Congressional Republicans are having difficulty keeping their stories straight when inventing politicized explanations for high oil prices.
When they are not complaining that insufficient domestic production is the cause of high prices, they’re busy blaming the Federal Reserve for pain at the pump.
Ben Bernanke is too free and easy with the money supply, they argue, driving down the value of the dollar and consequently putting upward pressure on the price of oil.
At a Tuesday speech to the International Monetary Conference in Atlanta, Bernanke – in his measured, academic, and carefully non-partisan way – essentially told congressional Republicans that their dollar-price hypothesis is little more than the product of vivid imaginations. As if he were back at Princeton instructing a group of Econ 101 neophytes, Bernanke delivered a lecture that was as subtle as fingernails on the chalkboard.
“Some have argued that accommodative U.S. monetary policy has driven down the foreign exchange value of the dollar, thereby boosting the dollar price of commodities. Indeed, since February 2009, the trade-weighted dollar has fallen by about 15 percent. However, since February 2009, oil prices have risen 160 percent and nonfuel commodity prices are up by about 80 percent, implying that the dollar’s decline can explain, at most, only a small part of the rise in oil and other commodity prices; indeed, commodity prices have risen dramatically when measured in terms of any of the world’s major currencies, not just the dollar. But even this calculation overstates the role of monetary policy, as many factors other than monetary policy affect the value of the dollar.”
Both Bernanke and the International Energy Agency have attributed the run-up in oil prices to market fundamentals – worldwide supply and demand. Bernanke further said that his critics have their cause-and-effect argument backwards.
“As the United States is a major oil importer, any geopolitical or other shock that increases the global price of oil will worsen our trade balance and economic outlook, which tends to depress the dollar. The direction of causality runs from commodity prices to the dollar rather than the other way around.”
Which underscores the fundamental problem – heavy dependence on a commodity traded in a global market that is significantly influenced by dodgy petro-regimes. Lawmakers should adopt an energy policy that begins lowering our addiction to the sauce, not waste time on distractions that won’t.