Tuesday, August 26, 2008

Dems Continue to Stonewall on Drilling

Democratic leadership, including House Majority Leader Nancy Pelosi and Senator Chuck Schumer, are betting that the drilling issue "has peaked" and that voters won't punish Democrats for preventing our country from drilling oil here and now. To the contrary, voters remain "piqued" about gas prices.

House Republicans have been staging protests in the House, which is in recess while Pelosi uses her "mother of five voice" to moderate the Democratic National Convention. Pelosi has called off-shore drilling "a hoax."

The Investor's Business Daily, however, makes clear what Pelosi cannot grasp: the price of oil will go down just by lifting the prohibitions on domestic drilling -- even before the first drop of oil flows.

The belief that the current quantities demanded and supplied are the sole determinants of price misses an important point. Both current and expected future demand and supply interact to determine the quantity demanded and supplied in the current marketplace.

That is true because oil, and indeed almost everything else, is storable.

When a quantity is storable, the amount a producer will supply and a consumer will demand is not independent of future expectations.

Pelosi assumes that price only reflects the supply of oil that is currently available. In fact, the possibility of off-shore drilling causes gas prices to fall. We have seen this already. Once the presidential order against drilling was nullified, and once Republicans began pushing on the issue, prices started to fall.

Pelosi might not get the connection, but voters will. Three-fourths of Americans want domestic drilling; Schumer's assertion that the issue has "peaked" makes clear that Democrats will run down the clock, refusing to enact any energy legislation until after the election. That's a gift to Republicans, because voters understand at this point that Democrats are the No-Drill party.

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