Kausfiles Special

Cheney and the Oil Cartel: Episode 2

[From NBC’s Meet the Press, Sunday, July 30.]

RUSSERT: You were in favor of reducing the world’s oil supply, which drove up gasoline prices for American drivers. As a CEO of a company, as vice president, would that still be your position? …CHENEY:  [T]he question in terms of the future is how we put in place a reasonable policy that will provide for some stability in prices. It really isn’t anybody’s interest, Tim, either the producers or the consumers, to have the kind of volatility we’ve had in recent years. Because when prices go up too high, it has an adverse effect on the economy and that reduces demand for oil. When prices go too low, nobody’s going to invest and that in turn leads ultimately to shortages and creates the kind of problems we’ve seen in recent months.

RUSSERT: What do you think is a fair price for a gallon of gas?

CHENEY: Well, a fair price for a gallon of gas, I think, has got to be determined by the market… .

There are a number of things to be said about this exchange.

First, it’s an odd idea of capitalism that abhors “volatility” in prices, since the rise and fall of prices is the basic mechanism by which the marketplace sends information to economic actors. A system that would somehow replace this “volatility” with “stability” might be many things, but it would not be a system in which prices are “determined by the market,” at least as most economists (and conservatives) understand the term.

Second, there’s no obvious reason the oil industry should be excepted from the normal bias in favor of letting prices do their work. Cheney argues that “when prices go up too high, it has an adverse effect on the economy and that reduces demand for oil.” Sure does! And when demand for oil is reduced the price comes back down. That’s sort of the idea. Similarly, if low oil prices discourage people from investing in oil exploration, as they undoubtedly do, they are sending the signal that society has less interest, at the moment, in looking for oil. The oil isn’t going anywhere–it can always be discovered and tapped later.

Third, a call for “stable” prices from an oil producer, or an oil services company, or more or less anyone from Texas, is usually best translated as a call for higher prices. Would Cheney really have been unhappy if the price of oil doubled on average but remained volatile?

Fourth, oil prices are not now set by a free market. They are set by an international cartel, OPEC. Or at least OPEC attempts, through production cuts, to manipulate prices. When Cheney rooted for OPEC’s success, he was rooting for this anti-competitive scheme, which has hardly benefited consumers. (Were you a happy consumer in the ‘70s, when OPEC was strong? How about in the ‘90s, when OPEC was weak?) Indeed, economists can prove with charts and graphs that OPEC-style monopoly pricing is a negative-sum game in which the benefit to producers doesn’t come close to matching the loss to consumers. There’s a dead-weight loss to the whole society. Which is one reason we have antitrust laws making OPEC-style collusion illegal for Americans.

Maybe Cheney was just being an advocate for his company, Halliburton, when he egged OPEC on, and maybe he was just being evasive and slick on Meet the Press. The disturbing possibility, of course, is that he may have been honest–that OPEC’s “reasonable” monopoly price is his idea of how the economy should run. He wouldn’t be the first business leader to conclude that unfettered capitalism is just too disorderly and “volatile,” that it inhibits statesmanlike planning. The same idea was behind Franklin D. Roosevelt’s failed National Recovery Act, and a certain distinctive corporatist social movement that gained popularity in … well, let’s not go there. But you get the point: Cheney may know what the meaning of “is” is. But does he know what the meaning of “market” is?

(For the original kausfiles item on Cheney’s support of the OPEC cartel’s attempt to provide “stability” by raising prices, click here.)