Although Congress may not be doing much to solve the energy crisis, they are managing to point a lot of fingers. Its target du jour to paint as the hapless scapegoat for the now record-high oil prices: oil speculators. Congress Plays the Blame Game, Does Little Else for Energy

By Robert Taylor

Although Congress may not be doing much to solve the energy crisis, they are managing to point a lot of fingers. Its target du jour to paint as the hapless scapegoat for the now record-high oil prices: oil speculators.

“Speculators,” perhaps more commonly known as “investors” or “traders,” are ordinary people who agree to buy a certain commodity at a certain price for a certain amount of time. If the price of that commodity goes up, they make money. And with oil prices skyrocketing the way they have been for the past year, plenty of people have been betting on continued price increases by investing in oil commodities. This is a good thing for the markets. The more money invested in oil, the more liquid the market becomes, and the more stable prices become. The high liquidity enables people to make large trades without causing wild fluctuations in prices.

While it’s possible that speculation may be contributing slightly to soaring oil prices, the real problem is one of the fundamental economic law of supply and demand. The now-booming economies of developing nations such as India and China have pushed worldwide demand for oil through the roof, and the OPEC nations have been all too unwilling to increase oil production to meaningful levels, preferring instead to keep the worldwide supply down, and worldwide prices (and thus their revenues) up. The rise in oil speculation is a result of high oil prices, not the other way around. Blaming oil speculators for the high prices is no different than blaming the California gold rushers for the high value of gold.

Key players in the world of Middle Eastern oil production, including OPEC President Chakib Khelil and Saudi Arabia’s King Abdullah, have long argued that the recent surge in oil prices is not due to supply and demand, but to the greed and self-interest of speculators. That argument has enabled these nations to continue to keep production quotas low, prices high, and the rest of the world at their behest.

It seems that the arguments of the Saudis and the rest of the OPEC nations have begun to sway politicians in Washington, as Congress has set out on an “excessive speculation” witch hunt, led by Senators Carl Levin (D-MI) and Joe Lieberman (I-CT). Levin has been appealing to regulators to step up efforts to police the commodity trading industry. Lieberman has gone so far as to propose that large institutional investors be banned from the commodities market altogether.

Rather than pursue objectives that could bring about positive solutions and alleviate some of the strain on our economy brought on by high gas prices, Congress has instead chosen to continue their desperate search for a scapegoat. So far this year, they’ve held 40 congressional hearings looking for someone else to blame.

As this grand quest for a scapegoat continues, oil prices soar to record highs, putting a tremendous strain on the U.S. economy. One might wonder, “What is Congress doing to fix the problem?” The answer is not much. Despite President Bush’s polite requests for the Saudis to boost their oil production, there hasn’t been much of an effort to get more oil from abroad. And despite urging by the president, Congress has been so far reluctant to permit oil exploration in either Alaska or off the coastal United States. Many oppose oil exploration in Alaska, because they say that it would take 10 years for any oil recovered there to reach the market. Interestingly, the same argument was made more than 10 years ago when Congress voted to allow the exploration of the Arctic National Wildlife Refuge (ANWR) in 1996. The ANWR drilling legislation was vetoed by President Clinton.

Instead of spending all of its time (and our tax dollars) pointing fingers, Congress should take action. The immediate goal of lawmakers should be to increase our supply of oil by whatever means necessary. If our short-term need for affordable oil is met, people will have more money to invest in longer-term solutions.

Congress exists to help the nation deal with its problems, not to assign blame for them. As legislators sit back arguing over who is to blame for this energy crisis, many Americans are suffering extraordinary economic hardship. It’s time for Congress to step up to the plate and do what they are elected to do.

Robert Taylor is a Research Associate at the Center for Individual Freedom. He graduated from Wake Forest University with a degree in economics and is entering his first year of law school at Notre Dame.

June 26, 2008
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