Riverwood Presbyterian Church

Education

Economic Ignorance

by Clay Staggs

I’ve bemoaned the fact that no one teaches or learns logic so many times that I’ve lost count. But examples of people saying and doing things that are totally irrational just keep on coming. The latest one was at the President’s press conference yesterday.

The question you are about to read actually came from a White House correspondent - that is, someone who has been afforded the privilege of questioning the leader of the free world.

Q `You never mention oil companies. Are you confident that American oil producers are tapping all of the sources they have out there, including offshore?

Now, I don’t believe that a great deal of formal education in economics is necessary to know the answer to this question. Some simple logic should do. The price of oil is $140+ per barrel - a historic high. Why on earth would company fail to tap their resources and cash in? The President then obliged with an answer that should have gone without saying:

THE PRESIDENT: What about them — do I think they’re investing capital to find more reserves with the price at $140 a barrel? Absolutely. Take an offshore exploration company. First of all, it costs a lot of money to buy the lease, so they tie up capital. Secondly, it takes a lot of money to do the geophysics, to determine what the structure may or may not look like. That ties up capital. Then they put the rig out there. Now, first of all, in a federal offshore lease, if you’re not exploring within a set period of time, you lose your bonus; you lose the amount of money that you paid to get the lease in the first place.

And once you explore, your first exploratory, if you happen to find oil or gas, it is — you’ll find yourself in a position where a lot of capital is tied up. And it becomes in your interest, your economic interest, to continue to explore so as to reduce the capital costs of the project on a per-barrel basis. And so I — I think — I think they’re exploring. And hopefully a lot of people continue to explore so that the supply of oil worldwide increases relative to demand.

I probably make too much of this, but the fact that someone in the White House press corps lacks this much rational thought really bothers me. Of all the questions that could be put to George Bush, the fact that this one would have been asked is just pathetic.