Kudlow: Bush Says Drill, Drill, Drill — and Oil Drops $9!

Larry Kudlow speaks truth to those who would have ears to listen.

In a dramatic move yesterday President Bush removed the executive-branch moratorium on offshore drilling. Today, at a news conference, Bush repeated his new position, and slammed the Democratic Congress for not removing the congressional moratorium on the Outer Continental Shelf and elsewhere. Crude-oil futures for August delivery plunged $9.26, or 6.3 percent, almost immediately as Bush was speaking, bringing the barrel price down to $136. […]

Traders took a look at a feisty and aggressive George Bush and started selling the market well before a single new drop of oil has been lifted. What does this tell us? Well, if Congress moves to seal the deal, oil prices will probably keep on falling. That’s the way traders work. They discount the future. Psychology and expectations can turn on a dime.

This is why if we start allowing drilling now it will lower prices now. The function of the free market is to adjust today’s prices to what tomorrow’s prices are expected to be, and so on well out into the future.

The reasons for high gas prices in the US now are twofold (as I see it).

  1. Inflation has weakened the dollar while the value of oil has stayed steady or risen. For proof, look at the price of gold for a constant measure of value and compare to what oil has done.
  2. Twenty years ago the US produced more of its own oil than it does today, 60%-70% as compared to 40% today. Environmental limits on drilling and refining, profit plundering by excessive taxation, and a litigious climate have prevented new wells and new technologies while doing their best to shut down old ones.

In a related story concerning the free market and what it means, Bush yesterday lectured reporters on why calls for conservation would not be forthcoming from him.

“They’re smart enough to figure out whether they’re going to drive less or not. I mean, you know, it’s interesting what the price of gasoline has done,” Bush said at a news conference in the White House press room, “is it caused people to drive less. That’s why they want smaller cars: They want to conserve. But the consumer’s plenty bright. The marketplace works.”

“You noticed my statement yesterday, I talked about good conservation and — you know, people can figure out whether they need to drive more or less,” he said. “They can balance their own checkbooks.”

That’s the free market. Based on a respect for the intelligence of crowds, it understands that like a busy freeway that functions safely and smoothly most of the time (excepting mechanical failures, police or construction obstructions, and drunkenness), guided by the self-interest of the individual drivers, the free market will function safely and smoothly most of the time, except for those times when the free market is prevented from working by the government grant of a monopoly. The government is the source of all monopolies, because only the government has the right to force a person (customer, employer, or employee) to do something at the point of a gun. And that is the essence of monopoly.

In other words, we can drill our way out of this mess. Congressional Democrats needs to loosen the noose on American oil resources and just give Americans a chance to show what they can accomplish.

Your thoughts?


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4 thoughts on “Kudlow: Bush Says Drill, Drill, Drill — and Oil Drops $9!

  1. “respect for the intelligence of crowds”

    As the base intelligence of the American public becomes ever more, urm, base, my “respect for the intelligence of crowds” wanes.

    Of course, Pournelle’s Iron Law of Bureaucracy argues strongly against the idea that large organizations–especially large governmental organizations–can consistently do intelligent things.

  2. I would distinguish the wisdom of crowds from the idiocy of the bureaucracy. One is driven by the native intelligence of a large number of people who have, largely, graduated from monopoly schools and their dumbing down effect, and who are now using all their abilities on behalf of their loved ones to survive and thrive in the real world. The other is driven by union work rules and shared, big government ideology and is pretty much the same as the Democrat party. But for the wisdom of crowds in effect look at the highway system. Other than tragic and rare times when malfunction or inattention disrupts the system and results in an accident, those lightly trained drivers all cooperate so that everyone can get where they need in the shortest possible time while careening at rates of speed that could kill every one of them if they were all to crash simultaneously. The potential danger is high, but the kinetic danger is small. Could they do as well by bureaucratic decree?

  3. WRT the laws of bad driving out good, perhaps any situation in which irrational rules draw an equation (with the force of law behind it) between what is good and what manifestly is not leads inevitably to degradation and debasement of the people operating under the rules. Draw your own conclusions on the desirability of irrational rules.

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