Editorial: Bernanke Cool Or A Fool On Oil Prices?

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Oil Prices: As serious as our debt is, we face a far bigger near-term threat from surging oil prices that threaten to ignite inflation and slow economies around the world. So why aren't we doing anything about it?

Almost all energy crises are caused by humans, not nature, and the one we're experiencing now is no different. Oil prices are running up as turmoil mounts in the Mideast. But they're also on the rise because one nation that has plentiful resources — the United States — refuses to develop them.

What's strange is how blase policymakers and the White House seem to be about it — even the chairman of the Federal Reserve.

Testifying to Congress on Tuesday, Ben Bernanke shrugged off the threat of inflation. Yet, perhaps to cover his bets, he also warned of the economic damage from "sustained rises in the prices of oil or other commodities."

Well, guess what? Oil prices have been rising steadily for two years. If this new, most recent spike lingers a few more months, the world economy will be in trouble and the U.S. could face a double-dip recession that throws millions out of work and decimates energy-reliant industries.

Just how severe is it? A $10 hike in oil prices siphons about $150 billion from the economy, say analysts. An old rule of thumb says that a long-term hike of $10 in the cost of energy is equivalent to a 0.5% cut in gross domestic product.

Since bottoming at just over $33 a barrel on Feb. 12, 2009, crude has tripled to $99.63. And if the futures market is any guide — and it usually is — spot prices of $120 a barrel may not be far off.

As the chart below shows, such increases in oil prices have always resulted in a recession.

These basic financial facts are made gloomier still by the situation in the Middle East. The region is the source for a major share of the world's crude, and with multiple uprisings and outright revolts taking place in oil-rich countries from Libya to Iran, future oil supplies to a thirsty global market can't be assured.

Once again, this is ample reason for the White House to promptly end its foolish war against fossil fuels and recognize the hard reality of our economy's existence.

Our nation's wealth depends on oil. The Energy Department's own estimates say we'll depend on oil for national energy needs at least through the end of this century — a hard fact that cannot be wished away.

Believe it or not, the United States is awash in oil. At last estimate, we had some 2 trillion barrels underground and offshore — enough to supply our needs for decades to come. We also have hundreds of trillions of cubic feet of natural gas. All we have to do is get it.

Despite this, the federal government has imposed a moratorium on offshore drilling and severe environmental limits on tapping the ocean of oil that exists in shale deposits. It is also heavily subsidizing so-called alternative fuels that cost more than oil to produce.

This is sheer madness — the kind of economics that might be practiced in Alice's Wonderland, but not in a responsible free-market democracy.