Pointing Fingers

The New York Times takes on the gasoline shortage today, and allocates responsibility just where you would expect:

Over the last 25 years, opportunities to head off the current crisis were ignored, missed or deliberately blocked, according to analysts, politicians and veterans of the oil and automobile industries.

Of course, when the Times talks about what was “blocked,” it doesn’t mean drilling offshore or in ANWR. Rather, the Times devotes its analysis mostly to CAFE standards. The paper seems to think the gas shortage could have been averted if only, years ago, the federal government had forced automakers to make cars that the American public didn’t want to buy.

Of course, as the paper also notes, now that gas prices have risen dramatically, consumers are rushing to buy, and automakers to produce, more fuel-efficient vehicles. If automakers had foreseen $4 a gallon gasoline, they no doubt would have started the transition sooner. But they didn’t see the current price spike coming any more than the federal government did.

What is striking about the Times’ exposition of “missed” and “blocked” opportunities is that there is hardly any mention of the supply side of the equation. This is the lead paragraph on that topic:

Even as Congress idled when it came to tightening CAFE standards or substantially raising levies on gas, the Exxon Valdez oil spill in 1989 made offshore drilling yet another unpalatable option. “That caused a sea change and after that no one had any sympathy for the oil industry,” Mr. Becker says.

This is profoundly stupid. The Exxon Valdez spill had nothing to do with offshore drilling; the lesson of that accident is that lapsed alcoholics shouldn’t be put in charge of oil tankers. The environmental soundness of offshore drilling was amply demonstrated by hurricanes Katrina and Rita, which, despite their on-shore devastation, caused no offshore spills. And we don’t open up land for oil exploitation out of “sympathy for the oil industry,” we do it because we need oil and gas.

Beyond that, the Times takes refuge in the claim that more drilling won’t bring immediate relief at the pump. That’s true, of course, although there are a number of areas where more oil could be produced in months, not years, if the Democrats weren’t standing in the way. But note the paper’s double standard: in talking about CAFE standards, the paper just laments “missed opportunities” and blames Congress and the auto companies. It doesn’t kiss off CAFE standards by saying that changing them now won’t do any good for years, as it does with drilling. The real missed and blocked opportunities were twenty to thirty years worth of oil refinery construction, offshore exploration and drilling, and development of oil and gas resources in the Rocky Mountains and Alaska.

The Times also fails to mention one of the key causes of the increased price of oil, as well as many other commodities: the declining dollar. The causes of the dollar’s decline are multiple, but the most important one, I think, is the Federal Reserve’s use of interest rate cuts to fend off economic slowdowns over the last twenty-plus years. The policy has worked and has contributed to our remarkable economic growth, but the inevitable price has been erosion in the dollar’s value.

Finally, the Times reached back in history to blame Jesse Helms (among others) for blocking new CAFE standards. The print version of the paper says, embarrassingly, that Helms “did not return calls seeking comment.” (An online correction explains that the paper’s business section went to print on Thursday, before Helms’s death on Friday.) It’s too bad. Helms might have been able to explain a few things to the Times reporter.

PAUL adds: Congress “resisted” tightened CAFE standards primarily because there was little public support for being coerced into buying more expensive, less sturdy and safe automobiles. It was a rationale decision, and one that saved lives.

UPDATE: Nelson Schwartz, the Times reporter who wrote the article, emailed us to say that he did indeed mention the declining dollar as a factor in current gas prices. Near the article’s end, he wrote:

Most energy economists emphasize the fundamental issue of supply and demand, rather than market manipulation, but financial factors like the weak dollar are also exacerbating the situation. Stephen P. A. Brown, director of energy economics and microeconomic policy analysis at the Federal Reserve Bank of Dallas, estimates that a little more than 20 percent of the price of oil today can be attributed to the dollar’s fall against the euro and other currencies.

My apologies to Mr. Schwartz for the error. While I inadvertently overstated it, I think my point remains valid: the declining dollar is a big factor in the current price of gas–amounting to around $28 per barrel, if Mr. Brown’s calculation is correct–and deserves more prominence in any discussion of the causes of the current price spike.

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