Texas Tea! Black Gold!

Via Calamity Jake, I learn that BigAwl met with HAIC (head a*****e in charge) Dick Cheney's energy commission back in ought-1. First of all, NFW...I mean WATFO. Second, what's the big deal? (Oh, they lied about it. But they weren't under oath thanks again, uncle Ted).

With gas prices falling?skyrocketing, it's clear why this meeting was a bad idea. They conspired with the government to go to war, to create a panic, which caused a hurricane, and then another, which raised gas prices and hence their profits...what was I talking about again?

Well, somehow, this meeting means that there was some hanky-panky going on, and we are paying the price at the pump. Except, well, no. Aside from the sheer ridiculousness of the admittedly exaggerated, but not terribly far off chain of alleged casuality above, there are good reasons for questioning what, if anything, those meetings had to do with gas prices. For the economically minded, San Diego Econ Prof. James Hamilton asks his students similar questions. (head nod: Jane Galt). For example:

1.) The Cheney task force resulted in the Bush energy plan released in May 2001. Discuss in detail three elements of this plan that led to an increase in oil prices. Be sure to explain how this happened despite the fact that the legislation proposed in that plan was not passed by the Senate and, if passed, would have increased energy supplies.

2.) Even if one ignores the Bush energy plan itself, explain how secret consultations by the task force could have resulted in higher oil prices. Recall that the five executives who were called before the Senate last week represented BP, Exxon-Mobil, Shell, Chevron, and ConocoPhillips. Including all their global operations, these five companies between them produced 10.1 million barrels of oil per day in 2004 (data from Petroleum Review with a tip of the hat to The Oil Drum), which would represent 12% of global production of 83 mbd. Describe the precise actions these companies could have taken that could have led to a doubling of oil prices. If possible, bolster your argument with a numerical example using plausible elasticities and actual production figures.

The answer is that there is simply NOTHING these companies could have done, given their market share, to cause prices to double. In fact, absent worldwide cartelization, they were unlikely to be able to have much influence on price levels if they were merged into one company. But let's not let the facts get in the way of a good smear.

I mean, presumably the oil industry has some institutional knowledge that might be relevant to national energy policy. Should their recomendations be taken at face value? Of course not, they are not unbiased observers. Get some enviro-types and some replenishable energy folks in there too and hash it out like adults.

This is not to say everything was kosher, however. Much like the rapidly-escalating debate about why we invaded Iraq, the aftermath is far worse than the original incident. Why lie about being in the meeting? The worry that everyone would think that big energy producers were dictating energy policy is legitimate. Except for everyone knew that without the meeting. It's not exactly a secret that both the Pres. and Dick come from oil-and-business backgrounds. And now that the meeting was denied and covered up, it really does look like there was something to hide, when most likely nothing of substance happened beyond

"Hey, we sure did donate a lot to your campaigns".
"How the hell do you think you got in the door in the first place?"

What's wrong with simply saying "Yes, we met with some oil executives to hear their thoughts on energy policy, and we will be soliciting views from a variety of other industries and groups as well." Trying to reach a consensus and all. Why did this not happen? Go Fuck Yourself. (I'm sorry Mr. VP, that's non-responsive).

By this point everyone is certainly aware that oil companies make alot of money. My question is, so what? They got to be big companies because they produce large quantities of a product we all need. Good on them. It's not like they are extracting monopolistic rents (econ speak for "high prices when you are breaking the law") Assuming that we can trust their accounting (har har), they are making about 10% profit. Good, but not exactly unheard of. Sadly, they get up in hearings and do a little sad sack dance, rather than tell Congress to put a sock in it until they know what they are talking about.

Not to be Gordon Gecko, but profits are, in general, a Good Thing. Unless they are 'cheating', companies which make proftis are providing in demand goods and services, probably have a certain degree of stability in their employees (that means US, people), and are doing so in a non-wasteful manner. Markets are good at rewarding those who perform well and punishing those that don't.

Similarly, what's wrong with higher gas prices? Maybe people will take public transport. Maybe the incentive to come up with actual alternatives to high-emission fuels will be greater when gasoline is not a substantially cheaper alternative. And that would be terrible.

Update 2/1/06: Hello Conblogeration readers. More thoughts on the subject can be found here. Please have a look about.