Why Price Alone Doesn’t Explain the Texas Oil Bust

Most analysts say falling oil prices are a supply-side problem, but John Tamny thinks everything you think you know about the oil bust may be wrong.

By Brenda SalinasFebruary 6, 2015 8:00 am| ,

John Tamny covers economics and politics for Forbes.

On the Reasons for the Oil Bust Texas is Experiencing Right Now:

“The reason Texas is suffering right now is there was never an oil shortage to begin with. Prices were never high, they were only made artificially high by unstable money by monetary air that began in the Bush administration and continued in the Obama administration. It’s now reversing and so the real price of oil is starting to reveal itself, exposing a lot of economic activity in Texas as utterly worthless. That was never necessary in the first place it’s very sad and the only way to fix it is to return to stable money values.”

On What Makes Oil Special:

“What makes oil special, first of all, it’s priced in dollars. You could argue everything is priced in dollars and that’s true but the big difference here is that commodities are traded every second of the day on commodities exchanges and they’re traded in dollars and so they are the first to react to changes in the value of the dollar…But since ’71 when we’ve allowed the value of the dollar to float, you’ve seen the price of oil go on this wild ride. It’s been a tragic tragedy for our economy and it’s been bad for Texas because it creates false economies on occasion that invariably lead to tears like they are right now.”

On Economies of Oil-Dependent States Like Texas:

“What we are seeing right now is a stronger dollar and that’s great for the overall economy but, since a weak dollar had created all sorts of artificial work in the oil patch, it’s very bad in the very near term for a lot of Texas economic activity.”