The immediate cause of rising oil prices is the weak dollar. Oil-producing countries are requiring more dollars to purchase the same barrel of oil because the dollar is worth less today than it was a few years ago. Anyone who travels abroad knows about the weak dollar. In 2000, it took $1 to purchase one euro.
Today, it takes close to $1.60 to purchase a euro. A Canadian dollar is now worth the same as a U.S. dollar, whereas eight years ago it was worth considerably less than an American dollar.And why do we have a weak dollar?
You can start with the economic policies followed by the Bush administration. During Bush’s 7½ years in office, we have maintained large trade deficits with the rest of the world and run up large domestic budget deficits to pay for our misadventure in Iraq and large tax cuts for the wealthy. Also, according to a monograph recently issued by the Center for American Progress, the Federal Reserve’s low-interest policy has caused a 14 percent decline in the value of the dollar since last September.
Now, Frost has about twenty percent truth and eighty percent spin and rhetoric in this piece. Frost is right that there is a relationship between the weak dollar and high oil prices. On the other hand, not only is it terribly simplistic to blame high oil prices simply on the weakening dollar but frankly to pin all the blame on the weakening dollar on Bush. First, the relationship between trade and budget deficits and the dollar are nebulous. The weakening dollar is due to a complicated set of factors and while Bush has some responsibility it is certainly not the majority. In fact, it is the Fed chair, not Bush, that should take the majority of the responsibility. Both Greenspan and Bernanke have each practiced monetary policies that have totally disregarded the value of the dollar.
Furthermore, the strengthening of the EU and China have also played a role, and certainly you can't blame Bush for that. Of course, a weakening dollar helps the trade deficit because it makes American goods cheaper abroad. Furthermore, Presidential policies have limited effect on trade deficits. The main reason we have a trade deficit is because American consumers have much greater buying power than the rest of the world. Not only is that a good thing, but there is little that the President can do about it. So there again, Frost makes a simplistic arguement for a complicated problem.
Finally, the Iraq war costs about 100 billion yearly, or less than one tenth of one percent of overall GDP, and so linking it to so called exploding budget deficits is a stretch. While there is no doubt that Bush and Congress have overspent, that relationship to the value of the dollar is nebulous at best. Furthermore, I don't remember Frost or any Democratic colleagues objecting to any of the spending.
Beyond this, putting this much blame for rising oil prices on the dollar is an even bigger stretch. We've seen the price of oil go up 600% and Frost applies no more than a 60% rise to the dollar. Frost seems to disregard the idea that Democrats have blocked every measure to drill more, build more refineries, and invest in nuclear technology because they are in bed with environmentalists. I won't pretend to claim that Bush has a comprehensive and full proof energy policy, but the reality is that the Democrats have tried every dirty trick they could to block the perfectly effective energy proposals Bush has brought up. If we could drill in ANWR and all the rest of the areas we are not currently drilling in, we would see the price of oil drop precipitously.
The measures that the Democrats have blocked have had a significantly larger role in the rise of oil than anything Bush has or hasn't done, and yet Frost would never be so intellectually honest as to admit that. Instead, he presents this trojan horse that is nothing more than a farce. Don't get me wrong Bush has plenty of blame for both the weakening dollar and rising oil prices, however when Martin Frost pins the blame on him, well then pot meet kettle, and your black.