Laigle’s Forum

Airlines united behind questionable economics

by Donald Hank

We urge our readers to go to the site linked below and leave a post asking why the members of the airline-supported forum StopOilSpeculationNow are so preoccupied with only one minor aspect of the fuel price crisis, namely, speculation in the prices.

Tell them ending speculation will not help extract desperately needed oil from US territory where it lies going to waste. Tell them it will not help build much-needed domestic refining capacity.

This forum StopOilSpeculationNow is taking the viewpoint that the market must be brought under government control, something the Democrats will agree with, but is ignoring the common sense viewpoint and the facts: nuclear power would conserve fossil fuel by supplanting oil-burning power generation, drilling for oil in US territory and exploiting shale oil deposits would counterbalance the effects of the OPEC monopoly, and building refineries here would make us less dependent on other nations and reduce the price of refined petroleum products. The proposed “carbon footprint” tax would have additional disastrous effects on the airline industry, but their execs ignore this problem.

By pretending that the entire problem is due to a minor factor that requires government control of the economy, StopOilSpeculationNow is clearly playing politics. Indeed the current administration must take much of the blame for the oil crisis, but not so much for its failure to stop speculation but rather because it fails to let the free market sort out the problem free of excessive and often self-contradictory environmental concerns. Indeed, the US, while refusing to exploit off-shore oil on the pretext of environmental concerns, has lodged no protest against foreign oil companies who explore for oil off our shores (e.g., the Gulf of Mexico). In fact, if China succeeds in finding oil there, with its deplorable record on the environment, we are sure to see much more pollution than if US companies had been allowed to exploit these deposits.

Background:

On July 9, 2008, I received a letter from Delta Airlines urging me to join in a political action aimed at motivating Congress to stop oil speculation, which, according to the letter, is driving up the price of oil as much as $30 to $60 a barrel. These figures were supposedly based on analyses by “market experts.”

I was surprised to learn this and am as concerned as the next guy about anything that makes oil more expensive. Nor do I have any sympathy for speculators. If speculation is indeed driving up oil prices as much as $30-60 a barrel, the government may be justified in taking a position on this.

But I was put off by the fact that there was no mention of anything but a regulatory solution to a free market problem, particularly at a time when our government refuses to drill for oil in our territory or build more refineries, and by the lack of supporting details such as the names of the scholars behind the studies showing this and references to them.

I went to the web site linked in the letter www.StopOilSpeculationNow.com and found that almost every major airline was supporting this anti-speculation action.

But I was shocked that not one of the CEOs who had signed the letter was interested in any solution other than adding a new regulation to stop speculation. There was no mention of drilling for US oil or building more refining capacity or lowering energy taxes and opposing the foolish “carbon footprint” taxes that have been proposed. A recent article by Paul Weyrich shows that every avenue for increasing US oil independence has been blocked by Democrats in Congress, whose “no” votes make up as much as 97% of all Democrat votes, whereas the Republican situation is the exact inverse. Further, some oil experts insist that speculation is not really a major culprit.

But besides that, how could the US government stop speculation when much of it is under foreign jurisdiction? Oh, that’s right. We are moving toward a one-world government that can fix everything.

At any rate, all of the above makes me very suspicious about these airline CEOs’ motivation.

It was a surrealistic experience to see the entire air travel industry lined up behind a proposal for more regulation rather than less. It appears, at leasst on the surface, as if the entire industry is in the hands of Democrats who are opposed to a free market solution and who are trying to make free market actors look like the sole cause of our current economic malaise while giving anti-energy politicians a pass. This is not all that surprising when you consider how American Airlines benefitted from millions of dollars in corporate welfare after the 911 attacks.

But add this to the fact that CEOs of major industries like McDonald’s and Ford have foolishly supported gay sex and same sex “marriage,” and it is easy to see that our economy is far from being in the hands of grassroots Americans.

Here is the letter:

Hello Mr. Hank,

Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.

For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers.

Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.

Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.

Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.

The nation needs to pull together to reform the oil markets and solve this growing problem.

We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com

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