ThinkProgress, the online semi-official apologists for all-things-Obama, touts the news that “even” the War Street Journal and the libertarian Cato Institute say “it’s not Obama’s fault gas prices have increased.” In their typical oh-so-superior tone, these unabashed Obama-cultists sneer:
“How obvious is it that oil prices, set on a world market, are all but impervious to government policies? So obvious that even Rupert Murdoch’s WSJ and the Koch-fueled Cato Institute feel compelled to make the case.”
The Cato analysis reports that the price of North Sea crude, which sets gas prices in the US no matter if there are cheaper sources available, is rising. Yet there is a tautological aspect to this assertion: gas prices are rising because crude oil prices are rising. Yes, but why are they rising?
Well, says Cato, “possibly” because supplies are relatively limited: they point out domestic US oil production has actually risen under Obama’s reign, and yet that North Sea crude is what’s getting us $4 a gallon and up at the gas pump. Poor persecuted Obama is “no more responsible for production increases than other presidents were responsible for production declines. Unfortunately, presidents get blamed for world market changes that occur during their time in office… but generally, they do not cause them.”
Likewise, the Wall Street Journal absolves the President in the course of a dyspeptic polemic against Newt Gingrich, who has said “all of this gigantic increase [in gas prices] came from his policies.” Not so, says the WSJ:
“U.S. gasoline prices, like prices throughout the advanced economies, are determined by global market forces. It is hard to see how Mr. Obama’s policies can be blamed.”
Domestic oil production, they rightly argue, has little to do with gas prices: after a short stint of being in the right, however, they fall back into error. The reason for the increase, they tell us, is because the recession is over, and demand is therefore up.
I
don’t know what universe the editors and staff of the Wall
Street Journal
are living in – actually, I
do
know
– but for us ordinary peons it sure seems like the depression
“recession” is going full speed ahead. Foreclosures are
up, and I don’t care what the “official”
unemployment numbers say: the real
unemployment rate is in double digits. The WSJ analysis repeats
Cato’s assertion that gas prices are “fixed” by
the price of North Sea crude, yet the repetition of this tautology
gives it zero momentum. The question remains, why are prices rising?
Completely absent from either the Journal’s or Cato’s analyses is any mention of the looming conflict with Iran. This is surely a curious omission, especially in view of the fact that the President has been quick to attribute price hikes to those evil “speculators,” who “manipulate” oil futures – bets on what future oil prices will be – and “distort” the market. As an analyst at Bloomberg Business recently pointed out:
“The last time the price of Brent crude closed below $100 a barrel was Oct. 6, 2011. It’s since gone up nearly 30 percent, to a high of $126.20 on March 1. Tensions over Iran’s nuclear program have people spooked that a potential attack would disrupt the country’s 2.2 million barrels of daily oil exports. And so money has been pouring into oil futures contracts, driving up the price without any significant change in the underlying supply-and-demand fundamentals. Only the threat of one.
“So who’s buying?
“Talk to oil analysts these days and chances are they’ll tell you that more than half the spike in the oil price is due to speculators—specifically noncommercial users. That’s jargon for investors who are buying up futures contracts not because they intend to use the oil, but because they think it’s a good investment. These aren’t airlines or refining companies; these are money managers betting that the price will go up. And so far they’ve been right, thanks to themselves.”
Commodity prices are determined not only by current supplies but by speculation about future availability. Investors have listened to all the war talk, and watched the slow but seemingly inevitable march of the Obama administration toward war with Iran, and already priced in the costs of the conflict – and the catastrophic effect on oil supplies. Just as investors buy gold as a hedge against inflation and the decline of the dollar, so these same investors are putting their money into oil futures as a hedge against the increasingly likely prospect of a US and/or Israeli attack on Iran – an event that will drive the price of oil up to $200 a barrel and beyond.
These are the real “global market forces” the WSJ referred to, with uncharacteristic vagueness: the anticipation by traders that our leaders will lie us into yet another war in the Middle East. The leftist ThinkProgress types fail to understand this because they fail to understand the crucial role the supposedly evil speculators play in ensuring the price system functions optimally as an information circuit, disseminating knowledge efficiently so that the market can anticipate future events and adjust prices accordingly. As Murray N. Rothbard, the great free market economist and libertarian theorist, put it in the summer of 1990, when the first Gulf war was launched:
“When Iraq invaded Kuwait on August 2, 1990, and the Bush administration quickly organized an oil embargo and military action to try to restore the hereditary emirate, gasoline prices, wholesale and retail, began to go up immediately. In two days, gasoline price rises throughout the country ranged from four to 17 cents a gallon. Immediately, hysteria hit.”
Rather than being aimed in the direction of our political leaders, who were preparing to launch a war in the midst of the world’s prime oil-producing region, ire was directed at “Big Oil,” which, the Naderite Citizen Action declared, “is doing to American consumers what Saddam Hussein did to Kuwait.” “There is absolutely no reason consumers should already be paying more for oil and gas,” fumed leading war hawk Sen. Joe Lieberman. “It must be stopped!”
He didn’t want to stop it by pulling our troops out of the region – not by a long shot. He was demanding price controls, a device sure to produce shortages. Yet, as Rothbard pointed out at the time,
“When Iraq invaded Kuwait, knowledgeable people in the oil market immediately and understandably forecast a future drop in the supply of oil… Actions on the market, e.g. demands for the purchase or accumulation of oil, are not at all mechanistic: they are a function of what knowledgeable people on the market anticipate will happen.”
Speculators, wrote Rothbard, “perform an important function.” If people reacted mechanistically to fluctuations in supply, rather than anticipating future fluctuations, “a cutoff of Middle Eastern oil would disrupt the economy by causing a sudden drop in supply and a huge jump in prices. Speculative anticipation eases this volatility by raising prices more gradually.”
In short, it could be worse – and will be worse, once the shooting starts in the Strait of Hormuz. The oil speculators constitute a kind of early warning system, alerting us to the likelihood of a war in the Middle East months before it actually occurs. In this they perform a vital – even heroic – function. Too bad no one’s listening.
It’s clear why the folks at ThinkProgress don’t want to listen – because our savvy oil speculators are betting Obama is leading us down the road to war with Iran, and they are quite likely to win that bet. The War Street Journal is evasive on the subject because … well, just because they’re the War Street Journal. It’s unclear to me why the anti-interventionist and pro-free market Cato Institute, which never mentions the words “war” or “Iran” in its piece, is similarly silent on the subject: perhaps they were so eager to absolve the President and ding the Republicans – thus proving their “non-partisanship” – that they restricted their analysis to the narrowly partisan aspect of this argument over who is responsible for high gas prices.
It turns out, however, that Newt Gingrich is right, albeit for the wrong reasons: the President’s policies – his foreign policy, specifically – are indeed the driving force behind rapidly rising gas prices. The problem for Gingrich and his fellow Republican war-hawks, however, is that they would march us off to war – and off an economic cliff – much sooner than the current occupant of the White House.
It’s amazing how little things have changed in the twenty-plus years since Rothbard penned his little essay, which concludes:
“If the politicians and pundits have their way, there may well be gas lines by Christmas, but the cause will be they themselves, and no small or Big Oil.”
Gas lines by Christmas, as US warplanes pound Iranian cities and yet another wild goose chase in search of “weapons of mass destruction” commences? That’s what those evil speculators are warning us about: that no one understands the warning, or takes it seriously, is hardly their fault.
