Mac’s Oil-Drilling Flip-Flop Is a Good First Step

Warts and all, John McCain’s flip-flop on offshore drilling is a very welcome development. When circumstances change, political leaders should change their policies. And $4 at the pump and $140 in the open market is certainly enough changing circumstances to warrant McCain’s constructive shift on offshore drilling. Regrettably, McCain still talks about the “pristine” ANWR patch. But he’s just not gonna move on that.

Obama, meanwhile, is repeating the tired old Democratic response that there’s no way offshore drilling will lower prices now. But he is wrong. And McCain has an opening here if he’d only stop his silly attacks on “reckless speculators.”

The Arizona senator doesn’t know anything about speculators or investors or commodity trading or any of that stuff. The reality is, should Congress overturn its offshore-drilling moratorium, those very same speculators are gonna start selling crude-oil futures contracts and price declines will filter backwards from the longer-term contracts to the cash market. In other words, what can be bought will be sold. If drilling expectations change on the hope that future oil supplies will rise, prices will adjust lower and it will happen fast.

This is what Obama doesn’t understand. It’s also what McCain doesn’t understand. Price changes are pulled forward in response to shifting oil-supply policies. Ironically, one of McCain’s senior economic advisors, Kevin Hassett of the AEI think-tank, has just written a column on this very subject. So I don’t know who McCain is talking to, but he ought to talk to Kevin Hassett, who is a very smart guy.

Regarding the investigation of commodity futures undertaken by the CFTC, acting chairman Walter Lukken has said they have not found a smoking gun. And this whole exercise in investigating traders reminds me of the nonsensical investigations of so-called price gouging, which for decades have come to nothing.

In addition, McCain should get off this “obscene profits” song about oil-company earnings. Obscene profits are the near cousin of the windfall profits tax. Once again that puts McCain on the liberal-Democratic side of the issue. What you don’t want is to deter oil drillers and producers from going into new fields offshore and onshore if Congress lets them.

One reason for all this is economic growth and jobs. A Wharton Econometrics study (hat tip to Mark Perry at Carpe Diem) shows that total employment at full production in ANWR would come to 735,000 new jobs created across the country, not just in Alaska. So not only would offshore drilling and ANWR and other domestic sources of energy reduce prices, they would also be huge job creators to spur the economy. This is something McCain should push.

Finally, President Bush made a very strong statement today to lift the moratorium on domestic and offshore production. In his statement he emphasized the oil-shale fields in the Green River Basin of Colorado, Utah, and Wyoming. There is the equivalent of 800 billion barrels of recoverable oil in this area, more than three-times larger than the proven oil reserves of Saudi Arabia.

Now get this: Bush charged that in last year’s budget bill Democrats inserted a provision blocking oil-shale leasing on federal lands. That’s unbelievable. McCain should pick up on that point, too. That oil shale could create another million jobs, bringing oil prices back down to about $75 a barrel and pushing gas pump prices way down as well.

Onshore, offshore, oil shale. The mantra here is drill, drill, drill. Oil, jobs, and the economy may determine this year’s election. Sen. McCain has made a very good start but he has much more work to do.