Thursday, April 03, 2008

Welcome, new OSM visitors.... (Holly, Jim, Keven, Nettie and other friends of Joe B)..This my first post in about two months. Let's call it..

Big Oil, Energy and Liberalism - what the hell...

On Tuesday of this week, congress held hearings on capital hill. The "victims" of this inquiry, Oil Executives. Yes, congress is pressing "big oil" on why gas prices are so high and why they are not investing in alternative energy? To most Americans, the initial emotional reaction is "YEAH! You get those evil oil companies!" Not sure where you stand on this, but to me this is nothing more than a ridiculous dog and pony show. If anything, Big oil should be conducting hearings and question congress on why they are standing in the way of progress. Let's practically analyze this.

Energy prices, and subsequently oil prices, are driven by the free market. Specifically to factors in the US. 1. The commodities / speculation market and 2. Summer driving season. The first has nothing to do with consumption, however the ladder does. Our oil supply is roughly the same, in other words, regardless of the season we import roughly 14 million barrels a day. With our supply staying roughly the same, demand generally increases in the spring and summer. Common sense would dictate that when your supply remains constant and demand increases what happens to price? It goes up. This law of economics prevails in energy all the way down to your local fruit stand and grocery store! In other words, Big oil doesn't set the price of gasoline anymore than your local grocery store (Hy Vee for example) sets the price of tomatoes. The price is set to what the market will bear. Gas, also has close to zero price elasticity. In other words, price has very little effect on consumption. Sort of like milk, bread and water. The price of this could triple tomorrow and you would still buy it. You'll probably buy less donuts or potato chips, but your milk, bread and water consumption will not decrease significantly.

Despite that, let's carry forward the premise of these hearings. Congressman Ed Markey, who chaired these hearings, was quoted as saying "These unjustifiable profits are reflected in how little some of these companies put into renewable energy resources to find an alternative to oil, and the incredible profits which the companies report and it's time for them to come to explain to the Congress, but more importantly to the American people, what they plan on doing on alleviating this enormous attack upon consumers and upon the American economy, which oil prices represent." Barack and Hillary, both pretty much socialist, are jumping on the band wagon and are proposing windfall profit taxes. How do you determine how much profit is too much? Who determines that? Where does the money go?

I don't know about you, but this is disturbing to me. First of all, the US oil companies are collectively investing more money into alternative energy. There are a couple of dirty little secrets here. 1. Most alternative energy's either don't work for mass consumption, have a worse impact on the environment than fossil fuel or have adverse impact on other industries. 2. Congress and the environmentalist will not allow us to build refineries or nuclear power plants. We haven't built a refinery in 30 years. Doing so, would have a huge impact on oil prices. A new refinery would allow for significantly higher efficiencies and outputs which would reduce our price. Part of our price is drive by capacity constraints not DEMAND. Nuclear power would allow us to use all the oil we use for electricity to be shifted to gasoline. (Did you know that France is 100% powered by nuclear energy?) 3. Approximately, .50 cents of every gallon of gas you consume is a tax. 4. Ethanol fuel drives up the cost of food - Ever hear of the tortilla riots? The basis for ethanol is corn and other crops, by switching to those fuels what do we do? Drive up demand on a constant supply. Well, guess what that does to prices? Corn goes up, subsequently our export price of corn goes up. The price of tortilla's tripled in the last 14 months in MX (and other Latin American countries we export to). We are causing more poverty as a result. Where is the compassionate liberalism now? Not to mention, increased production and demand on crops actually add to fossil fuel consumption. How? Well, we need tractors and other machine devices to farm, pick, pack and ship this stuff don't we? Maybe we should use illegal labor for that, specifically the ones rioting in MX (Just kidding).

My point, the very people holding these hearings are the ones preventing us from lowering energy prices. Alternative, we need to be able to drill in Anwar and North Dakota. Get the environmentalists out of our way. Now, does that make me a evil person? Oil, is what fuels this economy. American's are not desperate for Healthcare as lower energy prices. Imagine if you gas bill suddenly dropped by $100 per month and suddenly you have $2 gas again. Want to talk about an economic boom, LOOK OUT!!

Anyone remember when Microwave's first came out? They were $1500 weren't they? Well, if we found the break through fuel today we would need to build the infrastructure to harvest it, refine, store it and ship it and get it in your tank. This new alternative fuel would probably be around $15 per gallon, and very few people would initially (only the "evil rich") until we get economies of scale to drop the price. I own stock in Conoco Philips (NYSE: COP). Guess what, if you invested in about 25 shares of Exxon Mobile or Conoco about 10 years ago, you would have made enough money to pay for free gas for about 1 year (or any oil company).

That's almost all I have to say to say about that.


Janell said...

GOOD post, Joe. I woud add that an unintended consequence of soy and corn based fuels is that it has driven the price of livestock feed up exponentially. Therefore driving up the prices of American grown pork, beef, chicke lamb, et al. Also, eggs, milk and cheese and other dairy products.

And welcoe Holly, Him, Kevin, Nettie and others. I hope the unJoe stuff doesn't bore you too much.

Paul said...

Preach it!!!

Shirley said...

Record prices at the pump has turned record profits for oil companies....To not read everything into that is being naive.

Cliff said...

Excellent post. Until they allow drilling in anwar and etc, we will get what we deserve. Stifling competition is not the answer.

Joe B said...

Thanks Janell!

Shirley, so what do you think is wrong with making a profit? I am saying that record profit is driven by supply and demand. We are competing. with China, India and Eastern Europe for oil. That's significantly increased demand, with a constant global supply.

One other fact, the big evil oil companies actually make around 8 cents of profit per gallon of gas. They do R&D, logistics, retail sales, etc. The government makes about .5 cents per gallon and its 100% profit.

So how do you read into it? How am I being naive? What would you do about it? Where do you draw the line, how much profit is too much profit?

Mary Connealy said...

The only trouble with your 8 cents theory is you're not taking into consideration that the oil companies are...yes...having to pay for the sky high oil pumped out of the ground...but they're paying THEMSELVES since they have ownership of a lot of it.

Having said that, I agree with most of what you wrote. Have any of you heard of that big ... something ... they're trying to build in South Dakota? Rumor was it was a new refinery. You think that's possible? Building one is a nightmare of bureaucracy, a nightmare no one has been able to wake up from in 30 years.

That's just crazy.

And what's that about oil in North Dakota? I heard that somewhere yesterday, too. I've never before heard of some rich potential oil field beneath N. Dak.

Let's see, I had one other point.

Oh, I know, yes this is wrecking the price of corn because of the ethanol boom, underwritten by goverment tax incentives.

And that has unintended consequences I know, but, honestly, why can't my husband and all the other farmers have a turn being a wealthy 'oil shiek'.
I promise Ivan's a lot less likely to strap a bomb to his chest than some nut in Iran.

He's not wearing that turban though. Pretty much guaranteed.

Joe B said...

Below is the link to the info on the North Dakota Oil Deposits.

In my last post, I said the government makes .5 cents per gallon. I meant to say fifty cents per gallon.

The Blogger Formerly Known as Scarlet... said...

Enlightening post. I feel like riding my bicycle to work now. :)

Welcome to the new OSM visitors.

Mary Connealy said...

Allow me with my shiny new link insertion skills. :)
I've never tried one this long before!
North Dakota Oil Field

Mary Connealy said...

It worked.

I have a very quiet life.
Allow me to enjoy this moment.

Shirley said...

Joe -- I don't have a line drawn to say "this is the profit limit, stop here." Profits are good. Supply and Demand economics is good.

What I am seeing is "the best of times for few, and the worst of times for many." (apology to Dickens for being put in the blogosphere, I doubt he would appreciate it.)

I can walk out my front door and in 20 minutes have walked to the doorstep of the richest man in America. I can also walk out my front door and just veer in a bit of another direction, and in 20 minutes be in the middle of a neighborhood with the highest proverty rate among some Americans who live in a city of this size.

If this disparity in what was once seen as the greatest country in the world continues to grow, somthing will give, or burst, or collapse, or implode.

Can you really believe that people can keep purchasing gas, bread, water, milk no matter what the price? Some can't purchase it all now, and have to choose one over the others.

It's a given that there are plenty of consumers who can just dig deeper or give up a dinner out to fill up the car these days. But there are many who are being hurt and going deeper into despair. Watching these companies post huge profits must feel like crap being rubbed into the faces of those people who can't buy both gas & milk.

Maybe we will get our military back on American soil if there are riots and uprisings by these poor classes. Well, that might not work so good, because those military people could be trying to suppress their own families. I digress, yes, but if I'm in the middle and quite angry, can seething minds be far behind?
If those big oil companies are doing such great R&D for all of us, why isn't there something to show for it?

Oil is fueling this economy -- no argument there. What has to happen is diversification. All alternatives can be explored. The Ethanol thing that held such promise was only one route to go. And that doesn't seem to working out too well with the costs proving to be so prohibitive. And personlly the last 2 cars I owned choked on it, and I can't use it.
So let's move on -- diversify the efforts and the developments, why would it have to be one solution.
The competition with developing countries is surely increasing demand globally for the oil, let's get out of that demand and find the clean alternatives. If the North Dakota stockpile can supply us while we're working on this, great. We're going to need it. Like you say -- the first mircrowave was really expensive. The changes we have to make are going to take a while to become affordable.

But note to Mary -- not so fast with disregarding those environmentalists and the bereaucracy they have created these past 30 years. If it had not been for those groups about 40 years ago, the Bald Eagle would be extinct. One big raptor -- national bird -- no big deal, right? If you were born or have had children in the last 30 years, not only would you not see a Bald Eagle, but you & your offspring would be contending with the many problems created by the DDT that killed the Eagle, because it also crossed the human placenta.

That pretty much covers why I said it was naive to believe the big oil companies spin on why so much profit. It's just unbelievable.

Flip Flop Momma said...

The production of ethonol for gas use is is bad because when u rip down trees and forest and such you harming whats left of the ozone layer because those trees are blocking rays...ALSO the use of corn for fuel is only going to drive up the cost of corn, because we are planting in it droves for fuel use and not to feed cattle or humans..

so yeah....

Ralph said...

One thing you forgot that just bothers me to no end is those same oil comapanies used the alternative fuel excuse in the late 70's early 80's. Thirty years later they are still working on it? I think not! Feet should be held to the eternal crude oil flame.

Joe B said...

Hmmmmm Interesting Analysis and insite. Here is how I see it. Sorry for the long response...

The bible says, the poor will always be with us (Janell probably liked that quote). Almost anyone in the country can go 20 mins in either direction and see a contrast in life styles. Have you ever seen the article on what defines american poverty and the profiles of american poor? If I am going to be poor anywhere else in the world, I'd like it to be in this country. I've linked to an 1998 article on the american poor. I am not saying that there isn't poverty in America, but I challenge the definition of it. I've had the opportunity to visit a lot of different countries, and have seen a very different poverty first hand.

--In 1995, 41 percent of all "poor" households owned their own homes

--The average "poor" American has one-third more living space than the average Japanese does and four times as much living space as the average Russian.

--Seventy percent of "poor" households own a car; 27 percent own two or more cars.

--As a group, the "poor" are far from being chronically hungry and malnourished. In fact, poor persons are more likely to be overweight than are middle-class persons. Nearly half of poor adult women are overweight

--Most poor children today are in fact super-nourished, growing up to be, on average, one inch taller and ten pounds heavier that the GIs who stormed the beaches of Normandy in World War II.

--There was a more recent article than this that showed that nearly 90% owned cell phones.

Yes, I really truly and honestly that people will continue to buy staple items regardless of price. You have to live, if it gets really bad uncle sam will provide it. I used to be poor.

I agree with you on the dig deeper concept, but as gas prices get higher people will cut down consumption and continue to buy. Maybe cut down on going out, cut energy consumption, maybe download a few less songs on i-tunes, cell phone mins, give up other ammenities. I have a good income, but I am also curbing my consumption.

I challenge you on the word despair, what does that really mean? Despair (or Hope for that matter) has never solved anything. Despite curcumstances people are born into and ultimately grow up in, despite their environment, at some point everyone is responsible for themselves and face a choice which they control that results in their poverty or relative prosperity.

There is yet another article out there on how to avoid poverty in 4 easy steps.

"Avoiding long-term poverty is not rocket science. First, graduate from high school. Second, get married before you have children, and stay married. Third, work at any kind of job, even one that starts out paying the minimum wage. And, finally, avoid engaging in criminal behavior. That is harder than it sounds to some people.

Its illegal for the US military to be deployed on US soil, we obviously need bases, but they can't be deployed here.

The oil companies have plenty of alternative fuels and energy sources available, the problem is no matter what, GAS is cheaper. Gas is the best and cheapest available source of energy, we need more of it. That's why the source of problem is capacity not the fuel itself.

Note to Mary: I agree, environmentalists have a role to play. They should stick to the basics, like saving the eagle, but these days its gotten to a point where its counter productive.

There is another article out there that says DDT resulted in the deaths of tens of thousands of people in the 3rd world, mostly children, from insect borne diseases such as malaria.

DDT Article -

American Poor -

Avoid Poverty -

Joe B said...

One correction: My last paragraph should state...

"The Banning of DDT resulted in the deaths of...

Janell said...

Great discussion here, folks!
From my new job I can tell you that there are TONS of people on food stamps, not all of them desparate and unemployed. I know they are working somewhere because they come shopping in uniforms. Most of them are, in fact, overweight. It looks to me like people who need help (and some who don't) are getting it.

Mary Connealy said...

I'd cut you list down on how to avoid poverty, Joe.

I've heard that there is no such thing in America as poverty if you've:

Graduated from high school
Waited until after marriage for children
Avoided addictions.

That's it. Three step.
And yes, people can have bad times, bad things that mess them up for a while but if they've done those three things, they will get out of it. And while they're in trouble....THAT is what Government programs were created for. For those short stretches of troubled times.

Joe B said...

Shirley, don't take my posts the wrong way. I am not picking on you. Good debate.

Shirley said...

I don't think I'm taking them wrong -- I have to get back to you on your last comment later -- tonight I must do income taxes.

Joe B said...

Good luck with the taxes, go back and read my tax post to make yourself feel better (or worse depending on your view point.

Jamie Dawn said...

Good one, Joe.
We should have drilled in places we have oil and we should have built some refineries. Instead, we catered to the whines of those who are STILL whining and will STILL be whining no matter what we did or do.
You made some great points here.
Well done!!

Paul said...

I posted pictures of LaDawn on My Hats Blog

Thought you'd like to visit. And thanks for sending her my way. Send more.

Shirley said...

Hey to Joe -- I remembered I had a couple of comments on your last comments here. Hope you find this -- it's getting kinda old news now.

First the Jesus quote -- I find that one way too often. And hardly any finish His sentence. After the poor will always be with you, He tells the 12 that He won't, He is going to die. And tries to get them to understand that He is going to indulge in the foot washing as part of his preparation for His next hours and days.

Second -- I've checked out your links here and a couple other ones from some previous posts, and frankly, I get a little crick in my neck from having my head tipping so far right as I read. :)

No doubt this is a much better place to be poor than a lot of places in the world. But I think we need to do better.

As far as those obese people with food stamps, maybe stoning is an option. Or we might consider what
I read in today's paper. A Creighton physician states that those in low income groups tend to consume more fried foods, and less fruits and vegetables. And that's not because they tend to ignore nutritional advice, but that they consume what is readily available.

I am guessing that the stat on the 41% of poor households owning homes in 1995 may have to do with retired and elderly who's SS checks put them in the poor category. I wonder what that owning term may mean, too. Does it mean the mortgage is paid. And the cars they own -- are they paid for. That could be a misleading number.

About all those poor people who have cell phones, I'm thinking they don't have land lines. That's the way it is around here.

For sure people need to take responsiblity for themselves and way too many just don't get that. But I think we have let business practices become predatory. Of course I mean the oil companies, the lending companies, etc. Look around at those paycheck advance places popping up at every strip mall. Their advertising is geared to making one think everything will be fine if you just borrow for anything. They are a real trap, just as credit cards are, too.

The easy steps to avoiding poverty are very well stated, and would look great on a plaque over the front door. But we could add -- "and be on the lookout -- someone is always out to make you part with your assets."

So I don't go along with defending the oil companies which is where this all started. We need to scrutinize their every word.
Remember the tobacco company's spin on how cigarettes cause cancer? They 'couldn't say for sure.' That's why they kept making them, and promoting their use.

I did not know it is illegal to deploy the military on American soil. We might want to keep that fact quiet. If the Current Occupant gets wind of that, he might set out to find a way to get around that law.

Joe B said...

Yo Shirley, never too late.

Agree on the quote, it is an easy one to use.

Agree, we can always do better. I just don't think the answer is spending more. I think we spend plenty on poverty, its just distributed poorly.
Interesting on the fried foods, agree with it somewhat but not totally. If a potato is available, frying it is just one option. So some of that is driven by a lack of nutritional knowledge, which is in part a result of being poor and uneducated. I understand people are born into tough circumstance, my assertion is this. Everyone, regardless of their neighborhood or circumstance in which they were born, parents, etc, at some point is faced with a choice that either keeps them in poverty or puts them on a path to exit poverty. I understand, there are some impossible situations, but for most its a tough choice. Its easier to remain a victim, the choice to lift yourself is not an easy one because the path is very hard and believe in yourself. Its easy to blame others for your problems. This is where individualism comes into play (I'll see if I can dig up a post I did on casa Herrera last year, it was a pretty good one). I am not shouting from the mountain tops, I grew up relatively poor and in a bad neighborhood. I even flunked 8th grade.

Hmmm interesting take on the 41%. I am sure you can weed people out for actual impoverished circumstance, and there are working poor. No question about it. My real point is that the media and the Dems/libs like to make the rest of us believe that its rotten out there for all Americans. The media would have you believe we've been in the great depression since 2001. This is simply not true. The economy hasn't actually recessed, I am not convinced yet that q1 will be a recession. But they have you believe its 1932. I think I saw something yesterday saying experts were surprised that the economy added more jobs than forecasted last month. The standard has also changed. The avg unemployment rate during the Clinton 90's was 5.3% (roughly). That was touted as the greatest economy ever. Fact is, the last 6 years have been the greatest economic times the country has ever seen. avg unemployment 4.8, but that's not good enough anymore. Unemployment rates "jumps" to 5.0 and its a disaster.

U r assuming that everyone in your area have that nixed landlines for cell phones are in the poor category. I considered doing the same thing myself, to save a few bucks. I opted against it because we have an alarm system on our house and DSL (cheaper than cable).

No doubt there are predators out there, I don't necessarily blame big oil or banking. The lending thing is a result of laws congress created in the 90's. Everyone used to say, we need to give the poor access to money to buy into the American dream. Banks were forced to loan more people money. Now that they did, and a lot of the high risk ones are defaulting, the complaint is they should keep it. Was there some predatory lending, absolutely. But everyone can claim ignorance, hopefully those folks will learn from their mistakes. I made some really stupid decisions, its sort of like what I call.. "financial Darwinism". Yes, everyone is always trying to take from me / you.

Big tobacco was at fault, but even before official studies, it was pretty common knowledge that cigarettes were bad. Now that the cat is out of the bag, people are still smoking anyway.

The national guard can be deployed with ease, but regular army, etc. can deployed only during a national emergency (Marines were deployed to the LA Rodney King Riots).

Shirley said...

Hey Joe -- can't disagree with much there in your last comment.

One thing really stood out to me -- you write that the last 6 years have been the greatest for our economy. That made a statement by a college professor (from many years ago -- more than I like to think) come back to me. He was going on about the depression and then the wars, and said the fact is that "war is always good for the economy". I was amazed and shocked and never forgot that. I didn't think I would ever understand it. I guess I still don't understand it, but can see it.

I do want to point out that anytime you look at some numbers and make generalizations, there can always be some spin or another twist to make one think deeper and consider more theories.

Take your note about the kids of today being taller and heavier than the guys who stormed Normandy. That should be a sign that we are getting healthier and better educated. We should be glad about that. But we could take a little spin on that. We could also point out that those Normandy guys had all the cigarettes they wanted for free. Maybe that wasn't so good for them. With all due respect to that Greatest Generation.

Do you have a better spin on this --the average pay for a CEO is 300 times that of the average person working for the same company.

My spin is this is breaking our country down and apart.

I would like to read your post about individulism. I have a feeling I might like that one.