Baum: Rising Gas Price Theater back onstage

Caroline Baum, author of "Just What I Said," writes for Bloomberg View.

There's nothing like rising crude-oil prices to make sensible people go all wobbly in the head. Economists confuse a supply shock with a shift in demand and see the outcomes as interchangeable. And they can't see beyond the immediate negative impact on the consumer.

When rising oil prices coincide with an election year, people start spouting utter nonsense. The script follows a predictable template:

Act I: Oil prices rise. Then they rise higher, surpassing $100 a barrel, as the threat of a potential supply disruption prompts real and speculative buying. Gas prices head toward or north of $4 a gallon or (alternate scenario) set a record for the current month/season of the year.

Act II: Enter the politicians to blame whichever party holds the White House at the time. The media report households are feeling the pinch, forced to choose between feeding the family and filling the tank.

Act III: Economists warn of the negative impact of higher oil prices on a fragile economy. They produce model-based estimates of the effect of every $1 increase in the price of oil on gross domestic product.

Act IV: The president comes under pressure to "do something." In the short run, this means a cosmetic release of oil from the Strategic Petroleum Reserve. A Senate committee chairman holds a show trial for Big Oil executives to discuss big profits and to offer his support for an excess-profits tax. Environmentalists and economists who favor a tax on carbon-based fuels go quiet.

Act V: The global threat to supply recedes, oil prices settle back down, and everyone files the script away for the next revival.

In the current reprise of "Crude Oil Rising," Act IV is just starting. Last week, Treasury Secretary Timothy Geithner acknowledged there was a "case" for releasing oil from the reserves in certain circumstances. Economists are warning about new threats from rising oil prices.

How refreshing it would be to read a story that mentions the beneficiaries of rising oil prices -- oil producers -- and the trickle-down effect on the economy. The oil and gas industry has been on a hiring binge, adding 30,000 employees since December 2009, a 19.4 percent increase. Mining, of which oil and gas are a component, increased hiring by 27 percent in that time frame. The only category that came close was temporary-help services.

Newly hired workers receive paychecks -- and in many cases, benefits. Oil-industry profits are paid out as dividends to shareholders, consumers by another name. Higher prices, in turn, provide an incentive to find new sources of energy.

So rising oil prices aren't a one-way street. Unfortunately the pain and benefits aren't contemporaneous.

In some circles, including the current administration, higher oil prices are a goal -- except not in an election year and not when prices are high to begin with. Before he became President Barack Obama's energy secretary, Steven Chu advocated higher oil prices as a means of curbing the public's consumption of fossil fuels and increasing the viability of alternative energy.

There's another group that wants to make gas consumption more expensive, but for a different reason: to correct for negative externalities, or the adverse effects of an activity on those who aren't a party to the transaction. Coal-burning power plants, for example, don't bear the entire cost of their production; we do in the quality of the air we breathe.

Organized as the Pigou Club by Harvard's Greg Mankiw, this group includes such free-market notables as Gary Becker, a University of Chicago Nobel laureate in economics; George Shultz, a former secretary of state; and former Fed chief Alan Greenspan. They go underground during recurrent productions of "Crude Oil Rising." Even the tree-huggers lose their affection for higher gas prices once they become a reality.

Besides, they don't have much of a role in this drama, where all the parts have been pre-cast. Once the final curtain comes down -- once gas prices fall and the 2012 election is history -- advocates for higher gas prices can go back to peddling their ideas to a fresh audience.