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Thoughts on Oil

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Yesterday’s Diane Rehm Show [2] — it was on oil prices and drilling prohibitions — prompts two thoughts.

First, one of the guests, Athan Manuel of the Sierra Club, asserts (somewhere around the 47th minute of the program) that "more drilling will only benefit the oil companies."  Such a statement is the economic equivalent of proclaiming the earth to be flat: it appears to some people to be flat, but a bit of knowledge about the reality beyond one’s immediate senses reveals this appearance to be wholly misleading.  As my friend George Leef, of the Pope Center [3], asked when he heard Mr. Manuel’s assertion: "And would increased production of violins benefit only the violin makers?"  ‘Nuf said.

Second, Ms. Rehm and most of her guests (like many pundits elsewhere) seem to think that the fact that any oil to be had from permitting drilling in ANWR and on the outer continental shelf will not hit the market for several years is sufficient reason to discount the seriousness of calls to open these areas to oil exploration and drilling.  What I find sadly ironic about such complaints is that those who issue them are often the same people who lament the market’s alleged inability to plan for the long-run.  In this instance the pundits correctly recognize that opening up new areas today to drilling would require huge amounts of investments — investments of lots of money and time — and that oil companies that undertake such investments won’t begin to earn a return on these investment for years, perhaps as much as a full decade.

But because of the large stretch of time required to actually bring forth oil from the ground in these areas, these pundits conclude that allowing such drilling is inappropriate.  In other words, while the market has the patience to wait years before starting to earn a return on invested resources, pundits urge government to ignore the prospect of more oil from the likes of ANWR and the OCS because that oil won’t arrive for many years.

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