Friday, May 9, 2008

Hillary vs. OPEC

So Hillary Clinton has decided to direct America's oil-price frustrations at OPEC. It's a reasonable political move, I suppose, since the cartel does perform a great deal of supply-side manipulation of the oil market. It's also a natural progression when you've burnt out on blaming oil companies and their "obscene profits" (which are only obscene in gross; as a percentage of oil companies' massive revenues, they are in fact quite small). I just wonder, what exactly does she intend to do about it? Scold them? Get us into a devastating trade war? She proposes to bring them to court under US anti-trust law, as well as filing a WTO complaint. So yeah, somewhere between options A and B. And, when you get right down to it, I don't blame OPEC. It's their oil, and they can do what they please with it, as far as I'm concerned. When we've pumped our last drop of American oil, and our children are huddled in the cold because we can't afford to heat our homes and OPEC is still refusing to increase production, well, then we'll start to have a moral case against them. Until then, while we still sit on millions of barrels of oil we'd prefer not to pump for aesthetic reasons, the grandstanding rings a bit hollow. They won the geologic lottery, and good for them. They're not even a particularly effective cartel, anyway, as members are constantly producing above OPEC limits, and they only control one portion of a globally-traded commodity.

All in all, I'm getting tired of all the hand-wringing about energy prices. The high price of oil is reflecting how much we need it, and how many other people (read: China, India) want it. Got it. The fact that it is likely to stay this high means that huge amounts of money are now being invested freely in all sorts of alternative energy technologies. Coal-to-oil conversion is competitive with petroleum at around $35 a barrel; last I checked, we're looking at nearly four times that price today. Meanwhile, as the shock of $125 oil filters through the energy industry, all sorts of energy sources will become profitable. Lets all just have a little bit of faith in American ingenuity, and everything's going to be okay.


Elephantschild said...

"Let's all just have a little bit of faith in American ingenuity, and everything's going to be okay."

Yeah, I know. It's hard to wait, though. Right now, it's costing us $160 a month just to get the head-of-household to work and back.

It hurts. Alot.

Elephantschild said...

Oh, and Obama keeps saying that a summer tax-holiday on gas "won't make any difference to people"

If ever there was proof that that man is wholesale out of touch. I wonder if he even knows how to run a gas pump - he's got people for that, I suppose.

Bi-Coloured-Python-Rock-Snake said...

In "everything's going to be okay" I was more focused on the big-picture situation, as opposed to peak-oilers and such. Obviously the transition is going to be rough on the level of the individual consumer.

Shane said...

Elephantschild, I agree wholeheartedly with Obama. $20, $30 isn't going to make a big difference to the average household over the course of the entire summer, but it will create very real distortions in the gasoline market. Pretax prices will probably move up slightly as a result, and such a tax holiday would probably just be a handout to the oil producers. Hell, I'd love for gasoline to be taxed at another $1/gallon and just distribute the revenue back as rebates on a per-household basis. But that would be politically unfeasible.

The price will continue to move up as India and China grow - which isn't going to stop anytime soon, so the real solution is to formulate policies encouraging less dependency on petroleum in general. Maybe deregulation of municipal zoning restrictions, greater public funding of mass transit, or revenue-neutral cap and trade or carbon tax schemes. Congestion toll/parking pricing schemes would probably be a good idea, too. And greater funding of more bicycle lanes in cities.

Shane said...

Oh and yeah the peak oil guys fundamentally misunderstand how economics works. And OPEC is already producing at near maximum capacity, so it's not their fault that oil prices are high.

Shane said...

One more link:
Megan McArdle explains why gasoline is one of those goods where supply is inelastic when price moves up but not down. Yay for libertarian economists.

Bi-Coloured-Python-Rock-Snake said...

What would be the purpose of taxing gasoline only to return the revenues as a rebate? Other than to redistribute income from the most driving-inelastic families (particularly those in rural areas) to those for whom driving is a luxury (urbanites). Spending those revenues on public transport and bike lanes only forces rural families who rely on their private vehicles as a necessity to subsidize the transportation costs of urbanites.

That said, I do agree with McArdle that the gas tax, being a consumption tax targeted to a specific public work (roads and highways), is considerably more reasonable than many of the taxes levied in this country. But the fact remains that low-income rural and suburban families have the least flexibility in their fuel consumption, making a gas tax effectively regressive, and potentially harshly so.