Sunday, March 25, 2012

Two and a half dollars worth of gaseous bloviating

In July of 2008, the President was George W. Bush and the average price for a gallon of gas was $4.12. Today, it is $3.87 cents. Why, then, are Republicans continually telling us that prices for gas doubled because of the policies of President Barack Obama? How can they tell a lie like that?

Let’s answer the second question first. These liars have incredible chutzpah. Second, they have no conscience. Third, they are highly motivated because not only does the lie improve the chances of an electoral victory, but it also serves the interests of Big Oil, the god to whom Republicans pray.

Like all good lies, there is a kernel of truth in the utterance. Under G. W. Bush, America was thrown into a deep recession, which might have turned into a second Great Depression, but for the heroic acts of Barack Obama.  By the fall of 2008, the economy had deteriorated to such an extent that Republican candidate John McCain talked about suspending his campaign to deal with the urgent problems, President Bush supported bailouts for the financial sector, and the mess that laissez-faire economics had created was spreading chaos throughout the world.  As a result, demand for gas fell off a cliff, and the cost of a gallon of gas sunk like a stone to an average of around a buck seventy five.

Next time you hear a Republican say that gas prices doubled under President Obama, remember this: The Republican plan for lowering gas prices is to create the worst recession since the Great Depression. Give credit where credit is due: it worked.

One buffoon says that if he is elected President, he will lower gas prices to $2.50. He proposes to do this by increasing production. As stated earlier, such an assertion requires chutzpah and psychological pathology, and Newt Gingrich has more than most. Let’s just take a look at why this lie is so egregious.

If increased oil production could lower gas prices, then Obama would be the king of gas price lowering. The U.S. was pumping 6.7 million barrels a day in December ’08 and it rose to 8.2 Mb/day in Dec. ’11, an increase of 23%. That's the biggest three-year increase since 1970. Oil production dropped every year from 1985 until the trend reversed in 2009, when President Obama was inaugurated.  The United States in now a net exporter of oil.

Of course, we know that supply is only one part of the equation. What about demand? In broad strokes, the Obama administration has been recovering from a catastrophic recession for four years now. As we saw above, a recession like the one that Republican policies produced in 2008 causes demand to go down, and as a result prices fall. However, there is another way to reduce demand, a way that saves the environment and actually produces jobs, viz., improving fuel efficiency. In 2011, total consumption of gas fell by about 1.7% compared to 2008. This was in the midst of an economic recovery, which normally is accompanied by an increase in petroleum consumption.

The U.S. automotive industry is producing more and better cars, including hybrids and all-electric models, and whatever the Chevy Volt is, thereby reducing demand for gas. The U.S. automotive industry also owes its life to the bailouts that Republicans are now railing against Obama for implementing. As Joe Biden puts it, “Bin Laden is dead and G.M. is alive thanks to Barack Obama.”

Let’s go back to Newt Gingrich. He has said that $2.50 is the max that people would pay for gas, if they follow a simple step by step outline of how to do it, and the plan is posted on His plan is short on concrete solutions, unless you include changing the name of the Environmental Protection Agency to the Environmental Solutions Agency as a concrete step.

He does propose new taxes on oil and gas producers to fund research, but how he reconciles that with his free market doxology is beyond me, except for the fact that he calls the new taxes “royalties.”  Consistency has not always been Gingrich’s strong suit, so it is not surprising that while he is railing against blossoming deficits, he is also saying we can afford to “Give coastal states federal royalty revenue sharing to give them an incentive to allow offshore development.”

The most concrete thing that he proposes is that we should “End the ban on oil shale development in the American West, where we have three times the amount of oil as Saudi Arabia.” It’s a permutation on “drill, baby, drill,” and as a sound-bite it shares the same virtue, i.e., simplicity. But will it work? Of course, not. Here’s why.

Basically, to get to $2.50 a gallon gas, the price of oil has to go down to $63.00 a barrel, about half of the present cost.  Even the dramatic increase in production under President Obama didn’t prevent oil from going to $108/bbl in December of 2011. Lifting the ban on production of shale oil won’t lower the price of a barrel of oil to $63.00 for one simple reason: at that price, it is not profitable. Over the next several years, the world price of oil is likely to average over $100/barrel, and if the ban on shale oil is lifted, the oil companies will sell it at World Market prices and reap huge profits. At best, there might be a slightly lower cost of oil for the world market – down ever so little from $120 a barrel, certainly not enough to justify the environmental costs. But you know what they say, “What’s good for Big Oil, is good for Republicans.”

Well, maybe they don’t say that yet. But we can all hope that the scales will fall away from the eyes of voters before  the next election.

“… and tell ’em Big Mitch sent ya!”

1 comment:

Anonymous said...

Mitch's self titled blog was indeed $2.50 worth of gaseous bloviating, demonstrating a stunning lack of understanding of economics, monetary policy, the causes of our current downturn, the lack of significant recovery, and even the historical description of the downturn (seeing as the financial collapse faced by President Reagan was much worse by any measure, except the time for recovery...but that is due to Obama's policies, not the depth of the recession).

Since I have a life, taking the time to address each failing in this post is impossible...but a few observations:

The downturn was caused by a liquidity crisis formented by Fannie/Freddy....the Bush administration had attempted to address the problem with reasonable regulations and were shut down by Barney Frank, who famously stated that there were no indications of problems.

The increase in oil production is due entirely to drilling permitted under the Bush administration and just now coming online. Production on Federal land is down under Obama and leases are down something like 60%. The Keystone pipeline is a clear indication of Obama's view of oil.

I was going to discuss Oil pricing and provide Mitch a modecum of education on the subject, but comments are limited and I barely got started.....suffice it to say increasing production will drive the price of futures, which will lower prices currently...and a strong dollar policy will improve US gas prices.