The New Hampshire Union-Leader has a novel approach to solving the energy crisis: send Democrats to economics classes. In an editorial yesterday, the U-L flunks Congressional Democrats for their work so far on addressing a supply shortage by blaming those reacting to it. Instead of demonizing “speculators” who can only foresee more shortages as America refuses to produce its own resources, perhaps Congress should unshackle domestic production instead:
MAYBE THE quickest way to lower oil and gas prices would be this: Immediately enroll every Democratic member of Congress in an entry-level economics class.
The lack of even a basic grasp of economic concepts has led Democrats to oppose sensible policies that would begin to lower oil and gas prices. Instead, they push hair-brained ideas that make no sense.
That should be hare-brained, but let’s not split hares. Er, hairs. On speculators and their effect on oil prices, the U-L has it exactly correct:
Any step Congress takes to produce a large increase in future supply — opening the outer continental shelf to drilling, for example — will reduce current prices. If there will be a lot more oil 10 years from now, a barrel of oil today loses some of its investment value, and its price falls.
As Harvard economics professor Martin Feldstein wrote in The Wall Street Journal on July 1, “Increasing the expected future supply of oil would also reduce today’s price. That fall in the current price would induce an immediate rise in oil consumption that would be matched by an increase in supply from the OPEC producers and others with some current excess capacity or available inventories.”
This is pretty basic stuff. And yet Democrats are oblivious. They adamantly oppose more domestic drilling, claiming that it won’t affect prices for decades. Clearly, they have yet to grasp the basic concepts of supply and demand.
Democrats clearly don’t understand the mechanisms of pricing. Their rhetoric on speculators demonstrates this, as it misses the point. Speculators matter only in shortage economies, as the future value of any commodity becomes more relevant in inverse proportion to its availability. Even apart from that, speculators want to make money just as in any other commodity trading. If they foresaw a glut of oil, they’d bet short on it just as quickly as they’re going long on oil now.
All of this is Econ 101, as the U-L notes. That may be a bit below King Banaian’s focus as chair of economics at St. Cloud State University, but I’m pretty certain that King would be gracious enough to schedule a lecture series for Congressional Democrats who want to learn how markets work rather than continually work from ignorance to the detriment of the nation. (via Let Freedom Ring)