Tuesday’s partisan small ball on gas prices, replete with consequential rhetoric and insignificant action, did nothing to dispel the sinking feeling that we are in for months of political theater as real challenges and issues founder.
Republicans have seized on the rising cost of gasoline and used it as a cudgel to attack the administration for its reluctance to allow more aggressive domestic drilling. President Obama, clearly remembering how higher gas prices became a political liability for President Bush late in his second term, unveiled a new set of proposals aimed at reducing prices at the pump.
In response, Obama called for more oversight of traders who speculate on the price of oil. “I call on Congress to pass a package of measures to crack down on illegal activity and hold accountable those who manipulate the market for private gain at the expense of millions of working families,” he said.
While the trading market has become larger and more sophisticated in recent years, he said, the regulatory framework has not kept up. The measure he unveiled Tuesday focused on enhancing that framework, though he cautioned it would not lead to a decline in gas prices overnight and reminded Americans that energy efficiencies were the best long-term solution.
The Republicans, in the guise of House Speaker John Boehner, reacted quickly and shot back that there were more than enough regulations and regulators to investigate the problem, if indeed market manipulation was the cause. They dismissed Obama’s call as pure political theater.
It’s hard to refute that charge. Yes, the number of market players who invest in the oil and commodity market through financial contracts and derivatives has increased significantly. These investors include not just professional Wall Street traders but units of large energy companies trying to determine and manage future costs, and companies as diverse as Delta Air Lines, Federal Express, and Archer Daniels Midland, as well as clothing manufacturers and retailers. Any major company that faces the variable input costs of raw materials may use financial instruments and hedges to make the costs of these materials more predictable. Some of that benefits only their bottom line; some directly benefits customers.
Obama’s stance certainly taps into a deep current of suspicion that some dark cabal of Saudis and Wall Street is driving up oil prices, and gas especially.
And in any market where costs are huge, savings imperative, and profits to be made, there will be and has been market manipulation. Individual investors and pension funds also have joined these trading markets, taking advantage of the surge in the number of mutual funds that allow anyone to take a bet on these volatile markets.
But the belief that oil prices and gas especially are being gamed by a few mega-companies such as Exxon and Goldman Sachs, that prices are being actively run up by some dark cabal of Saudis and Wall Street? Would that it were so easy and simple. Obama, of course, didn’t say that, but his stance certainly taps into a deep current of suspicion that these forces are driving up prices.
The advantage of these suspicions is how difficult they are to prove or disprove. Oil prices have soared in the past 40 years, and they have plummeted. Presumably the same groups that stood to gain from elevated prices failed abysmally in the 1990s, only to see prices surge in the 2000s, with oil prices climbing toward $200 a barrel, only to crash again after 2008 and rise once more in the past two years back above $100. If the root cause is market manipulation, it isn’t working too well for the manipulators.
Yes, the government should be equipped to investigate these markets, make them more transparent, and prevent illegal manipulation. The SEC, the Commodity Futures Trading Commission, and whoever else should have the technology and be staffed by individuals who understand these markets. The same goes for the challenge of high frequency trading in stocks, which has evolved so suddenly that it may be giving those traders an unfair and illegal advantage.
But it is still dispiriting to see that this is what the president chooses to announce with such fanfare. He did in his speech renew his call for alternative forms of energy and for greater fuel efficiencies and public transportation. But that was secondary. It shouldn’t be. Greater efficiency, more domestic supply of various sources of energy, and more innovation in transportation and building will do more to reduce American dependency on foreign fuel—that and the natural gas shale gas revolution underway. And both natural gas and efficiencies benefit the environment and promise some move toward long-term sustainability. In the face of those possibilities, more enforcers like the CFTC are small ball at best.
Why criticize a legitimate move, however? Because it speaks to a dark fear and it is coming from an administration that promised for so long that it would base its policies on hope, and because it smacks of political theater rather than dynamic leadership. This was a president who ran on the slogan “Change we can believe in.” If you set yourself to a higher standard, you will be held to it.
Both parties are drumming up rising gas prices as a political issue when they are barely changed from a year ago. According to AAA, a year ago the average price for a regular gallon of gas was $3.83; today it is $3.90. Some areas of the country are well above $4 and have been for some time, but that was also true a year ago.
Globally, demand has been growing in the emerging world more quickly than it has been contracting in the U.S. and Europe, and Japan has been a much greater importer of oil after taking most of its nuclear reactors offline following the meltdown of its Fukushima plant last spring. With global sanctions on Iran tightening, Japan and China are rapidly decreasing their imports of Iranian oil, and that puts more strain on the rest of the global market. Add in futures contracts trading on some anxiety about major disruptions should Israel attack Iran and there are more than sufficient geopolitical reasons for elevated oil prices, even without the influence of traders.
It is not too much to expect the U.S. government, let alone the Obama administration, to speak directly, cogently, and consistently about these realities. Yes, that would be an unfamiliar patois, the reverse of dumbing down and sucking up, but if we refuse to demand more and expect more, there will never be change we can believe in.