ply).

That is the rea­son we have strate­gic re­serves of both oil and cer­tain crit­i­cal min­er­als — to pro­tect our­selves from sud- den cut­offs, not to ma­nip­u­late prices.)

Tap­ping the strate­gic re­serve is the equiv­a­lent of try­ing to in­crease the sup­ply of Amer­i­can meat by go­ing into the Safe­way and shoot­ing a pack­age of steaks. If one re­ally wants to in­crease the sup­ply of meat, go into the woods and shoot some meat that is still on the hoof. Or raise a new herd. If the ad­min­is­tra­tion re­ally wanted to in­crease the sup­ply of oil over the long term to bring down the price of gas and ex­pand our econ­omy, it would per­mit our “en­ergy hun­ters” in the pri­vate sec­tor to de­velop and bring on line the vast oil and nat­u­ral gas re­serves with which Amer­ica has been blessed.

Still, this is at least the­o­ret­i­cal progress. Just as the pres­i­dent ad­mit­ted in De­cem­ber when he ca­pit­u­lated to the Repub­li­cans and agreed to ex­tend the Ge­orge W. Bush tax cuts, “Tax cut­ting is good for an ex­pand­ing econ­omy” (a point he seem­ingly has for­got­ten, as he is call­ing for higher taxes) now he has ad­mit­ted that in­creas­ing oil sup­ply brings down gas prices and raises the econ­omy.

Just as we are all be­liev­ers when in fox­holes dur­ing war, ap­par­ently we are all sup­plysiders when in $4-a-gal­lon re­ces­sions be­fore elec­tions.

Tony Blank­ley is the au­thor of “Amer­i­can Grit: What It Will Take to Sur­vive and Win in the 21st Cen­tury” (Reg­n­ery, 2009) and vice pres­i­dent of the Edel­man pub­lic re­la­tions firm in Wash­ing­ton.

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