Monday, March 28, 2005

Keeping US hooked on oil

It's become common wisdom (and therefore suspect in my book, but go with me on this) that until Democrats can somehow earn some kind of national security street cred we'll never win a national election. Happily the brain-trust at BushCorp™ is giving the Dems a terrific opportunity through its corrupt and disingenuous approach to US energy consumption. Or perhaps they're just fools.

The oil-pushing potentates at OPEC are certainly no fools, however, as they demonstrate by acting this week to increase oil production:
Oil analyst Victor Shum at Purvin & Gertz in Singapore said he expects prices to ease further due to the seasonal drop in demand in the second quarter.

"In the short-term, the crude oil market looks to be well-supplied," he said. "There will be some downward correction."

However, other analysts caution that strong demand from China and other growing economies would probably keep prices high over the medium term.

The Organization of Petroleum Exporting Countries said Sunday that the group will take its time in increasing output quotas by an additional 500,000 barrels per day due to global petroleum market fluctuations.

"Oil prices have witnessed fluctuations on world markets in the past two days, which prompted the organization to take its time in implementing the second increase," Abdel-Rahman al-Khreiji told Kuwait's state news agency, KUNA, in Vienna.

OPEC agreed earlier this month to raise production quotas by 500,000 barrels per day and said it would consult on whether to increase them by a further 500,000 if prices continued to rise.

Khreiji said OPEC will monitor petroleum prices in the coming few days.

"If it finds that there is a need to interfere, the cartel president will consult with the remaining ministers to specify a date for implementing the new increase," he said.
The trick for OPEC is to keep edging prices up while at the same time not raising them so high that consumers (especially in the US) might adjust their usage. The worst thing that could happen as far as OPEC is concerned is a sharp spike in prices (say to Arab oil embargo levels) that might create enough political will for us do actually do something to kick the fossil fuel habit
In fact OPEC owes its very existence to US efforts in the late 50s to limit our reliance on mid-eastern oil:

In 1959 the U.S. government established a Mandatory Oil Import Quota Program (MOIP) restricting the amount of crude oil (and refined products) that could be imported into the United States. The MOIP gave preferential treatment to oil imports from Mexico and Canada. This partial exclusion of the U.S. market to Persian Gulf producers depressed prices for their oil…

In September 1960 four Persian Gulf nations (Iran, Iraq, Kuwait, and Saudi Arabia) and Venezuela formed OPEC, the purpose of which was to obtain higher prices for crude oil. By 1973 eight other nations (Qatar, Indonesia, Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, and Gabon) had joined OPEC. Ecuador withdrew on the last day of 1992.
By failing to adequately encourage both conservation efforts and alternative fuel and energy use technologies, the US government continues to leave the American public at the mercy of these petroleum pushers. And as with our loan-sharks in totalitarian China, as oil junkies, the US is in no position to offend its oil suppliers. How comfortable are you with Chinese and Saudi Arabia holding de facto veto power over US policy?

BushCorp™ will, of course never betray the members of its special friends and family plan (otherwise known as big oil), by taking steps to decrease US oil dependence (and of course reduce the donor class' profits). Since the simplest way to achieve conservation and finance new technology is through a substantial gas-tax (Tom Friedman recommends a tax to keep gas at $4/gallon) the Republicans, who won't even support a tax increase to support a war effort, will never summon the will to do what needs be done. This leaves the "energy as national security" issue wide open to Democrats.

Thursday, March 24, 2005

An Immodest Proposal

President Bush, in his earnest, sincere efforts to save Social Security by diverting income out of the system and bringing about its insolvency, has rightly pointed out that "everything should be put on the table" in an attempt to solve the problem of Social Security's possible mid-century shortfall.

Despite the protests of some Democrats that diverting funds out of the system into private, er, personal accounts would only destabilize the presently successful system of social insurance for the elderly, I believe it is incumbent upon all Americans to take the President at his word and consider all possible solutions to Social Security's possibly impending possible crisis.

Applying the rule postulated by "Occam's razor" (why use a triple blade, when a double blade will do?) clearly the simplest answer is the best.

So what is, in essence, the greatest challenge facing the Social Security system? Obviously: too many old people. So what do we need? Equally obvious: fewer old people.

Therefore my proposal: the Septuagenarian Elimination Act.
Whereas persons having surpassed their biblically appointed three score years and ten are thereafter worthless in the eyes of God, such persons as exceed the divine limitation on a just life shall be obligated to end said life with all due speed.
Simplicity itself, Occam would be pleased.

And think of the societal benefits.

Instead of wasting away at (the misleadingly named considering the actual mortality rate) dead end jobs as fry-cooks at McDonalds or greeters at WalMart, American seniors could end their golden years in glory and a heroic death in service to their homeland!

Universal conscription for the 70+ers would certainly be mandatory, and at little loss in readiness for our armed forces. For as our military has become increasingly digitized, actual physical strength has become far less of a necessity. Sure pulling multiple g's in a fighter may require the resilience of youth. But guiding the pilot to his appointed doom via radar requires few skills beyond those acquired playing freecell.

And those seniors too incapacitated by illness could still prove a boon to their country. Every human body is a fruitful repository of organic compounds. The same compounds that, given time, become life-giving petroleum. Certainly modern science, which has accomplished such miracles as the clapper, and the Chia-pet, could find a way to accelerate the transformation of decrepit human bodies into life-giving oil.

These are but a few of the ways the accelerated elimination of the old could benefit civilization and the American way. I'm certain those in our government whose job it is to make the hard decisions will find others.

Wednesday, March 23, 2005

Sometimes the only way to win is not to play

In the 1983 movie WarGames a young computer hacker narrowly averts WWIII by teaching a Pentagon war game supercomputer the futility of nuclear war. The moral: the only way to win is not to play.

In today's Washington Post, columnist Terry Neal seeks to make the case that, by refusing to participate in the incredibly ill-conceived vote for Congressional intervention in the Terri Schiavo tragedy, Democrats are somehow falling prey to political expedience.

Republicans face political risk in the actions they took in the Terri Schiavo case. For Democrats, the risk is in the action they didn't take.

Republicans bucked public opinion and opened themselves up to charges of hypocrisy, that they deviated from their support for states' rights and the sanctity of marriage and their opposition to judge-shopping. Democrats, for the most part, stood by and watched.
I know Washington columnists love playing the hackneyed "pox on both your houses" moral equivalency game, an "objective journalism" tactic only slightly more valid than the usual he said/she said sort of reporting.

But is it valid in this case? Let's see.

First, goaded by the MSM's own hysteria about the Schiavo family's plight (and strange is it not that the media's role in all this remains complete unexamined?), the Republicans sense a little red meat to toss to their furthest right constituents. Republicans on the Hill disregard medicine, science, the rule of law, the Constitution, and their party's own long held beliefs in state's rights, and pass a law requiring a Federal court to re-examine a case already litigated to death in multiple Florida courts. The CEO of BushCorp™ flies his taxpayer funded company jet (Airforce One) back to Washington in order to sign the bill. Sure, tsunamis and genocide, what's the hurry? But a chance to pander? That calls for immediate action.


So, the Republicans are exploiting an individual family's tragedy for perceived political gain.

And the Democrat's cynical ploy? Refusing to play.

So instead of rising in support of demonizing Michael Schiavo, calling into question the Florida judicial system (whose laws, in this case, are far from extraordinary) and further feeding the media frenzy (it was, after all, a slow day at the Michael Jackson trial) the Democrats largely refused to play.

The other Democratic option: (which was indeed chosen by 53 congressmen, including Pasadena's own Adam Schiff) to oppose the bill.

Now do not mistake me. I applaud the sentiments of those willing to stand up to the Republican slime machine by pointing out its obvious hypocrisy. But even by arguing and voting against this assault on the rule of law, Democrats are participating in, even by opposing, the Republican's demagoguery.

The Republicans were here breathtakingly successful in turning the floor of the house and Senate into matching slime-pits. And even if you're there trying to clean it out, it's impossible to avoid the slime yourself. With solid Republican majorities in both houses, no matter how many Democrats had opposed, the bill would've passed nonetheless.

By refusing to participate, Democrats have let the public see just what Republicans are like when left to their own devices. That may indeed be a political decision, but it is not exploitative, and the educational value for the American people may well be inestimable.

Sometimes the only way to win is not to play.

Thursday, March 17, 2005

Oil and the economy: a primer

As Alan Greenspan muddles further into obscurantism and partisan irrelevance (seriously, he's against deficits, and yet in favor of tax cuts for the rich, and trillions in debt to pay for Social Security privatization? Jeez.) the nation yearns for clear-eyed economic wisdom. And so I, despite the personal sacrifice, as well as my utter lack of qualifications, yet offer my humble services.

Sure my formal economic training is limited to macro and micro courses at San Diego State back in the day. But perhaps that will suffice.

To begin.

Oil prices 101
Perhaps the most basic of economic ideas is that of supply and demand, that is: if supply is greater than demand, prices go down, if supply is less than demand, prices go up.

A corollary: If supply is fixed, but demand rises, prices go up.

This last is relevant to the world's current oil-price situation.

The oil producing nations are currently producing oil at or near capacity, and there will be no increases of capacity available in the foreseeable future. And yes that includes the Alaska National Wildlife Refuge, which may provide at most 3-6% of US daily consumption. A relative drop in the bucket.

Meanwhile, in addition to the always thirsty US oil market, two burgeoning economies, India, and most dramatically China have significantly increased their demand for oil, and will continue to do so, again into the foreseeable future.

So, classic economics: oil supply is static, demand is rising, and prices are going up. Easy.

Take the dollar, please.
Supply and demand also applies to international currency valuation. Currently the US is flooding the world market with dollars. And it is doing so in two ways.

The first way is through the US government's massive operating deficit. That is, the government is spending more money than it is taking in, currently at the rate of about $2.27 billion per day.

So where does the money come from? Well, unlike individuals, or even the several states of the union, the US government has a unique ability, if it needs more money, it can just print more. Now the US doesn't just print regular old dollar bills, it prints special kinds of currency like bonds and Treasury bills (T-bills). The main difference between a dollar bill and a T-bill is time. That is, a dollar is worth its full face value right now, while a T-bill is only worth its full value at some specified point in the future. And that, though vastly over-simplified, is about it, T-bills, treasury bonds, even US savings bonds are just a type of money.

So when the US government operates at a deficit, it finances that spending by issuing Treasury bills and the like. The current US deficit stands at about $7.7 trillion, ($7,791,779,810,738.91). Which means that $7.7 trillion in T-bills and such are out there on the market, held by individuals, companies, and especially countries. That's one part of the dollar supply.

The second source of dollars on the open market is the US trade deficit, that is, the difference between what we in the US spend on foreign goods and services, and what people in foreign countries spend on US goods and services.

In 2004 the US trade deficit was a record $665.9 billion, a 25% increase over the 2003 deficit. That is, the US (you and I) spent almost $666 billion more buying stuff from overseas than folks overseas spent buying stuff from us.

In essence we're shipping boxcar loads of cash overseas in exchange for boxcar loads of fuel-efficient cars, home electronics and all the crap they sell at Walmart.

So, is this a problem?
Maybe, maybe not. Here's the deal:
In the past, moderate outflows of US dollars have been essentially beneficial both to the US as well as our trading partners around the globe. Historically the dollar has been one of, if not the most stable currency in the history of human trade. As such it has been a boon to international trade and has become the base currency for the majority of international business transactions. Good for us, good for everybody.

But as the Bush administration continues profligate borrowing to finance its tax-cuts and wars, countries holding large numbers of US dollars can begin to wonder whether the dollar's value will maintain its stability. Even the barest hint of such a doubt can send global markets into a tizzy. In short, if the perception grows that there are too many dollars on the market (that is, to use the classic economic paradigm, the supply of dollars exceeds the demand for them), the value of the dollar will fall.

In fact, international markets have begun to recognize exactly that, and the value of the dollar has begun to slowly drop relative to other currencies, most notably the Euro, which is increasingly becoming the alternative to the dollar in international trade.

I have always depended on the kindness of strangers.
How'd that work out for you Blanche?

Currently the main bar to a radical decline in the dollar's value and resulting inflation, (quick primer on inflation: if dollars are worth less, it takes more of them to buy stuff) is the self interest of the other economies which are inextricably entwined with that of the US. All it would take to precipitate disaster would be for one of the major US donor states to decide to get rid of its dollar holdings. If say, China, for reasons either economic (worries about the dollar's declining value) or political (US support for Taiwanese independence) decides to dump dollars, the results would be devastating. (Good article on the dollar dump potentialhere.)

Now here's where it gets scary
Remember those oil prices?

Another interesting thing about oil is that it is one of those commodities whose trade is done in US dollars.

So now there are actually two things at work driving oil prices: the laws of supply and demand for oil, and the laws of supply and demand for US dollars.

So even as increasing demand for a limited supply of oil drives prices higher, it also takes an increased number of devalued US dollars to purchase that oil.

And given continued US demand, those same oil purchases will drive increasing US trade deficits, leading to further devaluation of the dollar and increasing costs for oil ad infinitum.

Good news/Bad news
There is a way to stop or at least slow this death spiral: conservation. Even small gains in energy conservation can have important effects. Reducing consumption:
1. reduces our trade deficit, reducing downward pressure on the dollar; and
2. reduces our portion of global demand, easing our significant contribution to oil price pressure

Conservation has, of course, some other benefits as well, reducing pollution and decreasing our dependence for our oil fix from countries like Saudi Arabia and Venezuela. As I've argued before, US energy policy should be an inherent part of US Security planning.

So, that's the good news, the solution is simple, conserve. The devil is, as always, in the details: how do we implement a meaningful conservation regimen?

A gas tax of course.

And of course, there may be a few implementation problems, such as the conservatives screaming that it'll be bad for business, and whose money is it anyway? Liberals ranting at a gas tax's regressive, disproportionate affect on the poor. That sort of thing.

Both of which are, of course, true.

But consider, it takes neither a crystal ball, nor a Ph.D. in economics to foresee a time in the very near future where, as a consequence of the aforementioned factors, the price of oil will be much higher anyway. Does anyone seriously doubt that?

When that happens (next year, the year after?) GM indeed won't be selling any Hummers, the poor will be crowding what little public transportation exists, and those dollars spent ($4, $5, $6 per gallon?) will go to stuff the silk-lined pockets of some of the most regressive regimes in human existence, that's whose money it'll be.

Instead why don't we pay ourselves first by taxing gas at the pump to encourage conservation?

Why don't we pay ourselves first and pay down the inflationary and destabilizing Federal deficit?

Why don't we pay ourselves first and invest in conservation , alternative fuel and transportation technologies?

Why don't we pay ourselves first and establish US dominance over the only technologies absolutely certain to become vital over the next century as fossil fuel reserves are depleted?

We're going to be paying anyway. Why don't we pay ourselves first?

A would-be economic demiurge can dream can't he?

Now that global economic forces are combining to push oil prices so high even the plutocrats of BushCorp™ might notice them, perhaps we'll see some movement towards policies that might actually impact our energy consumption.

My fear though, is that the economic purists will win yet another ideology versus reality battle within the walls of the West Wing, and that BushCorp™ will let the holy market decide. And certainly the invisible hand of the market will eventually bring the death spiral to an end, though that end will not be much to our liking.