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Debunking Oil Industry Propaganda

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The political crisis in Egypt is being used by tools of the oil industry to – once again – put the scare into people about our dependence on “foreign oil”.  Stephen Moore was on Fox News talking-up the old “drill baby, drill” sentiment on February 2, lamenting our lack of “energy independence”.  I just wish Moore would restrict himself to a diet of Gulf shrimp.  I doubt whether it would change his mind, although it might make him more fun to watch on television as the hydrocarbons gradually work their karmic magic.

The myth of “foreign oil” is one of my pet peeves for several reasons – not the least of which is the fact that the one foreign oil company, which has done the most harm to the United States is British Petroleum, rather than some enterprise from the Middle East.

Much as been written to dispel the myths of “foreign oil” and “energy independence”, although the spokestools of the oil industry do all they can to pretend as though such information does not exist.  Take for example, the essay written by David Saied for the Ludwig von Mises Institute entitled “America’s Economic Myths”, wherein he debunked the myth of “dependence on foreign oil”:

This myth basically suggests that the problem with oil prices is due to America’s “dependence” on foreign oil.  One of the worst economic myths, it plays on economic nationalism and on xenophobic feelings that are sometimes pervasive in the United States.

The high price of oil has nothing to do with its origin; the price of oil is determined in international markets.  Even if the United States were to produce 100% of the oil it consumes, the price would be the same if the worldwide supply and demand of oil were to remain the same.  Oil is a commodity, so the price of a barrel produced in the United States is basically the same as the price of a barrel of oil produced in any other country, but the costs of labor, land, and regulatory compliance are usually higher in the United States than in third-world countries.  Lowering these costs would help increase supply.  Increasing supply, whether in the United States or elsewhere, will push prices lower.

Importing a product does not mean you “depend” on it.  This is like saying that when we “import” food from our local supermarket we “depend” on that supermarket.  The opposite is usually true; exporters depend on us, since we are the customers.  Also, importing a product usually means buying at lower prices, whereas producing in the United States often means consuming at higher prices.  This point is proven when we see the cheap imports we can purchase from China and the higher prices of many of these same products manufactured in the United States.  The amazing thing is that the protectionists claim, on the one hand, that America should be “protected” from cheap imports, but when it comes to oil, they say we should be “protected” from “expensive imported” oil.

Most, if not all, of the higher price of oil can be explained by the expansion of the money supply or the debasement of the dollar.  The foreign producers are not at fault; our national central bank is the culprit.

As a fan of the Real Clear Markets section of the Real Clear Politics website, I was pleased to see this recent commentary by John Tamny, wherein he had a good laugh at T-Bone Pickings for accidentally revealing the absurdity of the “energy independence” meme:

As this column has shown more than once, the price of a barrel of crude tends to revert to 1/15th of an ounce of gold, and as of Tuesday, oil’s price increase merely brought it in line with its historical cost.

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Oil is oil is oil, and it’s a commodity whose price is discovered in deep world markets.

Canada is seemingly “energy independent”, but assuming ongoing Middle East uncertainty, its citizens will – like us – buy gasoline the price of which is based on the cost per barrel set in global markets.  Much as we might like to naively fantasize about walling ourselves off from international market realities, we’ll never be immune to the activities around the world that impact oil’s price.  Canada and its citizens won’t be either.

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So while we can expect lots of breathy commentary about the need for energy independence in the coming weeks, particularly if Middle East unrest spreads, cooler heads will hopefully prevail.  The false God of independence will not wall us off from supply-driven increases, and more important, the waste of  human and financial capital necessary to achieve the silly notion would be far more economically crippling than any presumed supply shock could ever hope to be.

My own dream of “energy independence” involves owning an electric car, which I can recharge with a “solar power station” similar to what we see advertised on television – along with another “solar power station” to provide my home electricity.  “Energy independence” can only be achieved when American consumers are liberated from the tyranny of the oil companies and the power utilities.


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Money Falling From The Sky

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November 17, 2008

The debate concerning a possible bailout of the “big three” automakers (General Motors, Ford and Daimler Chrysler) has now reached the House of Representatives.  House Minority Leader, John Boehner (Republican from Ohio) has voiced his opposition to this latest bailout, indicating that it will not receive much support from Congressional Republicans.

In the words of Yogi Berra, we are experiencing “déjà vu all over again”.  This process started with the plan of Treasury Secretary Henry Paulson, to bail out banks and other financial intuitions holding mortgages of questionable value, at a price to the taxpayers in excess of $700 billion.  Back on September 22, when that bailout bill (now known as TARP) was being considered, Jackie Kucinich and Alexander Bolton wrote an article for TheHill.com, discussing Republican opposition to this measure.  Their article included a prophetic remark by Republican Congressman Cliff Stearns of Florida:

“Bailout after bailout is not a strategy,” said Stearns, who said that taxpayers could be left with a huge bill.

Yet, “bailout after bailout” is exactly where we are now.  On November 15, T-Bone Pickings appeared on NBC’s Meet the Press.  Tom Brokaw asked T-Bone Pickings for his opinion on the proposed “Big Three Bailout”.  The response was:

I wonder what you’re going to do about the next industry.  Is it going to be the airlines or what if Toyota and Honda want some help, too?  I don’t know.  I don’t know where it stops.

Once again, we are presented with the need to bail out yet another American industry considered “too big to fail”.  However, this time, we are not being asked to save an entire industry, just a few players who fought like hell, resisting every change from rear-view mirrors, to fuel injection, seat belts, catalytic converters, air bags and most recently, hybrid technology.  Later on Meet the Press, we heard the BBC’s Katty Kay quote a rhetorical question from unidentified “smart economists” that included the magic word:

Can it withstand the shock to the economy if GM were to go?

Later on the CBS program, Face The Nation, Massachusetts Congressman Barney Frank, Chairman of the House Financial Services Committee, used similar logic to that expressed by Katty Kay, when he stated:

When you talk about the negative shock that would result from bankruptcies of these companies, right now  …

The magic word “shock” is once again playing an important role for the advocates of this newest rescue package. I was immediately compelled to re-read my posting from September 22, concerning the introduction of the Paulson bailout plan, entitled:  “Here We Go Again”.  At that time, I discussed Naomi Klein’s 2007 book, The Shock Doctrine: The Rise of Disaster Capitalism.  Klein’s book explained how unpopular laws were enacted in a number of countries around the world, as a result of shock from disasters or upheavals.  She went on to suggest that some of these events were deliberately orchestrated with the intent of passing repugnant laws in the wake of crisis.  She made an analogy to shock therapy, wherein the patient’s mind is electrically reformatted to become a “blank slate”.  Klein described how advocates of “the shock doctrine” seek a cataclysmic destruction of economic order to create their own “blank slate” upon which to create their vision of a “free market economy”.  She described the 2003 Iraq war as the most thorough utilization of the shock doctrine in history.  Remember that this book was released a year before the crises we are going through now.

Ms. Klein’s article, “In Praise of a Rocky Transition” appeared in the December 1, 2008 issue of The Nation.  She discussed Washington’s handling of the Wall Street bailout, characterizing it as “borderline criminal”.  Would the financial rescue legislation (TARP) have passed if Congress and the public had been advised that the Federal Reserve had already fed a number of unnamed financial institutions two trillion dollars in emergency loans?  Naomi Klein expressed the need for the Obama Administration to stick with its mantra of “Change You Can Believe In” as opposed to any perceived need to soothe the financial markets:

There is no way to reconcile the public’s vote for change with the market’s foot-stomping for more of the same.  Any and all moves to change course will be met with short-term market shocks.  The good news is that once it is clear that the new rules will be applied across the board and with fairness, the market will stabilize and adjust.  Furthermore, the timing for this turbulence has never been better.  Over the past three months, we’ve been shocked so frequently that market stability would come as more of a surprise.  That gives Obama a window to disregard the calls for a seamless transition and do the hard stuff first.  Few will be able to blame him for a crisis that clearly predates him, or fault him for honoring the clearly expressed wishes of the electorate.  The longer he waits, however, the more memories fade.

When transferring power from a functional, trustworthy regime, everyone favors a smooth transition.  When exiting an era marked by criminality and bankrupt ideology, a little rockiness at the start would be a very good sign.

The Obama Administration would be wise to heed Ms. Klein’s suggestions.  It would also help to seriously consider the concerns of Republicans such as John Boehner, who is apparently not anxious to feed America another “crap sandwich”.