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Section A: General News


Letter: An economist looks at ‘Drill, baby, Drill’




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April 4, 2012 | 2,198 views | 4 comments

Re: “Drill, baby, drill ... really?” March 28

In his guest column, Tracy Bogert advances the argument that the slogan, “Drill, baby, Drill,” is political rhetoric that has little basis in economics. Although Bogert makes several sound points, his conclusions are a bit off base. It is simple demand-and-supply analysis to conclude that, as supply increases, other things being equal, the prices of oil and gas will decrease.

The key elements are the magnitude of the supply increases and the elasticity of demand. Oil and gasoline demand is highly inelastic, so only very large supply increases will significantly decrease gasoline prices. That is, if the oil supply increases by 10 percent, gasoline prices might only decrease by 3 percent.

American drivers value their mobility so highly, that as gasoline prices have increased from $2.60 per gallon to $3.60 per gallon, they have cut back their driving very little. And, yet, is there a driver who would not appreciate a drop in the price of gasoline, even if only 15 or 20 cents per gallon?

Yes, it is true that as energy demand has surged in China and India, the world demand for energy has surged commensurately; thereby, American production is a much smaller percentage of overall oil production than it was, say, 30 years ago. However, it is disingenuous to argue that American production is irrelevant.

Natural gas prices have collapsed, because increased natural gas production from shale formations across the country has dramatically boosted supply relative to demand. Over time, natural gas demand will catch up to supply, as natural gas becomes a fuel for automobiles and trucks. But I don’t see a similar increase in production and decrease in prices for oil. As Bogert states, the world production of oil is so enormous, that it is not reasonable to argue that American production can increase in a few years to overwhelm the world oil market.

Furthermore, the impact of oil production is far beyond a “bunch of folks grubbing and grabbing for their piece of the pie,” as Bogert stated. Landowners, their families, and their communities benefit. Yes, oil drilling and transport and refining is tough, dirty, and dangerous business. But can anyone seriously argue that Eagle Ford is not a boom to the South Texas economy?

So, it is correct to state that “Drill, baby, Drill” is not a panacea for ending high oil and gas prices. But I prefer that oil money stay -- or start, anyhow -- in Texas. And if Alaska exports to Japan, who cares? I want Alaska to prosper. I want North Dakota to prosper. As American oil production ramps up, the American economy will benefit.

Why send oil money to sheiks, emirs, and dictators?

GARY CARMAN, Ph.D., ChFC

Floresville

Editor’s Note: Carman is a Retired Distinguished Professor Emeritus of Economics, Texas State University.
 

Your Opinions and Comments

 
4 th Generation Texan  
Sutherland Springs  
April 5, 2012 1:16pm
 
"Tracy Bogert advances the argument that the slogan, “Drill, baby, Drill,” is political rhetoric that has little basis in economics." Does this guy know what 1 Trillion barrels (estimated reserves) of petroleum ... More ›

 
The Marcelina Muse  
Dry Tank, TX  
April 5, 2012 10:45am
 
You succinct son-of-a-gun you.

 
Rock'n chair Rambler  
Over Taxed, TX  
April 4, 2012 5:54pm
 
Kinda of a long winded way to just say Tracy Jo don't know his butt from a hole in the ground about oil or anything else. Nuf said.

 
The Marcelina Muse  
Dry Tank, TX  
April 4, 2012 1:46pm
 
Well see Gary, here's the thing. Too be a competent and successful socialist you have to disguise the lie. Throw in a bunch of real figures along with the made up ones. And, most importantly, never, never apply the logic test ... More ›

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