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Monday, March 14, 2011

On Obama, Artificial Scarcity and Rising Energy Prices



While energy prices have been climbing steadily upward recently, one has to wonder why the Obama Administration is so vehemently opposed to issuing new oil drilling permits.


One possible answer is that Obama is following in the footsteps of his liberal predecessor, Franklin Delano Roosevelt who employed artificial scarcity as a means to keep food prices high in the 1930's.


As FDR's Secretary of Agriculture, Henry Wallace (and others) used the Agricultural Adjustment Administration to create scarcity in the food markets when "the federal government bought 6 million hogs in 1933 alone and destroyed them. Huge amounts of farm produce were plowed under, in order to keep it off the market and maintain prices at the officially fixed level, and vast amounts of milk were poured down the sewers for the same reason. Meanwhile, many American children were suffering from diseases caused by malnutrition." I suppose that they thought the ends justified the means.


Columnist Erick Erickson offers up his thoughts on why Obama and those he surrounds himself with are supposedly cheering recent events in the energy markets...


"There are two reasons gas prices must go up. The first is to get people into coal powered cars. Coal powered cars can only be driven around 40 miles before they must be plugged back into the grid for more coal power. If everyone moves to coal powered cars, the drivers will be forced to live closer to cities.

Living closer to cities will increase urban density and decrease the supposedly anti-environmental impact of strip mall exurban utopias. In the liberal reorganization of society, only farmers should live in rural areas.

Once urban density is increased to European levels, then Barack Obama and the left can finally make a viable case for high-speed rail. There are, after all, two things high-speed rail supporters admit they need for viability: (1) high urban density and (2) high gas prices. Hmmm . . .

See, it is not a conspiracy on Barack Obama’s part. There is no secret. This President and those he surrounds himself with actively want high gas prices. They either do not care or are oblivious to the fact that high gas prices will wreak further havoc on the economy.

They look at Europe with its high gas prices and high-speed trains and they see nirvana. They willfully ignore the high rate of unemployment among the young, bankrupted social welfare programs, and growing immigrant slums.

These people are not fools. They want a world where we all live in big cities and use the sun and wind to run our lives — a return to the 14th century with 21st century hygiene. To get that to happen, gas prices must go up.

Barack Obama does not care about what is happening in the Middle East. He does not care about the cost to you to fill up your car with gas. Because the more you pay through Mid-East turmoil and inaccessible American oil deposits, the sooner his future of coal powered cars and high-speed trains can arrive."


I'm not saying Erickson is positively correct, but I would be interested as to any alternative theories as to why this administration wants to see energy prices so high.



EDIT: Who knew? Gay Gas! HA!


13 comments:

GentleSkeptic said...

I'm not saying Erickson is positively correct, but I would be interested as to any alternative theories as to why this administration wants to see energy prices so high.

Well, first you'd have to show that this is, in fact, something that the administration (a)"wants" and (b)controls. I'm pretty sure it's OPEC, and the markets, and global supply and demand, and a lot of other things, that set crude and refined prices; not Obama personally, or any sitting president for that matter. So, competing theories about the administration's motives are kind of moot, don't you think? I mean, why did Bush "want" domestic gasoline prices so high in the summer of '08?

The ugly truth is that crude oil and refined gasoline are finite commodities that WILL get more expensive over time, regardless of what anyone "wants": surely you don't dispute this. The other, less ugly truth is that even at $5.00/gallon, we continue to enjoy the lowest prices and taxes for gasoline in the world.

They want a world where we all live in big cities and use the sun and wind to run our lives — a return to the 14th century with 21st century hygiene. To get that to happen, gas prices must go up.

I think Erickson has put the cart before the horse here, because that's what it takes to make a conspiracy out of reality. It's not unreasonable to assume that Obama is a little gun-shy about charging ahead with offshore drilling because the last time he did so, a BP rig exploded about two weeks later…remember that? So, maybe safety and environmental concerns are a factor. I'd say there's a more convincing case for this scenario than a cynical desire to artificially choke supply. And let's be clear: new offshore permits today will not affect gasoline prices tomorrow. And what crude is produced by new drilling in the Gulf will be extracted by multinationals and priced in accordance with the same market rules that apply today, as part of the global supply. The simplistic formula of "drill-baby-drill so we can all save at the pump" is utterly false. The best we can hope for is to keep the SPR full and maybe expand it. But Obama's actually making noise about tapping into the SPR—to help keep prices down!

In short, the web of factors that influence both crude oil and retail gasoline prices is far too vast and complex to succumb to any single politician's Utopian Vision. I know y'all really don't like Obama, but this is really reaching.

Ross said...

Does your federal government levy fuel excise? Australia's does. We get slugged at the bowser twice. The fuel price includes fuel excise and our Goods and Services Tax too. Another problem is that there is widespread collusion in the oil industry, and despite several enquiries by the Australian Competition and Consumer Commission, no action has ever been taken.

JD Curtis said...

I'm pretty sure it's OPEC, and the markets, and global supply and demand, and a lot of other things, that set crude and refined prices; not Obama personally, or any sitting president for that matter

I wouldnt say that Obama sets prices. I would say that he has no interest whatsoevr in increasing our supply of domestic crude though.

The ugly truth is that crude oil and refined gasoline are finite commodities that WILL get more expensive over time, regardless of what anyone "wants"

We are AWASH in oil in this country and the only thing preventing it is ourselves. Link

I just think that alot of this technology is generations away from becoming efficient. Just ask BP.

Does your federal government levy fuel excise?

Gas now has shot up to about $3.50 a gallon here Rodd. About 45 cents of that per gallon cost is due to federal taxes. Link

JD Curtis said...

Pardon, the BP link didnt go through.

GentleSkeptic said...

We are AWASH in oil in this country and the only thing preventing it is ourselves.

But it isn't "ours." It will be retrieved by multinationals and automatically become part of the international market. May move the needle one or two percentage points at best.

I would say that he has no interest whatsoever in increasing our supply of domestic crude

But that's not what you said. You said "…this administration wants to see energy prices… high."

Maybe.

Jquip said...

Nothing shocking here. The green crowd wants less fossil fuel usage. That can either be done by artificially raising cost through taxes or artificially raising cost by restricting supply.

Though, as GS notes, you can't have it go too far too fast or you're going to kill the wicker-man you've been trying to build.

Erickson is also correct, natch. The prime mover doesn't dictate the energy storage. The application does. Sadly, a lot of the Green Crowd doesn't grok this when they push for electric motors in automobiles. There's this queer notion that electric motors at the wheels somehow cure energy density and transport requirements.

His Lordship The Gun-Toting Atheist said...

According to the US Energy Information Administration, US crude oil production has been INCREASING since 2009.

http://www.eia.doe.gov/oog/info/twip/twip_crude.html#production

Jquip said...

"According to the US Energy Information Administration, US crude oil production has been INCREASING since 2009. "

Yep, we're back to 2004 levels. Be nicer still to get back to 1985 levels. So what's your point?

[1]http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W

JD Curtis said...

Even if output is increased, we are seeing worldwide demand growing as well. Link

All the more reason to drill baby, drill.

GentleSkeptic said...

For what it's worth, I AM in favor of hybrid/electric energy for personal vehicles, and to provide the grid power, I favor… wait for it… nuclear! Yup. Quite strongly, in fact. Current events notwithstanding. Go figure!

Even if output is increased, we are seeing worldwide demand growing as well.

Which is why, drill or no-drill, end-user prices over the long-term WILL rise, regardless of which party holds the White House. There's also the questions of "sweet light" vs. "heavy crude" (or, God forbid "oil SANDS") and how existing/aging refineries are equipped to convert which…

I still don't think that domestic drilling is the easy/obvious panacea some think it is.

His Lordship The Gun-Toting Atheist said...

@Jquip; My point is that if someone is willfully trying to put an end to domestic crude production, they are not trying hard enough, because the US output has been increasing over the past 3 years. You are correct, 1985 levels would be better though. The problem is bureaucrats are incompetent and there is a lot of red tape.

I am in favor of domestic drilling, but the problem I believe is that the remaining available oil deposits are either difficult to extract, or have been until recently not cost-effective to get to. But technology is coming to the rescue, and at $107 per barrel, it is becoming cost effective...

Now here's a thought... if we tap those reserves, and then we flood the market with all that new oil, prices will go down... making those hard-to-reach reserves non-cost effective again. I'm not sure, I'm just thinking out loud. But if that were the case, that would be an incentive for Oil Company X to voluntarily reduce output to keep prices high. Supply and demand, you see.

I think avoiding disasters like the BP oil spill is a legitimate concern, and I think it is wise to make sure that valid safeguards are in place.

But I don't think getting to that oil is really going to benefit the average American as much as it is going to benefit the oil companies.

Oil prices are not going down. We will never see $2 per gallon again.

I think we need more nuclear power plants. Toshiba (a Japanese corporation!) has a new reactor design called the 4S, which is considered super-duper safe compared to current designs. I think that is the future.

Of course, eventually we might run out of uranium, but one problem at a time, right?

JD Curtis said...

While leaving U.S. oil and jobs in the ground, our itinerant president tells a South American neighbor that we'll help it develop its offshore resources so we can one day import its oil. WHAT?!?

GentleSkeptic said...

Ah. Well.

I guess that clears up THAT conspiracy theory.