OTR Interviews

Former Obama chief economic adviser: Tapping Strategic Petroleum Reserve not intended to be permanent solution to rising gas prices

Austan Goolsbee sounds off on why we shouldn't release oil from the Strategic Petroleum Reserve solely because high gas prices

 

This is a rush transcript from "On the Record," April 17, 2012. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: President Obama cracking down on energy speculators. The president says the speculators are making millions while the rest of us are paying soaring gas prices. President Obama today announcing a plan that would increase federal supervision of oil markets and increase penalties for manipulation. But will his plan actually lower the price you are paying at the pump?

Austan Goolsbee is the former chairman of President Obama's Council of Economic Advisors. He says there is another way to control oil and gas costs and joins us. Good evening, sir.

AUSTAN GOOLSBEE, FORMER CHAIRMAN, WHITE HOUSE COUNCIL OF ECONOMIC ADVISERS: Hi, Greta, great to see you again.

VAN SUSTEREN: Nice to see you. Besides the obvious supply and demand, are there other issues right now that are causing gas prices to soar, like Middle East problems or even the oil speculation market? Tell me why you think gas prices are high.

GOOLSBEE: Well, I think for sure that the fears in the geopolitical arena about the Middle East have been pushing the prices up. You saw this when the Arab Spring broke out, the prices went way up. And so, political uncertainty I think is a big component.

I don't to know the answer to how important speculators are. I think most economists, we have a hard time looking around and figuring that out. We're not oil traders or anything. It seemed to me when I saw what the president announcing it was largely given the CFTC, the regulators, it would call for them to have additional authorities and technology to police that. I don't know the answer to how important that is.

VAN SUSTEREN: The reason I asked you that is I'm trying to figure out what the best solution. I'm trying to identify what is the spike. Obviously, if it's geopolitical issue, that's a harder thing to control. If it's energy market that makes it easier. So I guess then I turn to your op-ed where in your op-ed piece in the "Wall Street Journal" recently you said at least, correct me if I'm wrong, you thought we should tap Strategic Petroleum Reserve instead as a mechanism to lower prices.

GOOLSBEE: Well, I did write, but not as a mechanism to lower prices but, because I think that if you measure the Strategic Petroleum Reserve as a strategic, for strategic value, it would suggest we put too much in there, that the amount of oil we want to keep in the strategic petroleum reserve ought to be tied to how much imports we get. We always had 75 days-worth of non-North American imports in there. We have now had domestic production go way up, and our imports are way down, and yet we're increasing the amount in there. I think it doesn't actually make sense. I name the rule after my mom, the "Linda Rule." Let's try to set the number of days we keep in there to be a constant. That's a way to do it. And if you did that, you'd be releasing a fair bit of oil in the near term.

VAN SUSTEREN: People should probably Google and get the story and learn more about the "Linda Rule" because the origin is quite interesting, but I'll save it for people who want to Google it.

If we tap the Strategic -- if we do that route, then we can have more oil in the domestic market, for period of time. But it's not the end all. We have a problem with geopolitical. And that is a serious impact on the price, right?

GOOLSBEE: Yes, I think that's true. The Strategic Petroleum Reserve is not intended to be a permanent solution. I think that geopolitical stuff, you got to -- that has to sort itself out or we have to sort that out. We saw it through the Arab Spring that some of those fears go up, and then it's the worst doesn't happen they come back down.

Then if you are looking at the speculators, as I say, I don't know. You have to have the people more expert on these oil trading markets to look at that to figure out how much of that is driving prices to the extent that it is driving prices. I would only add that if you outlined a policy to release Strategic Petroleum Reserve in a moderate amount over a set period of time, that would really wipe -- if you thought there were speculate, that would wipe them out. That would convince them to get out of the bids of speculating the price is going to go up because the government would be releasing the oil reserve. So, if you think that's important --

VAN SUSTEREN: I don't get that you are so -- I don't get that you are sold on the president's idea to do that then. You are not sold on what the president is doing to attempt to lower prices.

GOOLSBEE: Well, I wouldn't go that far. I think that what the president outlined today from what I saw was giving the CFTC, the regulators the authority to investigate this, that right now, they are under threat of having the enforcement budget radically cut in the budget process. They don't have the technology to monitor these things in real time, and people aren't keeping the data that will allow us to be able to figure out if there is one party or one investment house that's doing something. I do think we ought to have the authority and the ability to monitor that. The only thing I don't know is how important that is. I think you have to get people closer involved in it to answer that.

VAN SUSTEREN: If the president's idea is correct one, I take it that it's a long-term one. It's not going to, giving the CFTC enforcement power won't bring prices down in the near future. Is that a fair statement?

GOOLSBEE: That is an interesting -- you raise an interesting point. It depends a lot on the psychology of the speculators. So if you were a speculator betting that the price is going to go up and you're trying to, I don't know, corner the market or drive things in a certain way, if you knew the police are about to show up you get out of there when the alarm goes off. So it could affect things in the short-term if the guys are major playing a major role in it.

And as I say about the Strategic Petroleum Reserve, if you outlined a policy not just dumping it all out in the short run as fast as you can, but a steady policy of getting it to where it should be, I think that would also drive some of those guys out.

VAN SUSTEREN: Austan, thank you. Hope you come back. Thank you, sir.

GOOLSBEE: You bet. Great to see you again.