Chuck Schumer (Democrat–New York), the headline-loving U.S. senator who hasn’t disguised his ambition to succeed Harry Reid as the Senate Majority Leader, garnered some press attention the other day by calling on Saudi Arabia to boost its oil production in order to help suppress a politically intolerable rise in the price of gasoline in the U.S.
Such chutzpah, even in this cynical age, is eye-opening. Why should we go to the Saudis on bended knee? Why, for God’s sake, don’t we boost our own oil production?
Permits for drilling offshore and on government-owned lands are down sharply since Barack Obama took office. His Administration, for instance, refuses to open up that small, mosquito-infested piece of Alaska’s Arctic National Wildlife Refuge that is laden with oil and gas. Drilling there could be done with no environmental harm. The President has also stymied the Keystone Pipeline from Canada, which would give us an extra million barrels of oil a day from a friendly neighbor.
The villain most responsible for higher petroleum prices, though, is the Federal Reserve’s loose-money policy, something that’s beyond the understanding of Schumer and most other Washington pols and officials. Whenever the Fed goes on a money-creating binge, hard asset prices go up, particularly the price of oil. We should have learned this lesson in the 1970s, when easy money sent the cost of oil from $3 a barrel to almost $40. Once Ronald Reagan conquered that terrible inflation, oil prices went crashing down, averaging a tad over $21 a barrel from the mid-1980s until the early part of the last decade.
Though he can’t acknowledge it for obvious political reasons, the President likes high gas prices because they force people to buy smaller and, presumably, more environmentally friendly cars.
John Maynard Keynes once observed in a snide swipe at business executives that “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.” But the same could be said about most economists, finance ministers and central bankers today. They, too, are enthralled with an obsolete idea: Keynesianism–the belief that government spending and easy money can lastingly and constructively animate an economy. This dinosaur mentality is costing investors trillions of dollars in lost asset value.
A prime example of this antediluvian attitude comes from Britain’s chancellor of the exchequer, George Osborne, who recently said that the U.K.’s government was at the end of its tether in trying to rev up the Sceptered Isle’s moribund economy and moaned that there was no money to spare for stimulus from more spending or tax cuts. In fact, he floated the idea of finding new ways to pick the pockets of “rich” homeowners.