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And It All Has Nothing to Do With the Price of Gas!

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Thursday, 19 May 2011 05:25

The Democrats want to take away tax breaks from the big oil companies, the Republicans want to let them drill more places. These may be good or bad policies, but neither will have any noticeable effect on the price of gas.

Let's say that 20,000 times. Neither of these policies will have a noticeable impact on the price of gas. This is not a disputable point.

Getting more tax revenue from the oil industry may be a good idea, especially in a context where Congress is obsessed with reducing the deficit, but it will not reduce the price of gas.

Similarly, the opening of new areas off the coast to drilling cannot possible generate enough additional oil to have any noticeable effect on the world price of oil. When politicians say that they want to increase drilling to bring down gas prices they either do not know what they are talking about or they are not being truthful. 

Either way, this assertion should be treated as a gaffe. (You know, like then Senator Obama's comment about guns and religion during the presidential primaries.) Politicians who make such inaccurate assertions should be pressed on them. The media should try to determine whether they are really completely ignorant of the dynamics of the world oil market or they are just trying to deceive the public.

It should not just imply that opening new areas to drilling is a plausible way to reduce gas prices, as is done in this article

Comments (6)Add Comment
...
written by izzatzo, May 19, 2011 6:53
Let's say that 20,000 times.


Exactly. According to theories of diminishing perception returns of the public attention span in the USA, this is how many times something not qualifying as sensationalist news must be stated before it will be remembered longer than one week.
Well prohibiting exports will solve the problem
written by Bill H, May 19, 2011 10:20
You didn't discuss the brilliant move by Congress to prohibit any oil extracted in domestic territory from being exported to foreign lands. I'm a bit unclear as to the purpose of that bill, but presume it has something to do with keeping it off of the world market and lowering domestic prices. It's about as effective as anything else Congress does, of course.
Reduce the Price of Gas the Old-Fashioned Way
written by Paul, May 19, 2011 10:22
No need for more drilling or taxes, just do it the way TR did it: bust up the oil companies with antitrust litigation. Also, the government could encourage consumer conservation combines: organize consumers to boycott major oil companies and work together to save gas by carpooling and maintaining their vehicles.
It's not a policy argument - it's a political one
written by Taylor, May 19, 2011 7:11
It doesn't matter that there will be no actual near-term effect either way - politically, one can still argue that it will because that's what ignorant voters will believe.

I agree with your conclusion. In a serious policy debate, such assertions are meaningless. If only serious policy debates actually determined what our government does!
But Dean, ...
written by ojc, May 19, 2011 8:03
... wouldn't taking away tax breaks require the industry to raise prices to maintain their God-given profits?

Clearly if American oil goes on the world market it ain't gonna help American prices, so the plan must be to nationalize the oil industry (a long overdue step). That is the plan, right?
A method to actually lower gas prices
written by NewsFromAnnArbor, May 20, 2011 4:14
How about selling futures contracts against the Strategic Reserve? How about filling up the Strategic Reserve with oil from US Federal Lands (the government would drill the oil and not sell it to private oil companies)? The globe is awash in investment capital trolling the globe looking for a profitable outlet; a rise in oil prices attracts more money into the commodity markets and presto, a new tulip like bubble. If selling futures contracts against the Strategic Reserve does not work, look to tighter regulation of the oil futures markets to keep bubbles from developing.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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