Laws of Economics Still Work

Crude oil settled down at $128.73 today, completing a $14 fall over the past three days.

There are some out there who say this is because of George Bush’s announcement dropping the ban on oil exploration and development on the outer continental shelf. And by some, I mean noted political hack, Larry Kudlow.

One of the biggest problems with analysis out there is that everyone ignores the first rule of statistics: correlation does not mean causation. Just because A went up at the same time B went down, doesn’t mean that A caused B to go down. They could be completely unrelated items. Most medical “studies” do exactly this.

Saying that Bush caused oil markets to go down completely ignores other much more pertinent information. Such as demand dropping, more information coming available that was the opposite of what those evil speculators were betting including increased supply and oil imports, not to mention a strengthening dollar.

Note that in not one of those stories was the Bush did anything mentioned. In fact, all of those things happened independently of some inconsequential announcement that the President made. In fact, as long as the law on the books says that no new areas are open to exploration, then the price shouldn’t change one penny.

(Note: the fact that the President can make law is pretty much unconstitutional. If Congress repealed the ban and the President still had the executive order, then I’m pretty sure that the presidential order would be unconstitutional).

So the lesson to take out of all this is that, the markets still work, and the laws of supply and demand say nothing about what the role of a president at all.