(TP) “In a 1998 interview, Osama bin Laden — the terrorist organizer of 9/11 who still roams free — listed as one of his many grievances against the U.S. that Americans “have stolen $36 trillion from Muslims†by purchasing oil from Persian Gulf countries at low prices. The real price of a barrel of oil should be $144, bin Laden demanded. Ten years ago today, the price of a barrel of oil was just $11. Heading into this holiday weekend, the price of a barrel of oil rested at $144 — a thirteen-fold increase. One month after 9/11, the New York Times wrote of possible “nightmare†scenarios that would deliver bin Laden’s goal. Neela Banerjee warned that among the “misguided decisions†that would put oil supplies at risk would be “that the United States attacks Iraq.†The Times included this quote in its story:
“If bin Laden takes over and becomes king of Saudi Arabia, he’d turn off the tap,†said Roger Diwan, a managing director of the Petroleum Finance Company, a consulting firm in Washington. “He said at one point that he wants oil to be $144 a barrel†— about six times what it sells for now.
The invasion if Iraq not only helped Iran to become a regional power it also helped fill the coffers of places like Saudi Arabia, which uses the money to support Muslim extremists.
You almost wonder which side Rumsfeld and Cheney are on. My guess would be they are on the side of money, and that would be money that can go to them and their friends.
Anyone who drives a car or shops at a retail store or picks up their mail is paying Middle East oil suppliers. Even if the oil is sourced from Russia (Lukoil) or Venezuela (Citgo), it all gets blended into the oil market pricing.
And this was true before the Iraq war, and the prospects that geopolitical stablity (and therefore, price stability, which is correlated) are increasing.
It seems that the market reacts pretty quickly to price increases in oil, SUV’s are sitting on dealer lots and people are driving less. I am pretty sure I see more people riding bikes as well and mass transit usage is probably increasing.
All these are things I consider to be positives, I wonder if 50 yeasr from now people will look at George Bush as the man who inadvertentely showed America how to live without oil. Or at least showed America that it could live without oil.
It’s not George Bush as much as it is Congress (who is preventing new refineries and new drilling) plus a Fed who has kept interest rates too low, money too much, and inflated the commodities bubble (after the tech and real estate bubbles).
The market is sensitive to price, just as it is insensitive to third party payer systems (because people no longer no what stuff costs, a la healthcare). Imagine if we could have the same quality of healthcare we do today, like Singapore, but pay just 25% of the cost like they do.
Markets always beat government. I just posted about this today:
http://caveatbettor.blogspot.com/2008/07/quote-of-day_08.html
100% totally wrong on that score caveat. The energy industry has testified to Congress in the past about how it is in their financial interest to limit the refining capacity.
If the US Government constructed excess refining capacity, it would be a positive development for the economy. The market will naturally encourage its participants to extract as much cash from it as they possibly can. The big boys in the oil & gas game are a perfect example of this. It’s not their fault, it’s the fault of regulators for not acknowledging the manipulation and dealing with it.
If I were an Exxon exec, I wouldn’t build any refineries for the sake of the bottom line…if I were a Senator, I’d be doing everything I could to make sure the game wasn’t being rigged against my constituents.
Enough blather already about the supposed sanctity of the market…it’s far from a perfect system, and in spite of what Republicans have been crowing about my entire lifetime, an unregulated marketplace invites the type of disaster we are witnessing today. It is ridiculous at this point to continue pissing in the wind. Clients trust us to invest their money, and politics shouldn’t come before our duty to them.
Al, that is ridiculous. Following a reductio ad absurdum, that means zero capacity is optimal. In fact, refinery capacity needs to be expanded or contracted as demand and costs change.
If you were an Exxon exec and building refineries would make you even more money, you would. But if the government distorted the market by constraining supply, and you benefited from it, you would of course speak mistruth to corrupt power.
The market fails, just less than the government. That is certainly a contest you cannot win. A friend of mine works in the long standing, high regulating NYC Buildings Department. I am sorry, the answer to reducing these crane tragedies in Manhattan is so not “we need more regulations”. In fact, reducing subsidized housing would drive the prices of real estate back down, so construction would be less crazy here.
That is precisely my point. ExxonMobil is benefiting from a bar-bell strategy, focused more heavily on extraction and retail sales. The government’s answer to rising gas prices was to inflate the price of corn and threaten Iran. That’s about it.
The commodities market is reeling from two disasters that we created. Our currency has become repulsive to international lenders, and our government’s manipulation caused a series of food crises around the world. All Chicago-School ideas not becoming instantly irrelevant at once…it’s obvious that there’s enormous room for improvement.
As to the cranes, I don’t get what you’re saying. The most useful cards that could have been played to have avoided the current catastrophe were in the hand of the federal government of the United States. The policies of our central bank and a lack of visibility afforded to the transactions of credit hedge funds can be connected to the leveraged cyclone of bad advice currently destroying its way across our economy.
High gas prices are contributing to the ill-health of our markets, and the energy companies themselves have figured out that the most profitable strategy is the bar-bell that I mentioned earlier. The consensus seems to be that we lack refining capacity, and I have no reason to disagree with that. It’s just that I’ve read and seen enough oil executives over the years to have caught on more than one occasion, the statement given to answer “why aren’t you building refineries” has been “it is less profitable for us to do so”.
Economics explain why it is less profitable for them to build, own and operate refineries. This one is figured out completely outside of the political realm.
Al, you seem to be sidestepping some factual realities. Perhaps if I list some examples, it will become obvious that government does distort, if not impede, the expansion of refining capacity:
1. Clean Air Act, especially the 1990 statute rewrite
2. EPA rules
3. Reformulated Gasoline standards
4. CAFE, or Corporate Average Fuel Economy
CAFE standards should reduce demand thus lowering prices. If anything the problem lies with exempting SUV’s from the standards.
I doubt removing smog controlls on cars would improve mileage enough to make up for the additional cases of lung cancer and other health problems.
Although I am a big fan of birth defects so maybe we could allow leaded gasoline again.
JR:
Funny how your preference for birth defects and my subscription to the doctrine of original sin could overlap quite a bit when it comes to expectations and policy formulation.
CB:
not sure I understand you, but your last post made me laugh anyway
caveat – every industrialized country in the world enforces some form of standard in terms of environmental protection. Economies benefit from them in so many ways, yet on the right there isn’t a single one of them that seems to be worth the paper it’s printed on. To me it seems like a fetish.
Requiring that coal burning power plants utilize scientific advances (ie, smokestack filters) when constructing or upgrading facilities is not undemocratic. What it does is put the needs of the many above the needs of a business. Surely if there is a single law requiring an energy company to do something they would rather not do, then every self-serving action can be written up as the fault of some environmental law…those cry-baby kids with asthma, they’re the reason for high energy prices!
The alternative is to have no environmental protections, and I never hear that position advocated for in a serious way. Though the mortgage finance industry was allowed to do whatever it wanted and that turned out great, we can’t just assume that everyone is as honest and professional as they are.
I’m just telling you the truth caveat. If I had time I’d provide the quotes and sources…honestly, a lot of this stuff I pick up listening to cspan on my headphones. There are hundreds of streaming videos on that website right now pertaining to energy. Actual market players and experts in the field telling their side of the story under oath. It won’t get explained as clearly over commercial airwaves…many owned by corporations who would like to get in on some ‘Bomb Iran Economic Stimulus’ (looking at you GE)…
Al, of course I believe in regulations (where they improve market transparency).
Neither you nor I agree with them where they distort the market the way refinery utilization is capped and Exxon is making more money than it should because of increasing barriers to entry, correct? I think you need to reread my point .8, in the context of your point .7. above.
Off topic, but…
Weren’t we in a debate a little while back over Sarbanes-Oxley? The bias towards there being only minimal possibility for regulation to improve markets, marks the difference in space between my economic understanding and that of the generation old enough to have voted for Reagan.
Just looking at the history from LTCM’s collapse in the late 90s until today, the obvious reason why it’s so bad now, is that there are too many unlearned lessons from that event that could have been addressed through regulation and oversight, but weren’t. Somehow, Alan Greenspan became a competent man, and free-market fundamentalism became reality.
I’m going to reread the stuff from a couple days ago.
It would be great if the zeal for deregulation extended to the drug war.
A country with one percent of its population behind bars should look at its laws.
I agree JR; our drug policy is Dobsonian. Just tax the stuffing out of drugs (while offsetting income taxes–is that too much to hope for)?
It would be great if most drugs were treated like we treat cigarretes, altough I don’t think it will happen. Right now their is too much money in enforcing the failed US drug policy. The drug war seems like a waste of resources that does not seem to stop people from using drugs.