Monday, August 25, 2008

Energy, Competition, and a Simple Lesson in Economics

For quite some time many Democrats and virtually everyone in the extreme environmentalist movement have discredited Republican calls to increase domestic drilling. Obama in particular has been very dismissive. Repeatedly he has told voters that we could begin building rigs today and it would have zero effect on gas prices for at least six or seven years. My sophomore economics professor would beg to differ.

When I took my first macroeconomics course in college, I remember the professor saying something that is considered unorthodox by many liberal economists today. He stated that “monopoly is virtually an impossibility today. As long as there is the possibility of competition, preexisting business must behave competitively. About the only way you can have a monopoly,” he argued, “is when the government sanctions such (e.g., utility companies).” The professor went on and noted that as long as businesses can enter the market place, the so-called monopolies have to keep prices down and products at a high enough level to deter competition.

For several years our US government has protected the virtual monopoly that has existed in the Middle East when it comes to oil. The Saudis, Iranians, and other energy powers have known that we will protect our trees before we help our families with lower gas prices. Therefore these competitors have driven prices without consequence. For years, the United States hasn’t even had a serious discussion on the subject of increasing oil supplies. Until now.

Now, what seems out of the blue, is a dramatic drop in oil prices. A few weeks ago it was close to $150 a barrel. Now, it is around $115. Obama is right, oil prices wouldn’t “drop a penny,” instead it has been tens of dollars and more should soon follow. Talk alone is beginning to break the foreign monopoly on oil. Our foreign competitors do not want a single drop of new source oil to be produced in this country. That is why they are increasing supplies in order to lower our prices. It isn’t because they suddenly like us. Our competitors hate the possibility of competition. What the liberals don’t understand is that competition works. Our foreign competitors get it. The Republicans who are occupying the US House and demanding more action on drilling understand it. But the liberals do not.

This only reaffirms my conviction that we need Presidential and Congressional leadership that understands simple economic principles. If our members of Congress don’t understand how competition works, they should do something else for a living. The same expectation should be there for any person who would be our President. We need leadership that understands the power of the market place and will harness that power to make the US energy independent and economically free.

In fact, I am fairly confident that if the Democrats occupy the Congress and the Presidency, I expect an exponential increase in oil prices. If Republicans win both we will see a rapid decline. If we split government, expect a stalemate. I think I know what most Americans desire.

Kevin Price's articles are found daily in national publications such as USA Today, Chicago Sun Times, and Reuters. Subscribe to his newsletter here.

Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review.

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