Obama’s plan to bring down gas prices

Does our president understand economics?

Facing heat for high gasoline prices, President Obama tried to shift the focus to Congress, Republicans and energy traders, calling for legislation that he said would “put more cops on the beat” to crack down on potential manipulation of the oil market.

Obama called on Congress to provide more money for regulators and increase penalties for market manipulators. The president, flanked by Treasury SecretaryTimothy F. Geithnerand Atty. Gen. Eric H. Holder Jr., suggested that traders and speculators are affecting the price of oil and digging into Americans’ pocketbooks.

“We can’t afford a situation where some speculators can reap millions while millions of American families get the short end of the stick,” Obama said in brief remarks in the Rose Garden on Tuesday. “That’s not the way the market should work.”

Obama’s proposal would add $52 million to the budget for the Commodity Futures Trading Commission, which oversees oil futures markets, to pay for improved technology and additional employees. The president also proposed increasing the maximum civil and criminal penalties for manipulative activity in oil futures markets and beefing up data collection.

via Obama proposes steps to curb manipulation of oil market – latimes.com.

Or he could build the pipeline for Canadian oil.  Or he could open up Alaskan and coastal regions for drilling.  Or he could suspend restrictions on the building of more oil refineries.  Or he could lower gasoline taxes (as opposed to the Democratic strategy of raising them).  Or all kinds of other things rather than increase regulation and penalize–or even criminalize–investors!

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • Rose

    People don’t get it. The worse it gets, the more effective is the President’s strategy. The goal is the demolition of capitalism, whether by regulation, penalty or revolution.

  • Rose

    People don’t get it. The worse it gets, the more effective is the President’s strategy. The goal is the demolition of capitalism, whether by regulation, penalty or revolution.

  • Tom Hering

    “Does our president understand economics?”

    Irrelevant in an election year.

    Whether the President has his way, or the drilling/pipeline/refinery folks have their way, gas prices will continue to go up. Because worldwide demand will continue to go up, dramatically. China is expected to have more than 200 million vehicles on its roads by 2020 (currently about 65 million). India is expected to have more than 600 million vehicles on its roads by 2050 (currently about 40 million).

    Do American drivers understand economics?

  • Tom Hering

    “Does our president understand economics?”

    Irrelevant in an election year.

    Whether the President has his way, or the drilling/pipeline/refinery folks have their way, gas prices will continue to go up. Because worldwide demand will continue to go up, dramatically. China is expected to have more than 200 million vehicles on its roads by 2020 (currently about 65 million). India is expected to have more than 600 million vehicles on its roads by 2050 (currently about 40 million).

    Do American drivers understand economics?

  • Michael B.

    Tom Hering @2, +1. Obama, and Bush before him, have to deal with an electorate that is ignorant enough to think that the president can have any type of significant influence over short-term gas prices. The idea of lowering gasoline taxes only means you have to make the revenue else up somewhere else — it’s robbing peter to pay paul. The idea that tapping our emergency supply in America will have a significant reduction is ridiculous. And Tom Hering brings up a very good point about increased demand in China. The real solution will be much more difficult changes — it’s going to mean people may have to live closer to work, use public transportation, not have 2 SUVs, and the like. It’s stuff that people are going to hate to hear.

  • Michael B.

    Tom Hering @2, +1. Obama, and Bush before him, have to deal with an electorate that is ignorant enough to think that the president can have any type of significant influence over short-term gas prices. The idea of lowering gasoline taxes only means you have to make the revenue else up somewhere else — it’s robbing peter to pay paul. The idea that tapping our emergency supply in America will have a significant reduction is ridiculous. And Tom Hering brings up a very good point about increased demand in China. The real solution will be much more difficult changes — it’s going to mean people may have to live closer to work, use public transportation, not have 2 SUVs, and the like. It’s stuff that people are going to hate to hear.

  • Klasie Kraalogies

    What Tom said.

    I just had a discussion yesterday with someone regarding the same issue, but with respect to all commodities. Not to say that there aren’t any speculators, (as opposed to serious investors, and that in itself is a difficult distinction to make), but to police them is going to be nigh impossible. The closest you can come to stopping marketicontrolling speculation is stopping the sort of production monopolies created not from organic growth, but from deliterous actions, like that of the UK commidities trader who cornered the whole damn cocoa market about a year or 2 ago. That is harmful to free trade etc. But further than that is impractical.

    This whole saga reminds me of the opposition here in Canada, as well as the provincial governments in Ontario and Quebec, that blames the current Conservative government as well as the province of Alberta (and Saskatchewan to a lesser extent) for a strong Canadian dollar based on oil exports, and therefore a weak, uncompetative manufacturing sector in those provinces. Of course, they are willfully ignorant that it is all part of a global dynamic, and that it is not Harper’s fault, but the global economic trend.

    But the average voter, and even the average politician, remains an ignorant fellow (especially if your name is Dalton McGuinty).

  • Klasie Kraalogies

    What Tom said.

    I just had a discussion yesterday with someone regarding the same issue, but with respect to all commodities. Not to say that there aren’t any speculators, (as opposed to serious investors, and that in itself is a difficult distinction to make), but to police them is going to be nigh impossible. The closest you can come to stopping marketicontrolling speculation is stopping the sort of production monopolies created not from organic growth, but from deliterous actions, like that of the UK commidities trader who cornered the whole damn cocoa market about a year or 2 ago. That is harmful to free trade etc. But further than that is impractical.

    This whole saga reminds me of the opposition here in Canada, as well as the provincial governments in Ontario and Quebec, that blames the current Conservative government as well as the province of Alberta (and Saskatchewan to a lesser extent) for a strong Canadian dollar based on oil exports, and therefore a weak, uncompetative manufacturing sector in those provinces. Of course, they are willfully ignorant that it is all part of a global dynamic, and that it is not Harper’s fault, but the global economic trend.

    But the average voter, and even the average politician, remains an ignorant fellow (especially if your name is Dalton McGuinty).

  • Jimmy Veith

    In an effort to bring up a topic that liberals and true conservatives should be able to agree on, let me suggest this: We should end the special tax breaks given to the big oil companies.

    If the price at the pump is truly set by the price of crude oil on the world market rather than the cost of doing business, and big oil companies are making record profits, they should be able to stand on their own. Do they really need the “Nanny State” to give them special tax breaks when the country is facing record deficits and a crumbling infrastructure?

  • Jimmy Veith

    In an effort to bring up a topic that liberals and true conservatives should be able to agree on, let me suggest this: We should end the special tax breaks given to the big oil companies.

    If the price at the pump is truly set by the price of crude oil on the world market rather than the cost of doing business, and big oil companies are making record profits, they should be able to stand on their own. Do they really need the “Nanny State” to give them special tax breaks when the country is facing record deficits and a crumbling infrastructure?

  • Good News

    Another thing would be competition…maybe natural gas? Monopolies are bad for the economy…gasoline is a monopoly in the fuel market. In the Dominican Republic, they have gas stations that have gasoline and natural gas. They have expanded more natural gas stations because the demand is there. If the D.R. can afford to change over their vehicles to natural gas than certainly the US can.

  • Good News

    Another thing would be competition…maybe natural gas? Monopolies are bad for the economy…gasoline is a monopoly in the fuel market. In the Dominican Republic, they have gas stations that have gasoline and natural gas. They have expanded more natural gas stations because the demand is there. If the D.R. can afford to change over their vehicles to natural gas than certainly the US can.

  • Kirk

    Along with what everyone else said, you can’t just treat oil like a normal commodity. Yes, there is some effect due to supply and demand, but day to day oil prices are driven by speculators betting on futures. The price you see on gas pumps is driven more by market rationality (or irrationality) than on how much crude is on the market at any given time.

    That’s why prices spike whenever there’s talk of conflict in the Middle East. If normal supply and demand economics drove the costs, we wouldn’t see changes until oil flow actually diminishes. That would mean that prices would fluctuate after a conflict starts, not before. But speculators, hearing news of potential disruption, immediately buy futures, betting prices will rise above what the futures cost and driving up prices on the overall market. In most futures markets, prices balance out in the long run, but futures are easily manipulated and don’t necessarily reflect market realities. This is particularly true on the oil markets because demand is high and constant.

    And there are instances of completely ridiculous futures trading manipulating overall gasoline prices. Take the “Drunk Trading Incident” in which a trader got wasted, traded 7,000,000 barrels of oil and drove global prices up by over $1.50/barrel. That’s the most extreme example, but it shows how easily manipulable global prices are.

    So, regulation might not be an entirely bad thing. I’m not much of an economist, so I don’t what shape such regulations would take, but I think good ones could have a measurable effect on the price of gasoline. And I think the futures trading is profitable enough that regulation wouldn’t drive away investors and certainly wouldn’t destroy oil companies.

  • Kirk

    Along with what everyone else said, you can’t just treat oil like a normal commodity. Yes, there is some effect due to supply and demand, but day to day oil prices are driven by speculators betting on futures. The price you see on gas pumps is driven more by market rationality (or irrationality) than on how much crude is on the market at any given time.

    That’s why prices spike whenever there’s talk of conflict in the Middle East. If normal supply and demand economics drove the costs, we wouldn’t see changes until oil flow actually diminishes. That would mean that prices would fluctuate after a conflict starts, not before. But speculators, hearing news of potential disruption, immediately buy futures, betting prices will rise above what the futures cost and driving up prices on the overall market. In most futures markets, prices balance out in the long run, but futures are easily manipulated and don’t necessarily reflect market realities. This is particularly true on the oil markets because demand is high and constant.

    And there are instances of completely ridiculous futures trading manipulating overall gasoline prices. Take the “Drunk Trading Incident” in which a trader got wasted, traded 7,000,000 barrels of oil and drove global prices up by over $1.50/barrel. That’s the most extreme example, but it shows how easily manipulable global prices are.

    So, regulation might not be an entirely bad thing. I’m not much of an economist, so I don’t what shape such regulations would take, but I think good ones could have a measurable effect on the price of gasoline. And I think the futures trading is profitable enough that regulation wouldn’t drive away investors and certainly wouldn’t destroy oil companies.

  • Jimmy Veith

    I agree with Kirk @ 7. That is why I believe that if we ended the special tax breaks for the big oil companies, the tax would not be passed on to the consumer at the gas tank. I agree that in most industries, the cost of production (including taxes) is passed on to the consumers, but not so much with the oil industry.

  • Jimmy Veith

    I agree with Kirk @ 7. That is why I believe that if we ended the special tax breaks for the big oil companies, the tax would not be passed on to the consumer at the gas tank. I agree that in most industries, the cost of production (including taxes) is passed on to the consumers, but not so much with the oil industry.

  • MarkB

    Jimmy Veith – Just what special tax breaks do oil companies get that other companies do not?

  • MarkB

    Jimmy Veith – Just what special tax breaks do oil companies get that other companies do not?

  • Jimmy Veith

    MarkB: That’s a good question.

    There is something called an “oil depletion allowance” but I don’t know the details, as I am no expert in oil and gas taxation. I do know that special tax breaks exist, because of the legislation that was proposed to end them. Maybe someone out there can help us out with the specifics.

  • Jimmy Veith

    MarkB: That’s a good question.

    There is something called an “oil depletion allowance” but I don’t know the details, as I am no expert in oil and gas taxation. I do know that special tax breaks exist, because of the legislation that was proposed to end them. Maybe someone out there can help us out with the specifics.

  • Bob

    Naw, I’d rather see the magician Newtie Gingrich elected President.

    Newtie says he’d lower prices to $2.50 a gallon. With a flick of the wrist!

    Step right up, everyone!

    Sadly, some our our electorate who thinks the world revolves around their simplistic view of reality would believe Newtie.

    And ignore the reality of the situation.

  • Bob

    Naw, I’d rather see the magician Newtie Gingrich elected President.

    Newtie says he’d lower prices to $2.50 a gallon. With a flick of the wrist!

    Step right up, everyone!

    Sadly, some our our electorate who thinks the world revolves around their simplistic view of reality would believe Newtie.

    And ignore the reality of the situation.

  • Dr. Luther in the 21st Century

    When you only have a hammer every thing looks like a nail. The only thing Obama knows is how to spend money. So his solution to every problem is spend more money.

    If you want to break speculators, you either decrease demand or you increase supply or you do both.

    The other option, which car companies are working on is more efficient vehicles. I like this option, I just can’t afford this option. Though I am seriously thinking about buying a scooter.

    BTW, public transportation is not an option; public transportation sucks, even in places with reasonable public transportation. Why does it suck? It has no flexibility. It, also because of its nature, adds tremendously to travel time. For instance, last year when we were making several trips a week to see a doctor, I looked at taking commuter rail into the city and then get to the hospital via the El. It would have taken an additional hour and half more than the time it would take to drive in normal rush hour traffic. Losing 4 hours is not an option.

  • Dr. Luther in the 21st Century

    When you only have a hammer every thing looks like a nail. The only thing Obama knows is how to spend money. So his solution to every problem is spend more money.

    If you want to break speculators, you either decrease demand or you increase supply or you do both.

    The other option, which car companies are working on is more efficient vehicles. I like this option, I just can’t afford this option. Though I am seriously thinking about buying a scooter.

    BTW, public transportation is not an option; public transportation sucks, even in places with reasonable public transportation. Why does it suck? It has no flexibility. It, also because of its nature, adds tremendously to travel time. For instance, last year when we were making several trips a week to see a doctor, I looked at taking commuter rail into the city and then get to the hospital via the El. It would have taken an additional hour and half more than the time it would take to drive in normal rush hour traffic. Losing 4 hours is not an option.

  • SKPeterson

    The oil depletion allowance does not apply only to oil companies. It applies to any extractive resource that involves mining; so, Big Coal, Big Bauxite, Big Copper, Big Iron, and Big Rock and Sand all get the same tax break as Big Oil. It is the mining equivalent of capital asset depreciation. In the same manner that capital equipment wears out over time, and thereby loses value, mines and wells also depreciate. We call this depreciation depletion. Removing that tax break would actually be denying to extractive resource industries a standard tax exemption that other industries enjoy. Oil companies (and other mining companies) do also have extensive physical capital investment in pumps, pipelines, refineries, etc. for which they would still have the standard depreciation deduction.

    Also, while the oil companies are making a lot of money, their profit rates are not obscene unless you consider any profit to be immoral. In fact, oil company profit margins are fairly low – but within the historical norm for corporate profits across all industries. Here’s an example: http://seekingalpha.com/article/269679-oil-industry-profit-margin-ranks-fairly-low-there-are-bigger-fish. Exxon has a huge profit, no doubt. But, it is because they are selling a lot of gasoline and other oil products.

    If you want to complain about high prices – why not milk? It is heavily regulated and subsidized by the government, yet prices haven’t gone down. Apologies for the long link, but it does explain the issue – http://books.google.com/books?id=JpuDoMDX4tsC&pg=PA357&lpg=PA357&dq=milk+gallon+prices+2012+and+milk+price+supports&source=bl&ots=83CO2rIVDD&sig=8IPH0ZKi4chKU7N5iAj3tSqT-hg&hl=en&sa=X&ei=mtCOT4udDcOs0AGa5vXxBg&ved=0CCkQ6AEwAA#v=onepage&q=milk%20gallon%20prices%202012%20and%20milk%20price%20supports&f=false

  • SKPeterson

    The oil depletion allowance does not apply only to oil companies. It applies to any extractive resource that involves mining; so, Big Coal, Big Bauxite, Big Copper, Big Iron, and Big Rock and Sand all get the same tax break as Big Oil. It is the mining equivalent of capital asset depreciation. In the same manner that capital equipment wears out over time, and thereby loses value, mines and wells also depreciate. We call this depreciation depletion. Removing that tax break would actually be denying to extractive resource industries a standard tax exemption that other industries enjoy. Oil companies (and other mining companies) do also have extensive physical capital investment in pumps, pipelines, refineries, etc. for which they would still have the standard depreciation deduction.

    Also, while the oil companies are making a lot of money, their profit rates are not obscene unless you consider any profit to be immoral. In fact, oil company profit margins are fairly low – but within the historical norm for corporate profits across all industries. Here’s an example: http://seekingalpha.com/article/269679-oil-industry-profit-margin-ranks-fairly-low-there-are-bigger-fish. Exxon has a huge profit, no doubt. But, it is because they are selling a lot of gasoline and other oil products.

    If you want to complain about high prices – why not milk? It is heavily regulated and subsidized by the government, yet prices haven’t gone down. Apologies for the long link, but it does explain the issue – http://books.google.com/books?id=JpuDoMDX4tsC&pg=PA357&lpg=PA357&dq=milk+gallon+prices+2012+and+milk+price+supports&source=bl&ots=83CO2rIVDD&sig=8IPH0ZKi4chKU7N5iAj3tSqT-hg&hl=en&sa=X&ei=mtCOT4udDcOs0AGa5vXxBg&ved=0CCkQ6AEwAA#v=onepage&q=milk%20gallon%20prices%202012%20and%20milk%20price%20supports&f=false

  • http://enterthevein.wordpress.com J. Dean

    Of course, El Presdiente could set and example and call for a suspension of the federal gas tax for the relief of those he claims to support.

  • http://enterthevein.wordpress.com J. Dean

    Of course, El Presdiente could set and example and call for a suspension of the federal gas tax for the relief of those he claims to support.

  • Steve Billingsley

    SKPeterson @13
    Right on the mark. Oil companies do not receive tax breaks that other extractive (or many other manufacturing companies) don’t receive and receives zero (as in $0) direct subsidies. Meanwhile, “green” energy resources receives tens of billions in direct subsidies and in general are unprofitable (and in many cases going bankrupt).

    Obama’s plan is election year theater.

    And while speculation certainly effects the price of oil/gas, it cannot override supply and demand in the long-term or even the medium term. We have systematically underdeveloped our oil and gas resources over the past 30+ years for mainly environmental reasons but it has not stopped the increasing demand for oil and gas worldwide. We need to develop those resources, not just in some attempt to lower gas prices in the short-term (which it may or may not do) but due to the fact that the demand will continue to rise for the foreseeable future. As to alternative energy sources, develop away. I would prefer to see that done in the private sector because I have seen very little evidence that the public sector has any clue regarding venture capital.

    And as to original question (Does our President understand economics?) I think the answer is no. He understands politics and everything else is secondary.

  • Steve Billingsley

    SKPeterson @13
    Right on the mark. Oil companies do not receive tax breaks that other extractive (or many other manufacturing companies) don’t receive and receives zero (as in $0) direct subsidies. Meanwhile, “green” energy resources receives tens of billions in direct subsidies and in general are unprofitable (and in many cases going bankrupt).

    Obama’s plan is election year theater.

    And while speculation certainly effects the price of oil/gas, it cannot override supply and demand in the long-term or even the medium term. We have systematically underdeveloped our oil and gas resources over the past 30+ years for mainly environmental reasons but it has not stopped the increasing demand for oil and gas worldwide. We need to develop those resources, not just in some attempt to lower gas prices in the short-term (which it may or may not do) but due to the fact that the demand will continue to rise for the foreseeable future. As to alternative energy sources, develop away. I would prefer to see that done in the private sector because I have seen very little evidence that the public sector has any clue regarding venture capital.

    And as to original question (Does our President understand economics?) I think the answer is no. He understands politics and everything else is secondary.

  • L. H. Kevil

    My threepenny:

    Obama does not understand economics.

    The futures markets stabilize prices; the companies that use it are not speculating or gambling, but hedging against significant prices changes.

    There are no special tax breaks for oil companies. None. In fact the oil companies receive less of a tax break than do companies in the other industries. The oil companies pay more in taxes than their net revenues (aka profits.)

    Bonus point: there are things Presidents can do to reduce the upward pressure on oil prices. Open the strategic reserve, announce quick completion the Keystone pipeline as a national priority, announce the rapid approval of all drillling permits currently being held hostage, open up drilling on Federal land, notably ANWR and other parts of Alaska. The certainty of a more stable future supply of oil would have a calming effect on prices within a month or two. It has happened before.

    None of this is rocket science.

  • L. H. Kevil

    My threepenny:

    Obama does not understand economics.

    The futures markets stabilize prices; the companies that use it are not speculating or gambling, but hedging against significant prices changes.

    There are no special tax breaks for oil companies. None. In fact the oil companies receive less of a tax break than do companies in the other industries. The oil companies pay more in taxes than their net revenues (aka profits.)

    Bonus point: there are things Presidents can do to reduce the upward pressure on oil prices. Open the strategic reserve, announce quick completion the Keystone pipeline as a national priority, announce the rapid approval of all drillling permits currently being held hostage, open up drilling on Federal land, notably ANWR and other parts of Alaska. The certainty of a more stable future supply of oil would have a calming effect on prices within a month or two. It has happened before.

    None of this is rocket science.

  • helen

    “We should end the special tax breaks given to the big oil companies.” –Jimmy Veith
    There was some talk of stopping the 45 cents a gallon bribe to use ethanol, which has less energy and is more corrosive on motor vehicles. (Was it done?) That might encourage farmers to go back to planting wheat and other food crops; perhaps even the price of milk would moderate.
    [Nobody's proposed a tax, yet, on "middle class" dreaming, have they?] :)

  • helen

    “We should end the special tax breaks given to the big oil companies.” –Jimmy Veith
    There was some talk of stopping the 45 cents a gallon bribe to use ethanol, which has less energy and is more corrosive on motor vehicles. (Was it done?) That might encourage farmers to go back to planting wheat and other food crops; perhaps even the price of milk would moderate.
    [Nobody's proposed a tax, yet, on "middle class" dreaming, have they?] :)

  • helen

    The companies that actually use oil are “stabilizing their market” by buying futures.
    The people who buy and sell, with no intention of taking delivery, are speculators, pure and simple. Someone estimated on line that speculation accounted for 25% of the recent rise in prices. [I have no way of verifying that.]
    If oil companies “pay more in taxes than their net revenues, I should think investors would leave in droves, because they got no return. Would someone care to elucidate?

  • helen

    The companies that actually use oil are “stabilizing their market” by buying futures.
    The people who buy and sell, with no intention of taking delivery, are speculators, pure and simple. Someone estimated on line that speculation accounted for 25% of the recent rise in prices. [I have no way of verifying that.]
    If oil companies “pay more in taxes than their net revenues, I should think investors would leave in droves, because they got no return. Would someone care to elucidate?

  • http://www.redeemedrambling.blogspot.com/ John

    I don’t think it’s fair to say that he doesn’t understand economics. I think it is more likely that he does, and he is using his knowledge to get what he wants. For example, he recently urged the de-subsidization of Big Oil (cue scary organ music) because we shouldn’t be paying for it with our taxes. Well, I completely agree! We shouldn’t be subsidizing oil or anyone else with tax money. But he sort of forgot to mention the part about prices – as soon as we stop subsidizing, the price will rise, and we will foot the bill one way or the other.

    So is it that our president is so uneducated and daft that he doesn’t understand that? I think not. Rather, I can only conclude that wants higher prices at the gas pump. I think that is a fairer assessment.

  • http://www.redeemedrambling.blogspot.com/ John

    I don’t think it’s fair to say that he doesn’t understand economics. I think it is more likely that he does, and he is using his knowledge to get what he wants. For example, he recently urged the de-subsidization of Big Oil (cue scary organ music) because we shouldn’t be paying for it with our taxes. Well, I completely agree! We shouldn’t be subsidizing oil or anyone else with tax money. But he sort of forgot to mention the part about prices – as soon as we stop subsidizing, the price will rise, and we will foot the bill one way or the other.

    So is it that our president is so uneducated and daft that he doesn’t understand that? I think not. Rather, I can only conclude that wants higher prices at the gas pump. I think that is a fairer assessment.

  • DonS

    Thank you, SKP @ 13 for explaining the reality of the so-called and much demagogued “special tax breaks” for those nasty big oil companies. Nice job, Jimmy, advocating for something you admittedly know nothing about. That’s what’s wrong with American politics today, in a nutshell. A politician needs a political boost, so demonizes the purported “enemy”, and the media mindlessly picks up on and amplifies the baseless and politicized charge without any investigation or explanation whatsoever.

    Airlines and other public carriers would be destroyed without the ability to lock in long term contracts for fuel, which wouldn’t be possible without “evil” futures speculators. Budgeting, and pricing for future flights, would be impossible without this tool. The kind of regulation Obama is proposing, without any consideration of the impacts on the markets, is irresponsible, and will certainly add substantial costs and inefficiencies to an economy already drowning in government-imposed inefficiencies. According to this article http://www.businessweek.com/ap/2012-04/D9U6OT7G1.htm he wants to increase the staff of the Commodity Futures Exchange by a factor of six! Now, how exactly, is that going to make things more efficient and lower costs?

    As for oil and other commodities, more supply results in lower prices. That’s Economics 101. It may be true that China and India will expand sufficiently that world demand will permanent outstrip supply in certain commodities at certain times, as Tom points out above. But that’s a supply problem, not a “lack of regulation” problem. Tom is essentially admitting that this regulatory proposal will not work. The only thing that will address a lack of supply is more drilling and refining, and ensuring that we have an efficient infrastructure in place to move unrefined and refined product to where it is most needed. Wringing your hands and saying that nothing can be done, so why try, or increasing your bureaucracy by a factor of six to centrally manage what limited supply previous generations were foresighted enough to develop for us is illogical.

  • DonS

    Thank you, SKP @ 13 for explaining the reality of the so-called and much demagogued “special tax breaks” for those nasty big oil companies. Nice job, Jimmy, advocating for something you admittedly know nothing about. That’s what’s wrong with American politics today, in a nutshell. A politician needs a political boost, so demonizes the purported “enemy”, and the media mindlessly picks up on and amplifies the baseless and politicized charge without any investigation or explanation whatsoever.

    Airlines and other public carriers would be destroyed without the ability to lock in long term contracts for fuel, which wouldn’t be possible without “evil” futures speculators. Budgeting, and pricing for future flights, would be impossible without this tool. The kind of regulation Obama is proposing, without any consideration of the impacts on the markets, is irresponsible, and will certainly add substantial costs and inefficiencies to an economy already drowning in government-imposed inefficiencies. According to this article http://www.businessweek.com/ap/2012-04/D9U6OT7G1.htm he wants to increase the staff of the Commodity Futures Exchange by a factor of six! Now, how exactly, is that going to make things more efficient and lower costs?

    As for oil and other commodities, more supply results in lower prices. That’s Economics 101. It may be true that China and India will expand sufficiently that world demand will permanent outstrip supply in certain commodities at certain times, as Tom points out above. But that’s a supply problem, not a “lack of regulation” problem. Tom is essentially admitting that this regulatory proposal will not work. The only thing that will address a lack of supply is more drilling and refining, and ensuring that we have an efficient infrastructure in place to move unrefined and refined product to where it is most needed. Wringing your hands and saying that nothing can be done, so why try, or increasing your bureaucracy by a factor of six to centrally manage what limited supply previous generations were foresighted enough to develop for us is illogical.

  • Klasie Kraalogies

    Bravo SKP – good explanation. The “big oil” bogeyman image needs to be exorcised. Obscene profits are almost never made in primary industries (speaking as an industry insider). If you want to see over valuation and obscenity, look at the over-priced, over-hyped devises Apples sells. But that is the result of simple design, and excellent marketing.

    But in truth, all politicians tend to play to the populist whim, not just Obama. And Economics is rarely understood by any of them, left or right.

  • Klasie Kraalogies

    Bravo SKP – good explanation. The “big oil” bogeyman image needs to be exorcised. Obscene profits are almost never made in primary industries (speaking as an industry insider). If you want to see over valuation and obscenity, look at the over-priced, over-hyped devises Apples sells. But that is the result of simple design, and excellent marketing.

    But in truth, all politicians tend to play to the populist whim, not just Obama. And Economics is rarely understood by any of them, left or right.

  • Jon

    Lowering or eliminating the fed gas tax would be foolishly counterproductive since that levy goes directly for highway maintenance and related transporation uses. Without it, those costs would have be met by some other means, probably resulting in a higher tax on something else.

    This is a faux issue anyway. When gas prices reached nearly $4 under G W Bush, the GOP encouraged everyone to drive less. Now that they’ve risen again under Obama, the GOP propaganda machine is going gangbusters.

  • Jon

    Lowering or eliminating the fed gas tax would be foolishly counterproductive since that levy goes directly for highway maintenance and related transporation uses. Without it, those costs would have be met by some other means, probably resulting in a higher tax on something else.

    This is a faux issue anyway. When gas prices reached nearly $4 under G W Bush, the GOP encouraged everyone to drive less. Now that they’ve risen again under Obama, the GOP propaganda machine is going gangbusters.

  • DonS

    Jon @ 22: Agreed on the fed gas tax.

    The “faux issue” comment has me perplexed. There is nothing wrong with urging people to drive less, and people ARE driving less. But, obviously, there is a limit as to how much less you can drive without seriously impacting your lifestyle, and high energy costs disproportionately impact the poor. What the GOP urged in 2008 is the same thing they are urging now — increase supply! Don’t you remember “drill, baby drill”?

  • DonS

    Jon @ 22: Agreed on the fed gas tax.

    The “faux issue” comment has me perplexed. There is nothing wrong with urging people to drive less, and people ARE driving less. But, obviously, there is a limit as to how much less you can drive without seriously impacting your lifestyle, and high energy costs disproportionately impact the poor. What the GOP urged in 2008 is the same thing they are urging now — increase supply! Don’t you remember “drill, baby drill”?

  • Steve Billingsley

    One other quick comment…the demonization of Big Oil or fossil fuels in general is based upon a Manichean view of energy. This view splits energy sources into “good” energy sources (wind, geothermal, solar, etc.) and “bad” energy sources (fossil fuels) based upon some predetermined criteria (CO2 levels, impact on the environment, etc.). Nuclear energy can be placed in either column depending on who is making the list.

    The problem with this view of energy is that it fails to take into account the reality of economic trade-offs. The reason that oil (and gas and coal) is predominantly used in our industrial and post-industrial economies is that it is effective. It delivers more energy more efficiently and is more plentiful than any other source. The sources of energy that fossil fuels replaced (wood and whale oil) were not nearly as efficient and not nearly as plentiful. I am fine with opening up the market to natural gas (for transportation), methanol, ethanol and others so long as all of these sources are treated equally by the market. It stands to reason that oil and coal will eventually become less plentiful (though the doomsaying predictions of this event have proved quite overblown thus far) – but if the supply dictates that prices rise to an unsustainable level – then the market will deliver an alternative solution. Trying to trump or speed up or skip this process altogether via government “investment” into these sources (whatever they may be) is a fool’s errand because it is a process that is easily corrupted and it assumes that whatever government agency is driving this process knows better than everyone else and knows where to put it’s thumb on the scale to make it all work.

    Even the “good” energy sources have their drawbacks. Large scale wind farms disrupt the migratory patterns of birds (resulting in the deaths of tens of thousands of birds over time) and are inefficient in that they cannot be built too close to developed areas. One only has to take a look at the event in Japan last year to see the potential downside of nuclear energy. Solar and geothermal or hydroelectric require a lot of land to implement on a large scale and building solar panel farms in the desert or damming up rivers can have horrible effects on natural habitats of a variety of creatures. All economic choices are trade-offs. I would love to see an alternative energy source emerge that could compete with fossil fuels – but don’t pretend that alternative will be perfect. That would be a utopian pipe dream.

  • Steve Billingsley

    One other quick comment…the demonization of Big Oil or fossil fuels in general is based upon a Manichean view of energy. This view splits energy sources into “good” energy sources (wind, geothermal, solar, etc.) and “bad” energy sources (fossil fuels) based upon some predetermined criteria (CO2 levels, impact on the environment, etc.). Nuclear energy can be placed in either column depending on who is making the list.

    The problem with this view of energy is that it fails to take into account the reality of economic trade-offs. The reason that oil (and gas and coal) is predominantly used in our industrial and post-industrial economies is that it is effective. It delivers more energy more efficiently and is more plentiful than any other source. The sources of energy that fossil fuels replaced (wood and whale oil) were not nearly as efficient and not nearly as plentiful. I am fine with opening up the market to natural gas (for transportation), methanol, ethanol and others so long as all of these sources are treated equally by the market. It stands to reason that oil and coal will eventually become less plentiful (though the doomsaying predictions of this event have proved quite overblown thus far) – but if the supply dictates that prices rise to an unsustainable level – then the market will deliver an alternative solution. Trying to trump or speed up or skip this process altogether via government “investment” into these sources (whatever they may be) is a fool’s errand because it is a process that is easily corrupted and it assumes that whatever government agency is driving this process knows better than everyone else and knows where to put it’s thumb on the scale to make it all work.

    Even the “good” energy sources have their drawbacks. Large scale wind farms disrupt the migratory patterns of birds (resulting in the deaths of tens of thousands of birds over time) and are inefficient in that they cannot be built too close to developed areas. One only has to take a look at the event in Japan last year to see the potential downside of nuclear energy. Solar and geothermal or hydroelectric require a lot of land to implement on a large scale and building solar panel farms in the desert or damming up rivers can have horrible effects on natural habitats of a variety of creatures. All economic choices are trade-offs. I would love to see an alternative energy source emerge that could compete with fossil fuels – but don’t pretend that alternative will be perfect. That would be a utopian pipe dream.

  • DonS

    Steve @ 24: Well said.

  • DonS

    Steve @ 24: Well said.

  • http://www.toddstadler.com/ tODD

    Our President only needs to understand economics as well as the electorate does. And if you have an electorate that’s clamoring for the President to Do Something in reaction to short-term price increases, well, he doesn’t need to know much.

    Seriously, why is this a Presidential issue? And why won’t the President do something about how much these new iPads cost? That’s way too much to pay for a tablet! I mean, I’m going to buy one, of course, but you’d better believe I’m going to complain about it!

    Okay, more seriously, I don’t see what’s so bad about speculators, as such. Not saying there aren’t some nefarious doings transpiring out there. But you can’t simply point to high gasoline prices for evidence of that. Can anyone name the actual misdeeds that take place in this arena?

    Kirk says (@7):

    That’s why prices spike whenever there’s talk of conflict in the Middle East. If normal supply and demand economics drove the costs, we wouldn’t see changes until oil flow actually diminishes.

    Okay, but your apparent solution with fewer or no speculators would still be equally volatile, wouldn’t it? All speculators do is shift the volatility around. I mean, imagine a scenario in which airlines do not buy long-term contracts for their fuel, instead purchasing it as they go, like you or I do. You look up tickets for a flight to LA, and it’s $400. And then, whoops, there’s a shutdown at a refinery the next day. Now the price is $800. Whee! If the airline had access to long-term (speculator-provided) contracts, this volatility wouldn’t exist.

    I freely admit to not really knowing much about this stuff, so anyone feel free to correct my understanding here.

    Kirk added:

    This is particularly true on the oil markets because demand is high and constant.

    This is the real issue, isn’t it? With such a tight market, it’s easier to exploit tiny, quick fluctuations. So then the issue isn’t speculators, but too little supply (the only way right-wingers will view the issue) or too much demand (the only way left-wingers will view the issue).

  • http://www.toddstadler.com/ tODD

    Our President only needs to understand economics as well as the electorate does. And if you have an electorate that’s clamoring for the President to Do Something in reaction to short-term price increases, well, he doesn’t need to know much.

    Seriously, why is this a Presidential issue? And why won’t the President do something about how much these new iPads cost? That’s way too much to pay for a tablet! I mean, I’m going to buy one, of course, but you’d better believe I’m going to complain about it!

    Okay, more seriously, I don’t see what’s so bad about speculators, as such. Not saying there aren’t some nefarious doings transpiring out there. But you can’t simply point to high gasoline prices for evidence of that. Can anyone name the actual misdeeds that take place in this arena?

    Kirk says (@7):

    That’s why prices spike whenever there’s talk of conflict in the Middle East. If normal supply and demand economics drove the costs, we wouldn’t see changes until oil flow actually diminishes.

    Okay, but your apparent solution with fewer or no speculators would still be equally volatile, wouldn’t it? All speculators do is shift the volatility around. I mean, imagine a scenario in which airlines do not buy long-term contracts for their fuel, instead purchasing it as they go, like you or I do. You look up tickets for a flight to LA, and it’s $400. And then, whoops, there’s a shutdown at a refinery the next day. Now the price is $800. Whee! If the airline had access to long-term (speculator-provided) contracts, this volatility wouldn’t exist.

    I freely admit to not really knowing much about this stuff, so anyone feel free to correct my understanding here.

    Kirk added:

    This is particularly true on the oil markets because demand is high and constant.

    This is the real issue, isn’t it? With such a tight market, it’s easier to exploit tiny, quick fluctuations. So then the issue isn’t speculators, but too little supply (the only way right-wingers will view the issue) or too much demand (the only way left-wingers will view the issue).

  • http://www.toddstadler.com/ tODD

    DLitwC (@12):

    BTW, public transportation is not an option; public transportation sucks, even in places with reasonable public transportation.

    Golly. I’ll have to ponder that ludicrously broad-brush assertion on my bus ride home. I mean, it can’t just be you and your personal anecdotes — all those millions of transit riders must just be stupid!

    Why does it suck? It has no flexibility.

    Um, you appear to be confusing the whole of “public transportation” with “commuter rail”. But there’s this new technology called “buses”…

    It, also because of its nature, adds tremendously to travel time.

    Sometimes yes, sometimes no. Maybe I will compose a more thoughtful reply to this from the luxury of my bus seat, since using my phone while riding will not cause my vehicle to run off the road or potentially kill anyone.

  • http://www.toddstadler.com/ tODD

    DLitwC (@12):

    BTW, public transportation is not an option; public transportation sucks, even in places with reasonable public transportation.

    Golly. I’ll have to ponder that ludicrously broad-brush assertion on my bus ride home. I mean, it can’t just be you and your personal anecdotes — all those millions of transit riders must just be stupid!

    Why does it suck? It has no flexibility.

    Um, you appear to be confusing the whole of “public transportation” with “commuter rail”. But there’s this new technology called “buses”…

    It, also because of its nature, adds tremendously to travel time.

    Sometimes yes, sometimes no. Maybe I will compose a more thoughtful reply to this from the luxury of my bus seat, since using my phone while riding will not cause my vehicle to run off the road or potentially kill anyone.

  • http://www.toddstadler.com/ tODD

    L.H. said (@16):

    Open the strategic reserve. … The certainty of a more stable future supply of oil would have a calming effect on prices within a month or two. It has happened before.

    Um, opening up the strategic reserve would not guarantee a more stable future supply for any meaningful time period. And putting a mild, temporary damper on current oil prices would be an incredibly short-sighted use of the reserves.

    As for drilling permits, what, exactly is “being held hostage”?

  • http://www.toddstadler.com/ tODD

    L.H. said (@16):

    Open the strategic reserve. … The certainty of a more stable future supply of oil would have a calming effect on prices within a month or two. It has happened before.

    Um, opening up the strategic reserve would not guarantee a more stable future supply for any meaningful time period. And putting a mild, temporary damper on current oil prices would be an incredibly short-sighted use of the reserves.

    As for drilling permits, what, exactly is “being held hostage”?

  • http://www.toddstadler.com/ tODD

    DonS said (@20):

    As for oil and other commodities, more supply results in lower prices.

    Sure, as long as there’s no price collusion. But then, who ever heard of such a thing as an “oil cartel”?

    Anyhow, Don’s reply is charmingly one-sided, as well as rather symptomatic of the right-wing approach to this issue. See if you can figure out what that side is (my bold):

    As for oil and other commodities, more supply results in lower prices. That’s Economics 101. It may be true that China and India will expand sufficiently that world demand will permanent outstrip supply in certain commodities at certain times, as Tom points out above. But that’s a supply problem, not a “lack of regulation” problem. Tom is essentially admitting that this regulatory proposal will not work. The only thing that will address a lack of supply is more drilling and refining…

    Is it me, or was there some counterpart to “supply” in Economics 101? But what was it? … Remand? Command? … I’ve forgotten.

    Oh wait, here’s another quote from DonS (@23):

    There is nothing wrong with urging people to drive less, and people ARE driving less.

    Hmm. Maybe something in there will jog my memory.

    But, obviously, there is a limit as to how much less you can drive without seriously impacting your lifestyle

    Oh, well, we don’t want to impact anyone’s lifestyle! That would, you know, impinge. Or something.

    Wringing your hands and saying that nothing can be done, so why try, … is illogical.

    Of course. Unless we’re talking about climate change, in which case saying that “nothing can be done, so why try” is your preferred approach, if I recall. :)

  • http://www.toddstadler.com/ tODD

    DonS said (@20):

    As for oil and other commodities, more supply results in lower prices.

    Sure, as long as there’s no price collusion. But then, who ever heard of such a thing as an “oil cartel”?

    Anyhow, Don’s reply is charmingly one-sided, as well as rather symptomatic of the right-wing approach to this issue. See if you can figure out what that side is (my bold):

    As for oil and other commodities, more supply results in lower prices. That’s Economics 101. It may be true that China and India will expand sufficiently that world demand will permanent outstrip supply in certain commodities at certain times, as Tom points out above. But that’s a supply problem, not a “lack of regulation” problem. Tom is essentially admitting that this regulatory proposal will not work. The only thing that will address a lack of supply is more drilling and refining…

    Is it me, or was there some counterpart to “supply” in Economics 101? But what was it? … Remand? Command? … I’ve forgotten.

    Oh wait, here’s another quote from DonS (@23):

    There is nothing wrong with urging people to drive less, and people ARE driving less.

    Hmm. Maybe something in there will jog my memory.

    But, obviously, there is a limit as to how much less you can drive without seriously impacting your lifestyle

    Oh, well, we don’t want to impact anyone’s lifestyle! That would, you know, impinge. Or something.

    Wringing your hands and saying that nothing can be done, so why try, … is illogical.

    Of course. Unless we’re talking about climate change, in which case saying that “nothing can be done, so why try” is your preferred approach, if I recall. :)

  • Joe

    tODD – I agree that mass transit can be cost effective. I used a privately owned and operated commuter bus every day for three years when I was in law school. I had a 45 minute ride in and a 45 minute ride out. The cost to me was $6.00 per day. The cost to the tax payer was $0.00 a day. The problem with public transportation is that I have never seen a system run without a subsidy.

    But, if we have to have one, buses make so much more sense than anything else that I can’t actually understand the devotion to other forms. The most obvious advantage to buses is that they can be rerouted little to no infrastructure changes. Try doing that with rail.

  • Joe

    tODD – I agree that mass transit can be cost effective. I used a privately owned and operated commuter bus every day for three years when I was in law school. I had a 45 minute ride in and a 45 minute ride out. The cost to me was $6.00 per day. The cost to the tax payer was $0.00 a day. The problem with public transportation is that I have never seen a system run without a subsidy.

    But, if we have to have one, buses make so much more sense than anything else that I can’t actually understand the devotion to other forms. The most obvious advantage to buses is that they can be rerouted little to no infrastructure changes. Try doing that with rail.

  • Klasie Kraalogies

    I agree with Todd on public transport – I would certainly have used it if it was available, but living in small town 25km outside a small city, it simply isn’t.

    As to oil: To open strategic reserves is an extremely short-sighted idea. Actually, it is downright insane. Limited increase of production is not a bad idea, but better resource management is crucial – and already the newest figures show that the average fuel consumption of US vehicles have substantialy improved. Economics 101, anyone :) ?

    But once again, oil is not the only commodity out there. There has been complaints about copper stockpiling. China’s control of the rare-earths resources of the world. Etc etc.

    The US neurotic approach to mining will still cost it dearly, mark my words.

  • Klasie Kraalogies

    I agree with Todd on public transport – I would certainly have used it if it was available, but living in small town 25km outside a small city, it simply isn’t.

    As to oil: To open strategic reserves is an extremely short-sighted idea. Actually, it is downright insane. Limited increase of production is not a bad idea, but better resource management is crucial – and already the newest figures show that the average fuel consumption of US vehicles have substantialy improved. Economics 101, anyone :) ?

    But once again, oil is not the only commodity out there. There has been complaints about copper stockpiling. China’s control of the rare-earths resources of the world. Etc etc.

    The US neurotic approach to mining will still cost it dearly, mark my words.

  • Jimmy Veith

    In my comment @10, I stated “There is something called an ‘oil depletion allowance’ but I don’t know the details, as I am no expert in oil and gas taxation.”
    This was a statement of humility, which I know is rare in the blogosphere.

    I was then criticized @20 with the following remarks: “Nice job, Jimmy, advocating for something you admittedly know nothing about. That’s what’s wrong with American politics today, in a nutshell.”

    Is that really fair? Are you an expert on everything you comment on?

    By the way, I do not concede the point that oil companies receive special tax breaks. They do, and those tax breaks should end as they are no longer needed.
    See http://mediamatters.org/research/201204100004. for details.

    By the way, I am from the oil and gas producing state of Oklahoma, and I am not a “kneejerk” liberal that is totally against everything the oil industry does. (I have a son-in-law and several nephews by marriage that work for Big Oil Companies.) I just think they can pay more in taxes and it would not have a significant impact on the price we pay at the oil pump. None of the arguments that have been made have convinced me otherwise.

    Just to make things clear: I am a liberal, just not a “kneejerk” one.

  • Jimmy Veith

    In my comment @10, I stated “There is something called an ‘oil depletion allowance’ but I don’t know the details, as I am no expert in oil and gas taxation.”
    This was a statement of humility, which I know is rare in the blogosphere.

    I was then criticized @20 with the following remarks: “Nice job, Jimmy, advocating for something you admittedly know nothing about. That’s what’s wrong with American politics today, in a nutshell.”

    Is that really fair? Are you an expert on everything you comment on?

    By the way, I do not concede the point that oil companies receive special tax breaks. They do, and those tax breaks should end as they are no longer needed.
    See http://mediamatters.org/research/201204100004. for details.

    By the way, I am from the oil and gas producing state of Oklahoma, and I am not a “kneejerk” liberal that is totally against everything the oil industry does. (I have a son-in-law and several nephews by marriage that work for Big Oil Companies.) I just think they can pay more in taxes and it would not have a significant impact on the price we pay at the oil pump. None of the arguments that have been made have convinced me otherwise.

    Just to make things clear: I am a liberal, just not a “kneejerk” one.

  • SKPeterson

    Jimmy – It seems that you are making the argument that since the oil companies are making large profits they should be able to absorb those costs without passing them along to consumers. Maybe, but there is a very high probability that consumers will face about 50% or more of the tax incidence. The danger of the tax proposal is long term. If taxes on oil companies reduce the industry’s margins by a few % points, profits will be just a smidge over the inflation rate. Now that increases industry uncertainty which may very well result in diminished capital investment in exploration, production and refining. In short, the ability to produce

  • SKPeterson

    Jimmy – It seems that you are making the argument that since the oil companies are making large profits they should be able to absorb those costs without passing them along to consumers. Maybe, but there is a very high probability that consumers will face about 50% or more of the tax incidence. The danger of the tax proposal is long term. If taxes on oil companies reduce the industry’s margins by a few % points, profits will be just a smidge over the inflation rate. Now that increases industry uncertainty which may very well result in diminished capital investment in exploration, production and refining. In short, the ability to produce

  • SKPeterson

    sorry getting used to typing on a tablet.

    What I meant to conclude with is that raising taxes on low margin industries will result in lower rates of capital investment and the increased deterioration of the existing capital stock. Things will begin to rust away and future supply levels will begin to lessen over time leading to greater potential for supply interruption and higher prices. (yes this is a very supply side oriented answer but we are talking about a tax and regulatory structure affecting production.)

  • SKPeterson

    sorry getting used to typing on a tablet.

    What I meant to conclude with is that raising taxes on low margin industries will result in lower rates of capital investment and the increased deterioration of the existing capital stock. Things will begin to rust away and future supply levels will begin to lessen over time leading to greater potential for supply interruption and higher prices. (yes this is a very supply side oriented answer but we are talking about a tax and regulatory structure affecting production.)

  • Jimmy Veith

    To SK @33:

    That is not exactly what I am saying. I do agree that the fact that because oil companies are making large profits they should be able to pay the additional taxes without suffering any adverse consequences to their business enterprise. But that is not why I think they would not pass the cost on to the consumer. My point is, that the price we pay at the pump is due primarily to the world price of crude oil. There are additional costs due to speculation, some of which is legitimate and some is not. This was discussed above.

    I don’t think that big oil companies decide whether or not to drill or produce on how much they would have to pay in taxes if the well is a producer. When they drill, they don’t know whether or not they will hit oil or gas, and if so, they don’t know how much it will produce. It is not an exact science. What drives companies to drill, is their estimate as to whether or not it will be a producer, plus the world price of crude oil or gas at the time. If it is a good producer, they will make large profits that will more than pay for their costs, or at least the extra costs that they would have by paying slightly more in taxes.

    The slight increase in taxes will not result in diminished capital investments and exploration. The companies are so large, and the profit margins are so great, that oil and gas production will be a profitable enterprise for the foreseeable future.

  • Jimmy Veith

    To SK @33:

    That is not exactly what I am saying. I do agree that the fact that because oil companies are making large profits they should be able to pay the additional taxes without suffering any adverse consequences to their business enterprise. But that is not why I think they would not pass the cost on to the consumer. My point is, that the price we pay at the pump is due primarily to the world price of crude oil. There are additional costs due to speculation, some of which is legitimate and some is not. This was discussed above.

    I don’t think that big oil companies decide whether or not to drill or produce on how much they would have to pay in taxes if the well is a producer. When they drill, they don’t know whether or not they will hit oil or gas, and if so, they don’t know how much it will produce. It is not an exact science. What drives companies to drill, is their estimate as to whether or not it will be a producer, plus the world price of crude oil or gas at the time. If it is a good producer, they will make large profits that will more than pay for their costs, or at least the extra costs that they would have by paying slightly more in taxes.

    The slight increase in taxes will not result in diminished capital investments and exploration. The companies are so large, and the profit margins are so great, that oil and gas production will be a profitable enterprise for the foreseeable future.

  • SKPeterson

    jimmy – the problem is that profit margins aren’t high, they are 6 to 7%. If inflation runs 3% or more, you’re looking at 3 to 4% real returns. If you increase taxes you will be digging into that 3 to 4%, potentially reducing real returns toward 0. If you have inflation uncertainty coupled with higher taxes you increase risk in an already risky enterprise. And that leads over time to lowered levels of capital investment.

  • SKPeterson

    jimmy – the problem is that profit margins aren’t high, they are 6 to 7%. If inflation runs 3% or more, you’re looking at 3 to 4% real returns. If you increase taxes you will be digging into that 3 to 4%, potentially reducing real returns toward 0. If you have inflation uncertainty coupled with higher taxes you increase risk in an already risky enterprise. And that leads over time to lowered levels of capital investment.

  • Michael B.

    I’ve been surprised at how this conversation has turned out. People are talking about actual long term solutions to the problem such as more efficient vehicles, and recognizing that oil is a limited resource with increasing demand. I honestly thought it’d be a bunch of responses demanding that Obama lower taxes, conspiracy theories about why he is trying to keep gas prices high, and basically “drill baby drill”.

  • Michael B.

    I’ve been surprised at how this conversation has turned out. People are talking about actual long term solutions to the problem such as more efficient vehicles, and recognizing that oil is a limited resource with increasing demand. I honestly thought it’d be a bunch of responses demanding that Obama lower taxes, conspiracy theories about why he is trying to keep gas prices high, and basically “drill baby drill”.

  • Dr. Luther in the 21st Century

    @tODD Buses? Oh you mean the moving road hazards that tie up traffic. If public transit were only buses you would have a point. Public transit in the Chicago area is made up of three parts commuter trains, the El, and buses. Coming from the outer suburbs using the commuter train is pretty much unavoidable.

    Public transportation by its very nature is time inefficient. Simply running routes through the Public Transit’s online planner and comparing it to Google will illustrate that fact. So, while I did offer anecdotal evidence there is an objective measure. Scoff if you want, but I guess I will just have to console myself by sitting in the comfort of my recliner while you sit on a bus.

  • Dr. Luther in the 21st Century

    @tODD Buses? Oh you mean the moving road hazards that tie up traffic. If public transit were only buses you would have a point. Public transit in the Chicago area is made up of three parts commuter trains, the El, and buses. Coming from the outer suburbs using the commuter train is pretty much unavoidable.

    Public transportation by its very nature is time inefficient. Simply running routes through the Public Transit’s online planner and comparing it to Google will illustrate that fact. So, while I did offer anecdotal evidence there is an objective measure. Scoff if you want, but I guess I will just have to console myself by sitting in the comfort of my recliner while you sit on a bus.

  • Klasie Kraalogies

    Drlit, it depends on city layout: Many modern North American cities were built around the car culture, what with their sprawling suburbs etc. – thus the personal automobile appears to be the most efficient vehicle. Not so many other places. Urban/suburban planning styles make all the difference.

  • Klasie Kraalogies

    Drlit, it depends on city layout: Many modern North American cities were built around the car culture, what with their sprawling suburbs etc. – thus the personal automobile appears to be the most efficient vehicle. Not so many other places. Urban/suburban planning styles make all the difference.

  • http://www.toddstadler.com/ tODD

    Michael B. (@37) said:

    I’ve been surprised at how this conversation has turned out.

    That’s something of a theme here, isn’t it?

    DLit2C (@38) said:

    Buses? Oh you mean the moving road hazards that tie up traffic.

    O…kay. Because, you know, if you removed all the buses on the road and replaced them with enough cars to carry their occupants (at 1.6 people per car, on average), that would sure improve traffic.

    Public transportation by its very nature is time inefficient.

    By its nature? No. By its implementation? Perhaps. I can’t speak to Chicago’s system, but back when I used to ride the light rail out to the Portland suburbs, the train frequently whizzed by the creeping highway traffic at rush hour. Now that I take a bus downtown, there’s also the added savings of not having to look for a parking spot. And, again, one’s time on a bus is mostly free to get things done — whether reading for pleasure or for business. Do that in a car and you’re likely to kill someone.

  • http://www.toddstadler.com/ tODD

    Michael B. (@37) said:

    I’ve been surprised at how this conversation has turned out.

    That’s something of a theme here, isn’t it?

    DLit2C (@38) said:

    Buses? Oh you mean the moving road hazards that tie up traffic.

    O…kay. Because, you know, if you removed all the buses on the road and replaced them with enough cars to carry their occupants (at 1.6 people per car, on average), that would sure improve traffic.

    Public transportation by its very nature is time inefficient.

    By its nature? No. By its implementation? Perhaps. I can’t speak to Chicago’s system, but back when I used to ride the light rail out to the Portland suburbs, the train frequently whizzed by the creeping highway traffic at rush hour. Now that I take a bus downtown, there’s also the added savings of not having to look for a parking spot. And, again, one’s time on a bus is mostly free to get things done — whether reading for pleasure or for business. Do that in a car and you’re likely to kill someone.

  • DonS

    tODD @ 29: Yep. You got me. I am a conservative who has been caught red-handed advocating conservative ideas. Shocking! ;-)

    However, to clarify, I do not advocate conservative ideas because I am a conservative. I advocate them because I believe, generally, that they are better policy.

    “Sure, as long as there’s no price collusion. But then, who ever heard of such a thing as an “oil cartel”?” — Cartels work by constraining supply. For example, OPEC sets a target price range, and assigns maximum production quotas to each member to ensure that supplies are limited. In the past OPEC’s pricing power has been constrained because Saudi Arabia increases its production, on its own, or other members sell bootleg oil in excess of their production limits. By voluntarily constraining our own supply sources, we assist the cartels in their price-fixing efforts.

    “Oh, well, we don’t want to impact anyone’s lifestyle! That would, you know, impinge. Or something.” Yes. Especially when the reasons for doing so are less than compelling. And even more especially when the “impingement” falls hardest on those least able to absorb the blow. “Lifestyle” includes things like going to work, you know.

    “Unless we’re talking about climate change, in which case saying that “nothing can be done, so why try” is your preferred approach, if I recall.” Yeah, now there’s a non-sequitur.

  • DonS

    tODD @ 29: Yep. You got me. I am a conservative who has been caught red-handed advocating conservative ideas. Shocking! ;-)

    However, to clarify, I do not advocate conservative ideas because I am a conservative. I advocate them because I believe, generally, that they are better policy.

    “Sure, as long as there’s no price collusion. But then, who ever heard of such a thing as an “oil cartel”?” — Cartels work by constraining supply. For example, OPEC sets a target price range, and assigns maximum production quotas to each member to ensure that supplies are limited. In the past OPEC’s pricing power has been constrained because Saudi Arabia increases its production, on its own, or other members sell bootleg oil in excess of their production limits. By voluntarily constraining our own supply sources, we assist the cartels in their price-fixing efforts.

    “Oh, well, we don’t want to impact anyone’s lifestyle! That would, you know, impinge. Or something.” Yes. Especially when the reasons for doing so are less than compelling. And even more especially when the “impingement” falls hardest on those least able to absorb the blow. “Lifestyle” includes things like going to work, you know.

    “Unless we’re talking about climate change, in which case saying that “nothing can be done, so why try” is your preferred approach, if I recall.” Yeah, now there’s a non-sequitur.

  • DonS

    Jimmy @ 32: I was the one who criticized you @ 20. I apologize for the tone of my comment, and I do appreciate that you “came clean” when challenged concerning your statement about special tax breaks for oil companies, rather than blustering or making something up. It was, indeed, a refreshing mea culpa

    But, really, what I would rather have heard you say is that since you don’t really know anything about oil company taxation policies, you will reserve judgment until you do. Rather than just parroting the company line, you know.

    Fact is, I would like to see all special tax breaks disappear for everyone. We should all be taxed the same — government does a very poor and corrupt job of picking winners and losers. If tax rates are sufficiently low, the deductions can be dispensed with and everyone will enjoy the pleasure of eliminating 76,000 pages of IRS tax codes, except for the accountants.

  • DonS

    Jimmy @ 32: I was the one who criticized you @ 20. I apologize for the tone of my comment, and I do appreciate that you “came clean” when challenged concerning your statement about special tax breaks for oil companies, rather than blustering or making something up. It was, indeed, a refreshing mea culpa

    But, really, what I would rather have heard you say is that since you don’t really know anything about oil company taxation policies, you will reserve judgment until you do. Rather than just parroting the company line, you know.

    Fact is, I would like to see all special tax breaks disappear for everyone. We should all be taxed the same — government does a very poor and corrupt job of picking winners and losers. If tax rates are sufficiently low, the deductions can be dispensed with and everyone will enjoy the pleasure of eliminating 76,000 pages of IRS tax codes, except for the accountants.

  • Michael B.

    @DonS@42

    “We should all be taxed the same”

    Really? A guy struggling to make ends meet should pay the same portion of his income as a guy who is a billionaire with 2 yachts?

  • Michael B.

    @DonS@42

    “We should all be taxed the same”

    Really? A guy struggling to make ends meet should pay the same portion of his income as a guy who is a billionaire with 2 yachts?

  • Klasie Kraalogies
  • Klasie Kraalogies
  • Dr. Luther in the 21st Century

    And, again, one’s time on a bus is mostly free to get things done — whether reading for pleasure or for business. Do that in a car and you’re likely to kill someone.

    Now it is my turn to say it’s time to catch up with modern technology. They have these things called books on cd, and dictation programs, there is even an app to listen to Issues, Etc. it’s almost like Star Trek. They are great for those long drives. Just make sure to edit out the colorful metaphors that occur when the bus just pulls out in front of you and you have to slam on your brakes.

    Unless you can figure out away to public transportation with out making numerous stops on long circuitous stops it and numerous bus/train changes. It will always be too inefficient.

    There is something to be said about the express transportation (bus or train) but it loses its convenience when you have to switch over to a normal route.

    There is more to be said about living close to where you work. I know when I was in Houston a few years back they were experiencing inward growth as people moved back into the city to avoid the commutes. I don’t know if that trend has been affected by the recession.

  • Dr. Luther in the 21st Century

    And, again, one’s time on a bus is mostly free to get things done — whether reading for pleasure or for business. Do that in a car and you’re likely to kill someone.

    Now it is my turn to say it’s time to catch up with modern technology. They have these things called books on cd, and dictation programs, there is even an app to listen to Issues, Etc. it’s almost like Star Trek. They are great for those long drives. Just make sure to edit out the colorful metaphors that occur when the bus just pulls out in front of you and you have to slam on your brakes.

    Unless you can figure out away to public transportation with out making numerous stops on long circuitous stops it and numerous bus/train changes. It will always be too inefficient.

    There is something to be said about the express transportation (bus or train) but it loses its convenience when you have to switch over to a normal route.

    There is more to be said about living close to where you work. I know when I was in Houston a few years back they were experiencing inward growth as people moved back into the city to avoid the commutes. I don’t know if that trend has been affected by the recession.

  • DonS

    Michael B @ 43: This thread isn’t about overall tax policy. My views are pretty well known on that topic but we’ll save it for another day. However, in this context, my statement that “we should all be taxed the same” was not a commentary on rates. It was merely stating my opposition to an intrusive tax policy, for the purpose of social engineering, that gives different tax breaks and credits to certain people/businesses/activities, but not to others. It’s a bureaucratic picking of winners and losers, and it’s wrong. It also has made our tax code a horrific and complicated mess. Whatever the tax schedule is, or the tax rates that are in effect, it should ideally apply to everyone exactly the same way, regardless of how they earn their money. That’s all I was saying.

  • DonS

    Michael B @ 43: This thread isn’t about overall tax policy. My views are pretty well known on that topic but we’ll save it for another day. However, in this context, my statement that “we should all be taxed the same” was not a commentary on rates. It was merely stating my opposition to an intrusive tax policy, for the purpose of social engineering, that gives different tax breaks and credits to certain people/businesses/activities, but not to others. It’s a bureaucratic picking of winners and losers, and it’s wrong. It also has made our tax code a horrific and complicated mess. Whatever the tax schedule is, or the tax rates that are in effect, it should ideally apply to everyone exactly the same way, regardless of how they earn their money. That’s all I was saying.

  • Med Student

    I just want to put in a plug for public transportation. I live in downtown Chicago and my main mode of transportation is walking, but the “L” takes me to church and the buses get me other places I need to go without too much hassle. Of course, I’m not commuting to and from the suburbs, so my experience with commuter rail is very limited, but it does eliminate the not insignificant problem of paying for parking in downtown Chicago. Obviously there are drawbacks to public transportation, but the same is true for driving your own car too. I’m exceptionally glad that I’m not paying $4.79/gallon to drive right now (that is the most recent price I saw here in the Windy City).

  • Med Student

    I just want to put in a plug for public transportation. I live in downtown Chicago and my main mode of transportation is walking, but the “L” takes me to church and the buses get me other places I need to go without too much hassle. Of course, I’m not commuting to and from the suburbs, so my experience with commuter rail is very limited, but it does eliminate the not insignificant problem of paying for parking in downtown Chicago. Obviously there are drawbacks to public transportation, but the same is true for driving your own car too. I’m exceptionally glad that I’m not paying $4.79/gallon to drive right now (that is the most recent price I saw here in the Windy City).

  • Dr. Luther in the 21st Century

    Chi-town is 80 cents more than the suburbs.

  • Dr. Luther in the 21st Century

    Chi-town is 80 cents more than the suburbs.

  • Patrick Kyle

    When it comes to ‘regulation’ Obama is a ‘paper tiger.’ His efforts at regulating Wall Street have been a joke. He flat out lied about creating a task force to look into mortgage fraud.

    http://market-ticker.org/akcs-www?post=204897

  • Patrick Kyle

    When it comes to ‘regulation’ Obama is a ‘paper tiger.’ His efforts at regulating Wall Street have been a joke. He flat out lied about creating a task force to look into mortgage fraud.

    http://market-ticker.org/akcs-www?post=204897

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    I am generally a public transit fan, but I also think high gas prices are good. The cheaper something is, the more we will waste it. I would be fine with gas at $10. It would force people to deal with things that they just run away from because it is easier to move to the burbs.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    I am generally a public transit fan, but I also think high gas prices are good. The cheaper something is, the more we will waste it. I would be fine with gas at $10. It would force people to deal with things that they just run away from because it is easier to move to the burbs.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    “Really? A guy struggling to make ends meet should pay the same portion of his income as a guy who is a billionaire with 2 yachts?”

    Okay, why not?

    How about 10% no exceptions?

    How about a 5% on income and 5 % on wealth?

    Generally the wealthy pay less than that on their wealth, while income is highly taxed. So production is heavily taxed and wealth generally isn’t much at all. This is why Buffet pays so little tax. His earned income is not that high. His wealth is enormous, but we don’t tax wealth and Buffet doesn’t advocate that we do.

    Are you concerned about fairness and how do you define it?

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    “Really? A guy struggling to make ends meet should pay the same portion of his income as a guy who is a billionaire with 2 yachts?”

    Okay, why not?

    How about 10% no exceptions?

    How about a 5% on income and 5 % on wealth?

    Generally the wealthy pay less than that on their wealth, while income is highly taxed. So production is heavily taxed and wealth generally isn’t much at all. This is why Buffet pays so little tax. His earned income is not that high. His wealth is enormous, but we don’t tax wealth and Buffet doesn’t advocate that we do.

    Are you concerned about fairness and how do you define it?

  • Patrick Kyle

    sg@30,

    I have noticed that those who benefit from the government funded subsidy of mass transit have no problem with higher gas prices, and some wish them to climb higher to ‘socially engineer’ those of us who must commute into something more in line with your views.

  • Patrick Kyle

    sg@30,

    I have noticed that those who benefit from the government funded subsidy of mass transit have no problem with higher gas prices, and some wish them to climb higher to ‘socially engineer’ those of us who must commute into something more in line with your views.

  • Michael B.

    “we don’t tax wealth”

    What about properties taxes? In some states they can be pretty high. I think France has a wealth tax on your total net worth. Is this another tax your advocating, along with a national sales tax? Aren’t you tea-partiers supposed to dislike taxes?

    “How about 10% no exceptions? How about a 5% on income and 5 % on wealth?”

    So every year you’d have to pay 5% tax on everything you own. So say your house is paid off and worth $250K. That’s $12,500 you owe per year just right there. The system might hit retirees pretty hard. However, the system would reward people in debt. Let’s say I owe the bank $200k on a house, and it’s now worth $150k. I could end up not having to pay any wealth tax.

  • Michael B.

    “we don’t tax wealth”

    What about properties taxes? In some states they can be pretty high. I think France has a wealth tax on your total net worth. Is this another tax your advocating, along with a national sales tax? Aren’t you tea-partiers supposed to dislike taxes?

    “How about 10% no exceptions? How about a 5% on income and 5 % on wealth?”

    So every year you’d have to pay 5% tax on everything you own. So say your house is paid off and worth $250K. That’s $12,500 you owe per year just right there. The system might hit retirees pretty hard. However, the system would reward people in debt. Let’s say I owe the bank $200k on a house, and it’s now worth $150k. I could end up not having to pay any wealth tax.

  • Michael B.

    @DonS

    “Whatever the tax schedule is, or the tax rates that are in effect, it should ideally apply to everyone exactly the same way, regardless of how they earn their money. That’s all I was saying.”

    Everyone? Does that include religious institutions?

  • Michael B.

    @DonS

    “Whatever the tax schedule is, or the tax rates that are in effect, it should ideally apply to everyone exactly the same way, regardless of how they earn their money. That’s all I was saying.”

    Everyone? Does that include religious institutions?

  • DonS

    Michael B @ 54: Focus! We’re talking about business taxes, not taxes on non-profits, including religious institutions. I am not advocating a change in tax policy to tax non-profits.

  • DonS

    Michael B @ 54: Focus! We’re talking about business taxes, not taxes on non-profits, including religious institutions. I am not advocating a change in tax policy to tax non-profits.


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