Professor Boudreaux hits the proverbial nail…
John McCain credits the recent fall in oil prices on President Bush’s
announced support for more off-shore drilling and, hence, on the fact
that the future supply of oil likely will be higher than previously
thought. ("McCain Credits Bush For Drop in Oil Price," July 23). Sen.
McCain also blames the preceding run-up in oil prices on unjustified
speculation.
Sen. McCain can’t have it both ways. Prices either chiefly reflect the
underlying reality of supply and demand or they don’t. If baseless
speculation caused oil’s price to rise to heights unjustified by supply
and demand – if speculators are financial sorcerers who detach prices
at will from underlying economic realities – how does a presidential
announcement signaling higher future supplies cause lower prices? On
the other hand, if a more promising prospect of greater off-shore
drilling really is responsible for pushing oil prices downward (which I
think likely), why would Sen. McCain have ever blamed high oil prices
on unjustified speculators rather than on the underlying conditions of
supply and demand?
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