Justus For All

This Los Angeles Times op-ed presents some good arguments on how stupid congress is being in dealing with the rise in oil prices. It concludes with the following paragraphs.

It won’t be Congress that pops the oil price bubble; conservation, new technologies and market cycles should take care of that. The danger, though, is that lawmakers may make things worse before these forces get a chance to make them better.

I don’t disagree with anything specific there, but I do think that there are indeed some things that the U.S. Government could do. There are of course pluses and minus to many of these choices, but I’ll mention a few of them.

Strengthen the Dollar: This is probably the quickest route to reducing oil prices. Oil is traded in dollars and a weak dollar means more expensive oil. Government policy is directly related to the strength of the dollar, in particular taxation and spending. Of course we do still have a trade deficit, and a weak dollar policy is a way to correct that imbalance. Also since Chinese currency is also tied to the dollar, a weak dollar allows us to get goods from China even cheaper. I am agnostic on whether a weak dollar policy is appropriate to our current situation or not, I am not enough of an economist to make that determination but it is clear that this choice does effect the cost of oil.

Stabilize Iraq: We know that Iraq has large proven reserves. As it becomes more stable, that supply will make a difference in the world market. Under a democratic free market system, those resources will be most effectively utilized, lowering the price of oil.

Encourage Domestic Oil Production: The linked op-ed correctly points out that ANWR is not a big enough oil field to have a large effect on the price of oil, and also that it will take years to bring it online. ANWR though is emblematic of many stumbling blocks to domestic oil production, ranging from offshore drilling to oil shake in the Rockies. Our Government could indeed make a difference by facilitating the use of these resources. Republicans probably have made a big political mistake in making ANWR the hill to die on over this issue. I happen to support drilling in ANWR, I am convinced that environmental damage would be so small as to be meaningless, but there are better places to begin this battle. It is certainly also true that any efforts in this regard will take years to make any difference, but that is a reason they should have been started years ago, not a reason to not begin now.

Develop a Sensible Alternative Fuel Strategy: Corn based Ethanol is just dumb. The science has shown that for years and everyday people are starting to realize it. Sadly, this may limit the development of technologies that can actually make a real difference (like this one I blogged on a couple of weeks ago.) Congress can allocate money to encourage research, remove distorting subsidies to allow the market to evaluate true costs, and work to ensure that existing regulations don’t get in the way of innovation. Once again, this isn’t a quick fix, but better sooner then later.

The biggest factors in rising oil costs are beyond our control. Rising economies in developing nations, poor government policies in many oil producing countries and what is probably a speculative bubble on oil prices are all things we can’t easily have an impact on. There are steps we can take however, or at the very least we can hold our Government accountable for the counter productive silliness they are currently engaging in.