Ben Franklin Oil

What to make of $100 oil?  To read the daily newspapers on the topic, or listen to certain political candidates, you’d think it was an Earth-shattering event.

Here’s the Times with a story headlined "How $100 oil will change your life." John Edwards said that the "report that the price of oil has reached $100 a barrel is just another example of how corporate greed is squeezing the middle class." And the Houston Chronicle leads its story on the milestone by saying that "U.S. consumers are likely to feel the sting of $100 oil soon, and in perhaps more ways than they realize."

Oil prices have indeed risen sharply over the last few years. But the $100 mark itself hardly a cause for alarm: triple digit prices are merely what Cato’s Jerry Taylor calls a "purely psychological barrier."  I’ll let him take it from here:

The $100 threshold is purely psychological and holds little import to the market. The macroeconomy is hardly more affected by $100 oil than it is by $98 oil. Likewise, the great public hunt for the “tipping point” at which oil price increases induce significant changes in consumer behavior is akin to Captain Ahab’s hunt for Moby Dick. Since oil prices began their run up in 2003, demand has remained relatively strong and consumers have responded far less robustly than they did during the price run-up from 1975-1980.

He goes on to point out that, if consumers want to reduce their oil usage (and thus energy costs), it’s not as if they’re without options.   Meanwhile, CEI’s Myron Ebell explains that, if there really was serious concern about high oil prices, Congress has plenty of options to increase domestic oil production that it’s not using (though it should).

Even more importantly, that $100 figure is, basically, bunk. Megan McArdle notes that, for all practical purposes, the $100 trade was just a stunt.