Politics & Policy

King Dollar Will Cut Oil Prices

Joint Economic Committee vice chairman Kevin Brady
Congressman Kevin Brady has a good idea.

No matter how much President Obama protests, the simple fact is that he continues to oppose and mock and disparage oil and gas drilling. He is a prisoner of the environmental left, and he remains on the wrong side of energy history.

And that’s exactly why he has a 59 percent negative rating on the economy, according to a recent poll, even though jobs and other indicators have actually picked up. It’s about $4 or higher gas at the pump. Polls overwhelmingly show that Americans want drilling in ANWR and offshore, and that they want hydraulic fracturing of shale for oil and gas. They also overwhelmingly want the Keystone Pipeline (by roughly 70 percent). And they believe the government can act quickly to lower gas prices in the short run.

But the president scoffs at all this. In his energy speech this week, he suggested that the drill, drill, drill crowd (of which I have long been a member) would have founded the Flat Earth Society. He says we might even have sided with 19th-century president, Rutherford B. Hayes.

Ha, ha, ha. Very funny.

But the reality is, oil, gas, and coal — not wind, solar, geothermal, and algae — are going to be crucial to America’s transportation, electricity, and economic growth for many decades to come.

What’s particularly galling about Obama’s riff is his constant use of a false statistic. The president argues that America uses more than 20 percent of the world’s oil, although “even if we drill in every square inch of this country, we still only have 2 percent of the world’s known oil reserves.”

This is just patently untrue. According to the Institute for Energy Research, when you include oil shale, the U.S. has 1.4 trillion barrels of technically recoverable oil. That is enough to meet all U.S. oil needs for about the next 200 years, without any imports.  

With the technology revolution in the energy business, including horizontal drilling and hydraulic fracking, the old idea of proved oil reserves that Obama keeps using is replaced with the new concept of recoverable resources. Many thanks to Investor’s Business Daily for its story that the U.S. now has 60-times more recoverable oil reserves than Obama claims. And that doesn’t even include the natural-gas shale revolution, which has already slashed electricity prices for homes and businesses and will eventually be used more and more in transportation.  

And then there’s the EPA, which is holding up oil and gas exploration in the Outer Continental Shelf, Alaska’s North Slope, ANWR, Utah tar sands, and the whole Green River Formation in Wyoming and neighboring states. Energy development on private lands is leading to greater development and production. But the Obama administration is still way behind on permits for drilling on federal land or offshore.

Steps could in fact be taken to lower gas prices in the short run. EPA mandates for boutique gasoline supplies and ethanol mixtures could be eased, perhaps saving 50 cents a gallon — without sacrificing clean air.

But the best idea I’ve heard to ease gasoline prices comes from Joint Economic Committee vice chairman Kevin Brady, a Texas Republican. He has proposed the Sound Dollar Act, which would require the Fed to monitor gold and the foreign-exchange value of the dollar. He would also replace the Fed’s dual mandate with a single mandate for price stability.

A stronger dollar is key. The Joint Economic Committee just put out a study showing that a 10 to 15 percent appreciation of the greenback to pre-recession levels (before the Fed launched its massive dollar-creation, pump-priming campaign) would lower gasoline prices by 43 cents. So if the Treasury and the Federal Reserve strengthened the value of the dollar, oil and gasoline prices would decline.

It’s an excellent idea. The best one out there. A return to King Dollar would boost consumer real incomes, attract capital from all over the world, and grow the economy at a faster rate.

So there is an action plan on energy. The laws of supply and demand will work to hold back prices. So will a strong dollar. So will easier regulatory mandates. And if market forces generate clean-energy alternatives, then fine. But a true all-of-the-above strategy would take the handcuffs and the sarcasm off of fossil-fuel drilling.

Rutherford B. Hayes can’t do it because he’s dead. But Obama could. Or more likely, a new White House occupant will.

Larry Kudlow, NRO’s economics editor, is host of CNBC’s The Kudlow Report and author of the daily web log, Kudlow’s Money Politic$.

Larry Kudlow — Larry Kudlow is the author of JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

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