For Whose Benefit?

The Congress has once again summoned the chiefs of some of the world’s largest and profitable energy companies, demanding to know why energy prices – especially oil – are so high and show signs of continuing to rise even higher. While I am as frustrated as the next consumer, perhaps even more so because of the expense of a job search, I am equally frustrated at the continuing congressional attempts to demonize the energy industry especially during an election year which, incidentally, I find highly suspect.

There is a lot of political grandstanding going on with office seekers as well as current office holders, opportunists all who fail to make the connection between high taxes, low investments in exploration, research and development, and high prices. I don’t pretend to be an economist and I am even less informed about the world oil market, but it seems to me that since American energy producers may find it financially prohibitive to actually spend money on exploration and R&D that this lack of expense may help to explain the record profits recorded by “big oil”. To be sure, it must certainly be cheaper to import oil to this country than it would be to seek it, develop it, refine it, and market it. We must also be mindful of the fact that a lack of US refining capacity and continually high demand does nothing more than to push prices even higher.

None of this helps to explain sudden spikes in world oil prices, of course. These prices are set and manipulated, it seems, according to OPEC as well as by what may be happening in the world particularly in events involving energy-producing nations such as Venezuela, Iran, and Iraq which are probably three of the most unstable and unreliable producers in the world, two of which have no lost love with the US. Markets seem to panic about the supply line each time, for instance, when Hugo Chavez gets on a soap box and rails against the United States.

US lawmakers need to get off their own soap boxes and come to realize that their place in the US economy is less “knight in shining armor” or “executioner” and more partner than anything else. Punitive measures enacted by the Congress in the past as vain efforts to “punish” energy producers have failed and will continue to fail because the market responds negatively to adverse actions both at home and abroad.

As I wrote in an earlier post regarding Arkansas and its special legislative session to raise the severance tax on natural gas production (and it is happening even as I write this), government must move beyond its seemingly natural, antagonistic relationship it seems to have with US industries. Businesses that provide needed products and services as well as jobs for American workers are not the enemy, but Congress seems to be bent out of shape when a particular industry turns a sound profit. Is the profit “obscene”? I suppose it is all relative, but the Congress must define its objective with its continued harassment of energy executives. Are they seeking lower prices? If so, how low would they demand that the prices go? To my cynical mind, they seek only free press for the folks back home.

Some in Congress have suggested that the president authorize the release of oil from the Strategic Petroleum Reserve because of this “emergency” we are currently faced with. The president has rightly refused for three reasons: 1) there is not likely enough in the Reserve that will affect the market one way or the other, 2) high prices do not constitute an “emergency”, and 3) supply is not the problem. Besides, it has been stated more than once by more than one industry executive and independent economist that US refining capacity is still limited; putting more oil in the refineries will not change this structural fact. Besides all this, it didn’t work when President Clinton tried it.

It is “demand” that is putting the squeeze on the world oil market, and it is antagonistic “white knight” economic and tax policies as well as demand that puts the squeeze on us here at home in the US. Can Congress fix all this? I’m not entirely comfortable with a bunch of lawyers positioning themselves for re-election making that decision for us at this time especially when they seem to have failed to define their objective. Do they seek to make energy more affordable? If so, for whom? Clearly any member of Congress can afford to pay a higher price than most of America because they have bigger pay checks. For other rich people, the price of a gallon of gasoline probably doesn’t even sting although to protect their own profit margins they will certainly cut back somewhere else, and that cut will likely cost some American worker his or her job. Is this “greed”, or does it just make good business sense?

Congress does not get it, but they do know how to get elected. To the American cynic, these congressional hearings amount to nothing more than taxpayer-financed re-election expenses. They will solve nothing as long as they believe themselves to be our “hero’s”.