I love The Economist for its wry wit, its international scope and the distinctive literary style its editors impose on the publication’s writers. (Alternate theory to that last assertion: The Economist has licensed a gene-splicing protocol that allows it to produce infinite numbers of journalists who write permanently with one half-raised eyebrow and refer reflexively to “magazines” as “newspapers.) But boy, when The Economist goes overboard with its free-markets-fix-everything mantra, does it drown everyone in screwball ideological boilerplate. In this post, The Economist decries the International Energy Agency’s decision to put 60 million barrels of stockpiled oil on the market to combat high petroleum prices brought about, primarily, by the uprising in Libya, which, one would hope, is a transitory phenomenon. But the Economistas see this attempt to smooth world oil prices during a time of unpredictable conflict not as a response to emergency, but as unwarranted intervention in a “free” world oil market that is, actually, quite unfree, being buffeted by the political whims of the OPEC cartel, an unprecedented series of uprisings in Middle Eastern countries and predatory speculation in oil futures that, taken together, constitute a clear example of market failure, increasing price volatility in a basic commodity that is price inelastic in the short run. (If you don’t believe me, don’t drive to work the next time speculation drives gasoline prices above $4.50 a gallon and, when your boss complains, tell him you were just responding to market forces.) In this context — as the world struggles to emerge from a major recession and the lingering aftermath of a global financial panic — using the IEA oil reserve to send prices on a soft glide downward seems a reasonable and reasoned act by world leaders concerned with protecting fragile economies. This clearly is an unusual politico-economic situation that is distorting a very imperfect market. Measured government intervention to minimize the distortion — and reduce negative impacts on hundreds of millions of citizens and tens of thousands of businesses – would seem at least a plausible reaction. The Economist‘s dogmatic take?
Plugging a supply gap is all very well. But this sets an unfortunate precedent that the stockpiles are there to smooth the ups and downs of the oil price rather than to guard against genuine emergencies. Moreover, any interventions by the IEA cannot be sustained over the long term when (high) prices will be determined by voracious Asian demand and the difficulties of finding and extracting extra barrels from beneath the earth. Overall, the best solution to a high oil price is a high oil price. Tinkering with that equation is rarely a good idea.
With this piece, I think The Economist failed to think and, instead, spewed out boilerplate drivel that translates, roughly, to: Overall, the best solution to market failure is to ignore it and praise the free market. Tinkering with that equation is rarely a good idea, because our prime demographic is chauffered in Jaguars and thinks of gasoline as an incidental expense the driver (and what’s his name again?) will always take care of.