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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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Jeremy Grantham And Ike

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As an avid reader of Jeremy Grantham’s Quarterly Letter, I was surprised when he posted a Special Topic report on January 14 — so close to release of his Fourth Quarter 2010 Letter, which is due in a couple of weeks.  At a time when many commentators are focused on the 50th anniversary of John F. Kennedy’s historic Inaugural Address, Jeremy Grantham has taken the opportunity to focus on President Dwight Eisenhower’s Farwell Address of January 17, 1961.  (Grantham included the full text of Ike’s Farwell Address at the conclusion of the Special Topic essay.)

One passage from Ike’s Farwell Address seemed particularly prescient in the wake of the TARP bailout (which was not a success) and the “backdoor bailouts” including the Maiden Lanes (which were never to be repaid) as well as the cost of approximately $350 billion per year to investors and savers, resulting from the Federal Reserve’s zero-interest-rate-policy (often referred to as “ZIRP”).  Keep those Wall Street bailouts in mind while reading this passage from Ike’s speech:

Crises there will continue to be.  In meeting them, whether foreign or domestic, great or small, there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties.  A huge increase in newer elements of our defense; development of unrealistic programs to cure every ill in agriculture; a dramatic expansion in basic and applied research – these and many other possibilities, each possibly promising in itself, may be suggested as the only way to the road we wish to travel.

But each proposal must be weighed in the light of a broader consideration:  the need to maintain balance in and among national programs – balance between the private and the public economy, balance between cost and hoped for advantage – balance between the clearly necessary and the comfortably desirable; balance between our essential requirements as a nation and the duties imposed by the nation upon the individual; balance between actions of the moment and the national welfare of the future.  Good judgment seeks balance and progress; lack of it eventually finds imbalance and frustration.

In his Special Topic report, Jeremy Grantham focused on the disappointing changes that caused Ike’s America to become 21st Century America.  After quoting Ike’s now-famous admonition about the power of the military-industrial complex (for which the speech is frequently quoted) Grantham pointed out that the unrestricted influence of corporate power over our government has become a greater menace:

Unfortunately, the political-economic power problem has mutated away from the military, although it has left important vestiges there, toward a broader problem:  the undue influence of corporate America on the government, and hence the laws, taxes, and social policies of the country. This has occurred to such a degree that there seems little real independence in Congress, with most Congressmen answering first to the desire to be reelected and the consequent need to obtain funding from, shall we say, sponsors, and the need to avoid making powerful enemies.

*   *   *

The financial resources of the carbon-based energy companies are particularly terrifying, and their effective management of propaganda goes back decades.  They established and funded “independent” think tanks and even non-profit organizations that have mysteriously always come out in favor of policies favorable to maintaining or increasing the profits of their financial supporters.  The campaign was well-organized and has been terrifyingly effective.

*   *   *

The financial industry, with its incestuous relationships with government agencies, runs a close second to the energy industry.  In the last 10 years or so, their machine, led by the famously failed economic consultant Alan Greenspan – one of the few businessmen ever to be laughed out of business – seemed perhaps the most effective.  It lacks, though, the multi-decadal attitude-changing propaganda of the oil industry.  Still, in finance they had the “regulators,” deregulating up a storm, to the enormous profit of their industry.

Grantham concluded his report with a suggestion for the greatest tribute we could give Eisenhower after America ignored Ike’s warnings about the vulnerability of our government to unrestricted influences.  Grantham’s proposed tribute to Ike would be our refusal to “take this 50-year slide lying down”.

To steal a slogan from the Tea Party, I suggest the voters need to “take America back” from the corporations which bought off the government.  Our government has every intention of maintaining the status quo.

In the 2010 elections, voters were led to believe that they could bring about governmental reform by voting for candidates who will eventually prove themselves as protectors of the wealthy at the expense of the disappearing middle class.  In the 2008 elections, Barack Obama convinced voters that he was the candidate of change they could believe in.  In the real world of 2011, economist Simon Johnson explained what sort of “change” those voters received, as exemplified by the President’s appointment of his new Chief of Staff:

Let’s be honest.  With the appointment of Bill Daley, the big banks have won completely this round of boom-bust-bailout.  The risk inherent to our financial system is now higher than it was in the early/mid-2000s.  We are set up for another illusory financial expansion and another debilitating crisis.

Bill Daley will get it done.

Just as Jeremy Grantham explained how Eisenhower’s concerns about the military-industrial complex were materialized in the form of a corporate-controlled government, another unholy alliance was discussed by Charles Ferguson, director of the documentary film, Inside Job.  Ferguson recently offered an analysis of the milieu that resulted in President Obama’s appointment of Larry Summers as Director of the National Economic Council.  As Larry Summers announced plans to move on from that position, Ferguson explained how Summers had been granted the opportunity to inflict his painful legacy upon us:

Summers is unique but not alone.  By now we are all familiar with the role of lobbying and campaign contributions, and with the revolving door between industry and government.  What few Americans realize is that the revolving door is now a three-way intersection.  Summers’ career is the result of an extraordinary and underappreciated scandal in American society:  the convergence of academic economics, Wall Street, and political power.

America needs new leaders who refuse to capitulate to the army of lobbyists on Capitol Hill.  Where are they?


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