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Thursday, August 07, 2008

Study Reports the Obvious: Vote for Drilling Now Reduces Prices Now

Newt Gingrich has a very telling note on his website.

When we consider drilling for more oil to increase supply and bring down gas prices, liberals love to wail and moan that we won't have that oil for 10 years. They've been rolling out this same protest for 10 years, so you do the math and figure out whether we'd have more oil now if we'd ignored them as they deserved 10 years ago.

But there's another reason we should move to drill NOW: because it would bring down prices NOW, even though the new oil wouldn't start flowing for several more years.

It's a well-known reality of market forces that new supply on the horizon has an effect on commodity prices NOW. At least it's well known to people who embrace our free market; apparently those who favor a Marxist economic model are spending so much time bashing the free market that they missed this reality.

Professor R. Morris Coats of Nicholls State University in Louisiana submitted a study of this effect to the Energy Journal to demonstrate how it works.

The Energy Journal, however, declined to publish the study. They declined, not because it was flawed or unfounded or bad science, but because it was so obvious.

Professor James Smith at the Energy Journal said that this had already been demonstrated by the 1960s, and that "It is our policy to publish only original research that adds significantly to the body of received knowledge regarding energy markets and policy."

I guess it's like saying we don't need a new study to tell us that finding out help is on the way lifts your spirits now, even before the help actually arrives. It's something pretty much everyone understands.

The report summarizes how this works in the energy market:

Since future prices are expected to be lower, future profits are also lower, so the value of oil not produced now, but held for future sales, is lower, making it more profitable to go ahead and produce and sell now instead of waiting for future profits. Using oil now reduces the amount of oil available for the future, which involves the opportunity cost of forgone future profits, which are sometime called the marginal user costs or scarcity rents.

So you see that not only is the liberal anti-energy policy myopic (as it was 10 years ago), it also passes up an opportunity to lower gas prices today.

And drilling now will also have more substantive and long-lasting effect than any tire inflation strategy.

The Republicans aren't perfect, but they are the ones spending their vacation in the House, demanding a vote on drilling for more oil. They aren't the ones whining, "We can't do anything except penalize someone else. Waaaaaaaaa. Waaa, waaaaaaaa!"

Remember that when you get to the ballot box in November.

HT to Free Republic.


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