US Pres. Bill Clinton gave illuminating context last week to his Sept. 23 order to make 30 million bbl of strategically hoarded crude oil available to a market straining against shortage. Wringing the prerogative of incumbency for all it's worth, he claimed credit for himself and Vice-Pres. Al Gore for income gains documented in an annual Census Bureau report released Sept. 26.
Heralding "another economic milestone," Clinton noted that median household income increased by $1,072 last year to $40,816, the first time in history that the figure exceeded $40,000. It was the measure's fifth straight significant annual gain-another first.
Purchasing power rises
"Since 1993, when we launched our economic strategy," Clinton said, "median family income [which differs from household income by excluding singles and nonfamily groups] has risen by 15%. That means, for the typical family, after inflation, $6,300 more a year in real purchasing power for the things that matter most-sending their children to college, covering critical health care costs, saving for a secure retirement."
Buying oil to keep warm didn't make the list. Just 3 days earlier, announcing his decision to tap the Strategic Petroleum Reserve, Clinton had declared, "Families shouldn't have to drain their wallets to drive their cars or heat their homes."
There's a contradiction here. On Friday families are so desperate they need government protection against rising oil prices. But on Monday they're better off than ever and owe it all to Clinton and Gore. From the mouth of this president who never quit running for office, the conflicts are breathtaking.
Tapping SPR was wrong. More than usual, the country now needs oil in strategic storage. With inventories very low, the market is unusually vulnerable to disruption of supply. A maverick producer, such as Iraq, can create hardship with a relatively small cut in production. Oil in strategic storage, managed strategically, at least discourages such mischief.
Managed politically, strategic storage loses credibility and eventually runs dry. Clinton's move, coming just a day after would-be successor Gore called for it, was brazenly political-Energy Sec. Bill Richardson's absurd denials notwithstanding. The public is angry about prices of oil products and worried about winter. Tapping SPR looks like a response. It's good for politics.
But it's lousy energy policy. SPR exists for emergencies, such as politically motivated supply interruptions, not price relief. Under present market conditions, oil prices should be high to encourage production, conservation, and restocking. Action by government to dampen the price interferes with a necessary adjustment.
Furthermore, availability of SPR crude can't do much about the immediate problem-winter supply of heating oil. It will just move to commercial storage and dampen the crude price for a while. But it can't raise heating oil volumes because refiners are already processing crude at maximum rates. Conditions of the present are proper causes for worry and proper causes for price elevation. They do not constitute an emergency worthy of a drawdown of SPR crude.
Clinton's move reestablishes a horrible precedent: that high oil prices justify government intrusion in the market. Other than assistance for the needy, such intrusions are always poor policy. As the Census Bureau report shows, most of the US population is not needy.
Energy Information Administration officials have projected that if weather is normal, New England consumers of heating oil will pay about $140/household more this winter than they did last winter, which was warmer than normal. Against $1,000/year income gains, the heating-bill increment, however uncomfortable, does not represent hardship.
Spending preferences
By nature, consumers dislike price increases of any size for anything. By tradition, Americans turn indignant when prices increase for oil. Prices are nevertheless high at present for valid reasons that will correct themselves if allowed to do so. Part of the reason they're high is that all but the poorest Americans can, in fact, afford to pay them.
Clinton won't traffic so straightforwardly in such unpopular verity. No politician will. But presidents are supposed to lead, not subvert national interests under strain to momentary politics. Tapping SPR was an error. Tapping SPR to keep family budgets safe for government spending preferences was something very worse.
