Clinton's Best Oil Idea: Get Tough on OPEC
Poor Hillary. It must be tough trying to pass yourself off as a working-class, beer-drinking populist who refuses to kowtow to elite opinion or put her lot in with economists when, deep down, you're still that same solid middle-class kid who went to Ivy League schools, made partner at a corporate law firm, speculated in hog futures and real estate development, reveled at Renaissance Weekends, wonked up on health care, lived off millions of dollars in speaking fees and book advances, and hasn't pumped gas in decades.
Having just lived through seven years with a president who proudly ignored the advice of economists, scientists, military commanders and foreign policy experts, I'm not sure we can survive another.
Her proposal for a gas-tax holiday, ripped from John McCain's playbook, is so ill-conceived that she's managed, if only for a moment, to unify the entire economics profession in opposition. Nor is it the only example of her misguided populism. There's also her proposed moratorium on mortgage foreclosures and her threat to cancel the North American Free Trade Agreement.
But here's the dirty little secret: Hillary Clinton is actually in favor of raising gasoline prices, not lowering them. That's right. And for that matter, so are McCain and Barack Obama. That's because all three would-be presidents support some version of a cap-and-trade system for carbon dioxide emissions to deal with the very real problem of global warming. As Peter Orszag, the head of the Congressional Budget Office, reminded the Senate Finance Committee the other day, any cap-and-trade system effectively imposes a carbon tax on businesses and households.
How that burden is distributed depends on how the program is designed, and how the proceeds from selling emission credits are used. But, based on Orszag's estimates, any plan that is likely to pass Congress is almost sure to raise gasoline prices and reduce the after-tax income of the average household.
That may well be a modest price that Americans are prepared to pay to help save the planet. But if a gas holiday is a bad idea, aren't there some other things that could be done to reverse or offset the ridiculous run-up in oil prices?
Actually, there are.
Hillary even hit upon one this week when she called for taking tough action against OPEC.
These days, people who want to be thought of as sophisticated aren't supposed to rail against the oil cartel, either because it is viewed as ineffective in controlling supply or because there's nothing legally that can be done about price fixing when it is done by sovereign governments. Both assumptions are false.
While OPEC may not be so good at controlling how much its members pump, particularly when supply is plentiful, it has been very effective in limiting the pace at which new capacity is developed. We were reminded of that reality only last month when the Saudi oil minister said his country would not go beyond the 11 percent increase in pumping capacity that it embarked on several years ago after decades of almost no growth. And in recent weeks several of his OPEC colleagues have acknowledged that as long as prices remain this high, they have no incentive to make the investments needed to dramatically increase supply.
Nor is it true that there is nothing to be done about this. While the Supreme Court has ruled that current price-fixing laws do not apply to foreign governments, there is nothing preventing Congress from changing the law -- or, as Hillary and others have suggested, challenging the legality of price fixing at the World Trade Organization. Short of that, the United States could deny visas to top officials from OPEC governments, prohibit U.S. oil and drilling companies from doing business with known price fixers, and make it more difficult for the sovereign wealth funds of price-fixing countries to make direct investments in the United States.
Such unilateral actions could aggravate our dear friends in the Gulf states, and in the short run shut off access to Middle East investment capital. But one should not underestimate how much Arab elites value the respect they are accorded and their access to our markets, our companies and our top officials. After a couple of years of being treated like political and economic pariahs, they might begin to realize that there will be a cost to their piggy price-fixing behavior.