From canceling oil leases in his second week in office to denying the XL Pipeline this year President Obama and his administration have offered up a non-stop assault on affordable energy. Now that high gasoline prices have come home to roost, the president is flailing around for an energy policy.
His recent attempts at energy policy include:
- Nobody can do anything about high gasoline prices.
- Maybe I should release crude from the Strategic Petroleum Reserve.
- There is a lot of drilling that I haven’t been able to stop. Don’t I get credit for that?
The latest attempt is to blame everything on speculators. And why not? Previous polling shows that 80 percent of Americans believe petroleum price spikes are caused by speculation, which means no more than 20 percent believe it is caused by the fundamentals of supply and demand.
There are several flaws in “the speculators did it” theory. The first is why do they only do it occasionally? That is, why don’t speculators want to make unconscionable profits all the time?
Second, why do the index funds and all the other bad guys only speculate in oil? Where are the profiteering speculators in natural gas, whose current price is about half of what it averaged over the last decade?
Third, there are sophisticated traders on both sides of the petroleum markets. For every speculator who makes money on a trade, somebody else will lose money. Blaming speculators on continued price increases requires an endless string of chumps to take the other side of the speculators’ deals. If anybody should be the chumps, it should be the newbies from the insurance industry and hedge funds, but they are at the top of the most-wanted list.
Finally, for speculation to drive up prices, the speculators must either cause oil production to slow down (which they haven’t) or to pull oil off the market. If the flow of petroleum and its products remains unchanged, the price at the pump will not change. If petroleum is pulled off the market, which can happen even though there are limits to what can be stored, it will eventually come back on the market. And the question becomes, “When the oil comes back on the market, is the price higher or lower than when it was pulled off the market?” The price will only be higher if the amount supplied at that time is lower or the demand is higher. In either of those cases, speculators have helped moderate price fluctuations and will be rewarded with profits. If the price is lower, then the speculators did a bad thing and will be punished by losing money.
The real problem is that combating high gasoline prices requires a greater supply, and this administration’s policies have pushed the other way. It seems the administration does not really want lower gasoline prices. Steven Chu, Obama’s non-car-owning Secretary of Energy, famously said we need to get our gasoline prices up to the $8-$10/gallon level they are in Europe.
- The Obama Oil Embargo: But Only USA Cap and Trade (tarpon.wordpress.com)
- Obama officials rip into GOP gasoline bills (mb50.wordpress.com)
- As gas prices pinch, Obama targets oil speculators (hazimiai.wordpress.com)
- Running on empty: Failing to address high gas prices (thehill.com)
- In Defense of Oil Speculators (foreignaffairs.com)
With one month to go in the data series, US Total Non-Farm Payrolls have averaged 131.08 million in 2011. The problem is that the US is a Very Large System, and needs growth to support its array of future obligations, primarily Social Security and the debt it incurs to run its military budget, and other entitlements. If you had told someone ten years ago that Total Non-Farm Payrolls would be at similar levels in 2011, that likely would have sounded impossible, or extreme. But the fact is, US Total Non-Farm Payrolls averaged 131.83 million ten years ago, in 2001. The implications for this lack of growth are quite dire. | see: United States Total Non-Farm Payrolls in Millions (seasonally adjusted) 2001-2011.
With less economic growth, and no growth in global oil production leading to permanently higher oil prices, the United States is trying to operate its Empire at previous levels. Now you know why the country along with the rest of West has gone more deeply into debt. The population keeps growing, obligations keep expanding, inputs costs keep rising. But growth keeps slowing. | see: Global Average Annual Crude Oil Production mbpd 2001 – 2011.
Care to forecast the US will return to economic growth, given energy prices and aggregate levels of debt in the OECD nations? Good luck with that. The US could certainly increase taxes, and reduce government spending. But that won’t restore economic growth. How about increasing annual government deficits more rapidly, to double our debt even faster? Good luck with that too. As I have written before, the energy limit and total debt now trump the tiresome argument between Austrians and Keynesians, rendering the conversation moot.
There was a time when many “experts” forecast that oil prices would come back down, and that global oil production would increase. Six years later, you don’t hear much from these people anymore. Their books, asserting there never was or would be an oil crisis, can now be had for .99 cents through used bookstores on the Amazon network. I expect them to be joined by economic revival advocates, no later than mid-decade. Growth in real terms, in the OECD nations, has now basically come to an end.
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