SYNOPSIS: Bush's sympathy for the Cartel are entirely misplaced.
George W. Bush said something interesting about economics the other day. No, really. It wasn't his usual line about how tax cuts are the answer to whatever ails you; he said something unscripted, something that reflected what he really thinks and feels. You might say that his remarks gave us a sense of his soul. And it turns out that his soul or maybe it's just his heart belongs to people, of whatever nationality, who sell oil.
Recently Mr. Bush was asked about the decision of the Organization of Petroleum Exporting Countries to reduce output by a million barrels a day. That's about as much as the Department of Energy's estimate of peak daily production if we drill in the Alaskan tundra a peak that won't come until the middle of the next decade. And OPEC cut production in order to keep oil prices high despite slumping world demand, which would seem to be against U.S. interests.
Yet Mr. Bush was remarkably sympathetic to OPEC's cause; it seems that he feels the oil exporters' pain. "It's very important for there to be stability in a marketplace. I've read some comments from the OPEC ministers who said this was just a matter to make sure the market remains stable and predictable," he declared. Just in case you wonder whether this was really an endorsement of price-fixing, or whether Mr. Bush was just being polite, his spokesman, Ari Fleischer, left no doubt: "The president thinks it's important to have stability, and stability can come in the form of low prices, stability can come in the form of moderate prices."
This is the same man who boasted during last year's campaign that he would force OPEC to "open the spigot." Did OPEC take Mr. Bush's remarks as a green light for further cuts? According to one oil analyst interviewed by Reuters, Mr. Bush's apparent expression of support for their efforts to keep prices high "excited a lot of OPEC ministers."
Funny, isn't it? When California complains about high electricity prices, it gets a lecture about how you can't defy the laws of supply and demand. But when foreign producers collude to prevent prices from falling in the face of an oil glut, the administration not only signals its approval but endorses the old, discredited theory that cartels are in consumers' interest.
This was not the only case in which the administration dropped its principles when the subject turned to oil. The energy bill the House passed last week was notable for its indifference to environmental consequences and its lack of serious conservation measures increased fuel-efficiency standards could easily save far more oil than we'll ever get by punching holes in the tundra.
But the most amazing thing is that the bill contains more than $30 billion in subsidies and special tax breaks for energy producers. That's even more amazing given that money is looking very tight: Republicans are nervously awaiting new budget projections, which everyone in Washington expects will show that the tax cut has wiped out the non-trust-fund budget surplus for the foreseeable future.
So it seems that many of the administration's principles contain a special clause, making an exception when it comes to oil. The administration tells people that they should place their trust in the free market, and accept the fact that prices will move up and down with changes in supply and demand unless those people happen to be selling oil. The administration tells people that they should be self-reliant, and should not expect subsidies from the federal government unless those people happen to be selling oil. And the administration tells countries that they must expect the United States to stand up for its own interests, and that our government doesn't worry about offending their delicate sensibilities unless those countries happen to be selling oil.
Mr. Bush was, needless to say, naοve in ascribing any altruistic motives to the OPEC ministers. They don't want stability, they want money your money. And their action didn't do the world economy a favor on the contrary, falling oil prices were one of the things that economists had hoped might reduce the risk of a global recession. So OPEC's decision to cut output, which Mr. Bush seems to condone, was bad for the world, and bad for the people of the United States except, of course, for those people who happen to be selling oil.
Originally published in The New York Times, 8.5.01