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.

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

Are the Saudis Getting McCain's Message?

At any moment I expected the great Rod Sterling of the Twilight Zone to pop up to explain the merge of what appeared, on the surface, to be two separate stories. The first is McCain announcing that it is time to reverse the ban on offshore oil drilling in this country. The Senator has been resistant to such for years and his announcement is creating quite a stir. It is the type of policy position that could help him to seriously differentiate himself from Barack Obama.

About the same time we got an announcement from the Saudis that they are considering an increase in production. This comes after President Bush requested such and they informed him it wasn't going to happen. There is legitimate concern that the Saudis have scarcity problems of their own. But now, just a couple of weeks later, they are talking about loosening the pipelines? Do you hear that Twilight Zone music popping up yet?

Ironically, I wrote about this just last Wednesday when I discussed how to lower gas prices in 30 days or less. In that post I stated "A few liberal Senators with a history of opposing drilling in this country, coming out in favor of such" would make a difference in those gas prices. When it comes to oil policy, McCain has acted like a liberal, in my opinion. My tea leaves seem to be reading correctly and this policy is well received, both by conservatives who have demanded energy independence for decades, and independents who are simply trying to make ends meet. Other things we need to see happen to drive down prices are Congress stepping away from lecturing the oil industry and follow up with getting involved in constructive discussions to build a strategy to solve these problems. It is time to solve problems and stop pointing fingers.

It is imperative for McCain to take positions such as this on issues like these if he has any intention of winning in November. He desperately needs to simply get on the side of the rest of the country when it comes to issues of where we feel as though we are being abused by the government. Be it excessive taxes that prevents people from starting or growing a business, regulation that makes it costly to fuel our cars, or policies that simply undermine our personal and economic freedoms. He needs to get on the right side and he needs to do it now. This announcement is an excellent first step in that objective.

Slideshow from the Associated Press.

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The Real Reason the Saudis Won't Provide More Oil

The media is up in arms over the fact that Saudi Arabia has told the United States that it won't be increasing its supplies of oil into the market. Talk show hosts have been up in arms, arguing that the Arab nation is gouging the US and other Western countries with high prices. Why don't they just provide more oil? Why be so greedy? Don't the Saudis know what we have done for them? It appears the situation may not be that simple.

According to energy economists, the Saudis are suppose to double its output over the next ten years. However, it is being reported by the New York Times that "capacity will probably stall near current levels, potentially creating a significant gap in the global energy supply" according to government officials and energy executives in both the US and Saudi Arabia. Just recently a friend of mine told me that the stock market advise newsletters were about to release this story. But it is really old news because the article is over four years old.

So over four years this story was out there, but little has been done about it. This is just among a long list of reasons why we have needed a national energy policy. Four years ago gas was a little more than half the price it is today. That was the time to take advantage of important information such as this, but I am sure the politicians didn't want us to be alarmed. Maybe if we ignored it, the problem would some how go away.

The United States is sitting on approximately 200 years worth of oil based on current consumption levels according to most analysts in the energy industry. It is at places we may not like to explore -- Alaska, the coast of California, and the coast of Florida. But our technological abilities to pursue such in a manner that is environmentally sound and with minimum impact is better now than ever and our freedom, economy, security, and future hang in the balance. We should have taken action four years ago. We should have taken action four decades ago. We certainly better take action today.

According to recent surveys on marketing, most advertising attracts sellers (others who want you to buy more ads) and not buyers. Do you want to know why? Email info@HoustonBusinessShow.com and put "marketing audio" in the subject line and we will get it to you.

Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.