Huge Oil Field Found Off Brazil

There has apparently been a huge new oil find off Brazil.

Brazil has discovered what could be the third biggest oil reserve in the world, according to the head of the country's National Petroleum Agency.

The deep-sea find by state-run oil firm Petrobras could yield 33 billion barrels in reserves.

This is a significant event in my view for several reasons, other than the obvious.

* First, it shows that contrary to the belief of some, the world is not running out of oil any time soon. So the panic to go find some expensive alternative energy source is a waste of time and money right now. Maybe in another 50 or 100 years, but not now.

* Second, the economic laws of supply and demand still work. The higher world price of oil (and the related profits) encourages more supply and therefore more oil exploration. The solution to high energy costs is increase supply, and that is accomplished via the incentive of profit and prices.

* Third, the Congressional hearings going after oil executives is a waste of time if your interest is truly in getting energy prices lower. Rather than grandstanding on camera for the public, Congress should be encouraging the oil companies to do more exploration and doing everything they can to help them in that activity.

* Fourth, the promise of certain socialistic Presidential candidates to punish oil companies for making a profit and increasing taxes on them if elected is actually counter productive to lowering energy prices. Suppose you run an oil company and Hillary gets elected and raises your corporate taxes. What possible motivation do you have to do more oil exploration now? None. Absolutely none. In fact, you have every motivation in that scenario to leave as much oil in the ground as possible and wait for that administration to run it's course and leave office. In the world of macroeconomics, 4 or 8 years is a fairly short time.

So, the solution to high energy costs is to just let the free market and the laws of supply and demand work their magic, as so eloquently described in 1776 by Adam Smith with his "Invisible Hand" theory.