The Corner

Economy & Business

This Is Not the Time to Intervene in the Oil Market

(Larry Downing/Reuters)

Prices move up and down depending on factors too numerous to count, including changes in input prices, consumer income, consumer and producer expectations, regulations, and other countries’ economic conditions. This fact means that prices are the result of millions of decisions made by countless individuals at each and every moment in time. In some cases, it is obvious why the price of something goes up or why it collapses. What is never obvious is how to reverse the price trend, precisely because any such trend is the product of decisions made in response to so many details dispersed across the globe. And so it’s never desirable for politicians to intervene and try to achieve what they think is the “right” price.

And yet here we are again. Over at the Washington Post, Henry Olsen is urging President Trump to intervene in order to ‘correct’ — that is, to raise — the price of oil, which has fallen dramatically, in part as the result of a fight between Russia and Saudi Arabia, but also because of a sharp reduction of demand for gasoline around the world.

It’s one thing for Mr. Trump to act as a mediator between the two countries so that they reach an agreement of some sort, or to offer, as he has, to store excess oil in the government’s Strategic Petroleum Reserve. But Olson believes that’s not enough and that “the president must continue to push for higher prices to secure U.S. oil production despite the fact this will increase gasoline prices.” He even suggests that if the two countries fail to agree, “Trump should threaten to impose tariffs on imported oil on national security grounds.”

Leaving aside both the fact that now is hardly the time to start another trade war and the folly of supposing that the administration (or anyone for that matter) can divine what is the ‘right’ price of oil, it is incredibly short-sighted — indeed, perverse — for Olsen to demand intervention to jack up the price of oil on the American people during a public-health crisis.

Over at Cafe Hayek, Don Boudreaux reminds us that:

[T]he benefits to Americans of access to an increasing abundance of oil aren’t confined to lower prices of gasoline. Petroleum is also a major input for the production of medical supplies, including latex gloves and facemasks. And of course petrochemicals are critical components of many pharmaceutical products.

Mr. Olsen’s proposal to artificially restrict Americans’ access to oil is, therefore, also a proposal to artificially restrict Americans’ access to medical equipment and medicines. Now more than ever we Americans need protection from such “protection.”

It wasn’t too long ago that the president was complaining about the price of oil being too high and demanding that it fall. Interesting how things can change.

There is no doubt that many are hurt today by these lower prices — just as there’s no doubt that many are helped today by these lower prices. Yet nearly everyone will be hurt over the long run by distorting the market. Besides, as long as people around the world are sheltering in place in response to the lock-down of the global economy, demand for oil will be too stubbornly low for any intervention to increase it.

Some oil executives don’t support the intervention:

Other executives, including the heads of API and another trade group, American Fuel & Petrochemical Manufacturers, have counseled the president against intervention:

“Imposing supply constraints, such as quotas, tariffs, or bans on foreign crude oil would exacerbate this already difficult situation, jeopardize the short and long-term competitiveness of our refining sector world-wide, and could jeopardize the benefits Americans experience as a result of our increasing energy dominance.”

Whatever drives these executives to this position, it shows that things are always more complicated than we think, and that the global economy is vastly more complex than most protectionists ever acknowledge.

Perhaps the saddest thing about Olsen’s column is that it reminds me of how some conservatives are willing to put so much faith in government command and control.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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