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Economic Idiocy

The Dems are finally starting to come to their senses about energy production, but not quite:

One idea floated by Reid would require that whatever oil is drilled in newly opened areas would need to be sold in the United States.

This is pure, unadulterated economic ignorance. Senator Reid, go to the board and write one hundred times, "OIL IS FUNGIBLE." WTF difference does it make where the oil is sold? The important thing is to get it on the market. If we are pulling new oil off the north slope, it might make sense to ship it to Japan, improving our balance of trade with them, and relieving them of the cost of shipping it all the way from the Persian Gulf. It might in fact make sense to simply ship new oil from the Gulf of Mexico to Gulf refineries, but that should be a market decision, not an arbitrary and idiotic political one. "Energy independence" is an economic myth.

And then, we have this:

Democrats also want any compromise plan to include investments in clean and renewable energies, a crackdown on oil speculators and proof that the oil and gas companies are fully utilizing land that is already leased for exploration.

What does a "crackdown on oil speculators" mean? It's called a futures market, and a lot of people play. It serves a function of reducing risk for many in the industry. "Speculation" is simply a dirty word for "investment." This new scheme where people can buy gasoline ahead of time at a fixed price? That's speculation, folks.

And this:

"If they were showing in good faith that they were drilling on some of the 68 million acres they have now, it might change some of our attitudes," said Sen. Claire McCaskill (D-Mo.).

So, in order to get access to leases with high potential, they have to waste their money drilling on leases with low potential? Brilliant.

The only way to change the attitudes of people like this is Economics 101. And I doubt if even that would help.

 
 

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7 Comments

Leland wrote:

So let me get this straight:

More oil is bad because it polutes the environment and global warming yah, yah, yah...

But if you are going to drill for more oil, say in the Artic, then instead of being economical and shipping oil to nearest consumer in Japan; it is better to ship oil twice as far, or better yet develop a pipe line that stretches thousands of miles.

Ok. Got it.

Robin Goodfellow wrote:

Canada produces much more oil than it consumes. Gasoline is, even now, more expensive in Canada than in the US.

Oil is, indeed, fungible. Producing more oil domestically won't magically make it cheaper for the US alone unless it depresses the market value of oil, which it might, the only advantage would be supply security in the event of a national / international emergency.

Larry J wrote:

Canada produces much more oil than it consumes. Gasoline is, even now, more expensive in Canada than in the US.

Are you talking about the pretax or the retail (pump) price of gasoline? Gas costs more in many countries than it does in the US, but many countries charge much higher taxes on gasoline than we do.

Paul Milenkovic wrote:

That oil is fungible is more the reason we need to agree to this.

Yes Senator Reid, the oil will be sold to the US market, and what's more, we will make sure you will bring jobs and prosperity to your constituents by siting the refineries in Nevada. The President will sign this bill as soon as it hits his desk and we can start drilling . . .

David Summers wrote:

The oil situation reminds me a lot about the monetary situation just before and during the great depression. Essentially, one of the primary causes of the great depression was that there was a run on the banks - and the government responded by restricting money supply, causing the depression. Here, we can see much of the same stuff happening... and what is the point of the strategic reserve if we don't use it to tame runs on oil? Are we simply going to horde it forever?

My 2 cent plan: set up the strategic reserve as an overflow capacity - add in 5% of your reserves each year; then you sell the oil back into the market whenever oil is 20% over it's 2 year average price. It allows the market to raise the price as needed, but only over a few years - none of this doubling in price in 12 months due to supply shocks and runs on oil.

Anonymous wrote:

"..and what is the point of the strategic reserve if we don't use it to tame runs on oil?"

I always thought the point of the strategic reserve was to insure we could keep our military planes flying, tanks rolling and the like, not even out market fluctuations.

At this time I would like to thank the environmentalists for helping to keep ANWR as part of our strategic reserve. At the last Illuminati meeting we were laughing about how we co-opted environmentalism into our evil plan of pumping the Middle East dry while keeping the U.S. off-shore fields and oil sands intact.

Rand Simberg wrote:

At the last Illuminati meeting we were laughing about how we co-opted environmentalism into our evil plan of pumping the Middle East dry while keeping the U.S. off-shore fields and oil sands intact.

That plan might actually make sense if we had at least prepared (i.e., explored, drilled, and then capped the wells until needed) for such an eventuality, and could extract the oil quickly when needed. Unfortunately, while we've locked up our own fossil fuels, we've done it in such a way that it takes years to turn the tumblers on the safe.

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This page contains a single entry by Rand Simberg published on July 10, 2008 10:44 AM.

What Do They Want? was the previous entry in this blog.

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