Friday, April 28, 2006

Energy Insanity: Taxing "Windfall Profits" and Other Stupidity

I've known for a long time that this day would come. I've been preaching it for years. That a permanent structural scarcity in the supply of oil was nearly upon us was evident to anybody who cared to look and reason.

Equally obvious was that oil prices would soar, driving up oil company profits. Hindsight is 20-20, but foresight was all that was required. Anybody who cared to do so could have made a ton of money in this developing market.

Call me foolishly idealistic, but I chose to not buy oil company stock out of principle--the way one might avoid investing in tobacco companies because they are purveyors of addiction and disease.

Indeed, I have no love for oil companies. I believe the manner in which we use oil--all energy, for that matter--is undisciplined, irresponsible, and incredibly destructive. Oil companies will happily exploit our weakness and addiction, regardless of the harm it causes. There's no way I'm going to hang with that crowd, much less profit from their filthy business.

Still, the problem is not with them. It's with us. That's why I bristle at the notion of a windfall profits tax on big oil.

The impulse to reach out and grab a piece of these stratospheric oil profits is a pathetic response, by incompetent politicians and an ignorant populace, to the predicament in which they have placed themselves.

I'm tired of whining consumers who act as if high gas prices came out of nowhere. Everybody's looking for some villain to blame. Look in the mirror.

I'm tired of pandering politicians who've done nothing--nothing--to lead the nation toward to a sustainable energy path. Now they're running scared from an outraged populace, and God knows what manner of idiotic kneejerk responses will result.

No, the oil companies made their unseemly profits fair and square; keep your mitts off of them.

Of course, they have had plenty of unnecessary help from sycophantic politicians, mostly of the Republican variety, in the way of royalty and tax breaks. But that's our fault for allowing it, not theirs for accepting it or even seeking it.

Even if you grant that some incentives are necessary under some circumstances, why the hell weren't they indexed to the price of oil? Now a red-faced Congress finds itself trying to explain and unwind a subsidy structure that is still operating in the face of record oil company profits. Since the incongruity of these subsidies transcends mere incompetence, one can only conclude that they stem from a basic philosophy of shoveling public assistance toward big business fat cats whenever possible. Interestingly, those same politicians are repulsed by shoveling public assistance at poor people. I wrote last August that the newly minted Republican energy bill was a "massive corporate welfare program." When you're right, you're right.

The stupidity keeps spewing like an uncapped gusher.

Now we hear of politicians suggesting a temporary moratorium on the eighteen cent Federal gas tax. That's a good one.

Let's think this through: Gas prices are high because supply is tight. Only high prices can bring supply and demand into balance. So let's lower prices by eliminating the tax. Yeah, that will help.

The Senate Republicans, for their part, are proposing a $100 tax rebate. That has at least this one small merit: high gas prices are extremely regressive in that they impose a much greater burden on low income individuals and families. The across-the-board $100 rebate would most benefit those who are most hurt by high prices. Sort of like the Bush tax cuts in reverse.

Unfortunately, the Republican rebate plan is tied to drilling in the Arctic National Wildlife Refuge. Here we go again.

Even President Bush now admits that America is "addicted" to oil. If that is a true characterization of our situation--and how can you think otherwise?--then the proper response is not new drilling in the Arctic. That would just prolong our addiction. The moves we need to be making now involve increased conservation, increased efficiency, and the development of alternative, sustainable energy supplies.

As we sort all this out, we're going to have to get used to what will feel like obscene oil company profits. More important, we need to understand that for the past century energy has been artificially, unsustainably, cheap. Things can never, ever, be as they were. We need to adjust our expectations to this reality. It will be a bitter pill to swallow, but the sooner we do it, the better.

I've written previously on these topics. For a discussion of increasing oil scarcity, see my post entitled "Hubbert's Pimple" (April 1, 2005) . On the role of price, see "Hoping For Higher Gas Prices" (May 8, 2005). And on drilling in the Arctic, see "Refuge At Risk" (March 22, 2005).

Copyright (C) 2006 James Michael Brennan, All Rights Reserved

Saturday, April 22, 2006

Seventy-Five Dollar Oil

Oil closed at $75.17 a barrel yesterday as gas prices pushed $3.00 per gallon.

Over the past year, I've noted these oil mileposts:

And before all that, on April 1, 2005, I described the the sobering implications of "Hubbert's Pimple". The implications are as sobering as ever.


Copyright (C) 2006 James Michael Brennan, All Rights Reserved

Tuesday, April 18, 2006

Seventy-One Dollar Oil (And a Hot April)

Oil passed $71 per barrel today--$71.60, to be exact--a record high. Chalk it up, if you wish, to problems with various suppliers: Nigeria, Iran, Iraq. And blame it on increased demand by the usual suspects, namely China. But don't overlook the fundamental scarcity which is the intractable context in which all these factors operate.

And speaking of records, we've been setting them here in Kansas this month. After an unusually warm fall and an unusually mild winter and--nationally--the warmest January on record, southeast Kansas has decided to skip spring and head straight to summer. April has been hot and dry, with temperatures in the upper 80s to low 90s. Today we hit 94. I don't know if that's a record but it sure as hell is hot. Or sure is hot as hell. Or something like that.

How, you ask, is a hot April related to expensive oil? The connection is straightforward. Oil is scarce and therefore expensive because all that oil we used to have, but don't any longer, has been pumped and burned. The pumping and burning--particularly the burning--has released into the atmosphere millions of tons of carbon dioxide. Carbon dioxide is a "greenhouse gas" which traps solar radiation and warms the planet. All that pumping and burning and warming will ensure that we will continue to enjoy hot Aprils long after the exploitation for energy of fossil oil is a distant memory in the history of planet Earth.

You may want to read my previous posts on the upward march of oil prices, starting with this one. I have also written that high energy prices, though painful, are essential.

Copyright (C) 2006 James Michael Brennan, All Rights Reserved

Saturday, April 08, 2006

Fiscal Conservatives: Rejoice

I'm closely related to a self-avowed "fiscal conservative". He, and all fiscal conservatives, should rejoice at the news that Tom DeLay is leaving Congress. I wonder if he will?

As House majority leader, Mr. DeLay was a master of pork barrel politics. Incongruous though the image may be, the largess he lavished to secure political power would make a tax-and-spend liberal blush at the excess. This is no exaggeration. Congressional earmarks, one measure of pork barrel spending, have reached stratospheric highs under Tom DeLay's Republican Congress.

The current fiscal climate suggests that it will be increasingly difficult to paint Democrats with that decades old pejorative so favored by Republicans when they were on the outside looking in. Tax and spend? At least the Democrats were honest enough to admit we have to pay for government spending. The tax-cut-and-spend crew now in power seems happy to put it all on the national credit card.

Fiscal conservatives have for some time been coming round to the dismal realization that Republican control of the White House and the Congress hasn't quite worked out the way they expected. Their naive presumption that the American public would accept a vastly smaller government was always suspect. But could they have foreseen such a profound threat to their programme coming from inside the Republican tent?

Tom DeLay may be a "conservative", but a "fiscal conservative" he surely is not. Cohabitating within the Republican party are several kinds of conservative, and they're not always compatible. In fact, it's amazing that they hold together as well as they do. The "social conservative" DeLay had no compunction about big government, so long as it was Republican big government.

Of course, the premise of this piece is false. Tom DeLay's power and influence had already evaporated since his indictment on money laundering charges, and his subsequent resignation as majority leader. His resignation from Congress will have little more than symbolic effect. My call for fiscal conservatives to rejoice is mostly gratuitous poking at the bear. But it's something I have to occasionally do.

Copyright (C) 2006 James Michael Brennan, All Rights Reserved