The Democrats' new myth of "energy dependence"
Before discussing the energy issues, I want to emphasize the differences between supply-side Reaganomics and Democrats' approach to reducing federal budget deficits. Democrats want to hike taxes to continue massive federal spending, exemplified by John Kerry's fallacious campaign proposals to treat the top 1% like Santa Claus (but excluding him and his wife, who throw their money into tax-free investments and tax shelters to avoid the higher taxes they call for). And recently, Barbara Boxer all but admitted, in a form e-mail to Eric Cowperthwaite, that she doesn't want to cut pork and instead wants to raise taxes on the "wealthy." The plan to "tax the rich more to balance the budget" plan may sound "fiscally responsible," but it will stagnate the economy as the rich cut back on producing, which I've explained indeed trickles down and destroys jobs for everyone. Reagan, in stark contrast, advocated cutting taxes and cutting spending even more to promote economic growth and balance the federal budget. Unfortunately the Democrat-controlled Congresses, just like today, never wanted to cut back on spending. More unfortunately, George W. Bush and the Republican Congresses have really blown it with their own spending binges, but that's something to talk about another day.
Senator Maria Cantwell, D-WA, gave the October 1st address:
High fuel costs are costing people their jobs, their pensions and their businesses.And yesterday, Congresswoman Rosa DeLauro, D-CT, said much the same thing:
Because of rising energy prices, farmers are having a tough time breaking even, and school districts are facing the choice of hiring teachers or paying for higher fuel costs.
These are the terrible consequences of our over-dependence on fossil fuel. The natural disasters of Katrina and Rita have showed us first hand how truly vulnerable we are.
America can do better. It's time to get serious about our energy security. In the short-term, we must protect consumers from price gouging. And, in the long-term, we must stop our over-dependence on foreign oil and make our country more secure.
These two challenges demand that we act with both urgency and compassion.
Ninety-percent of Americans believe price gouging is occurring at the pumps. Unfortunately, there are those in the nation's Capitol who do not believe consumers need further protection.
Twenty-eight states currently have laws on the books to prevent price gouging, and we should pass something at the federal level as well.
Senate Democrats believe we should pass new legislation to stop price manipulation.
I'm glad the President called this week for conservation, but conservation must be more than a convenient slogan. Recently, the administration has rejected conservation attempts like more accurate fuel mileage for cars and bi-partisan proposals for reducing our dependence on foreign oil by a million barrels a day.
If we want to make America more secure, we must rely less on foreign oil and fossil fuel. We need leadership and a long-term vision. That's why Democrats want to make America more energy independent by 2020.
We want an energy plan that bets on American ingenuity and investment rather than gambling on the future good will of the Saudi Royal Family and the OPEC cartel.
We know we can do better. Americans always rise to the challenge. A recent study said America can reduce half of our oil use by investing in light weight materials and alternative fuels.
If we succeed, America will be economically stronger and more secure internationally....
Energy independence is one of the greatest challenges of our generation. The American people are counting on us and we should provide the leadership.
This uncertainty tells us that until America reduces its dependence on oil — particularly foreign oil — volatile oil and gas prices will continue putting families' economic security and our national security at risk.My, my, my...where shall we start with this mess of Democrats' half-truths, lies and utter economic ignorance? There's more to be shot down here than in a typical Krugman op-ed, so I apologize in advance if I didn't address a particular point (but like with my singing, I do requests).
Americans have shown they are ready for new thinking when it comes to solving the energy crisis. Unfortunately, it appears that Republicans in Washington do not share that commitment. The President's energy bill enacted into law earlier this year was an $85 billion giveaway to big oil and gas companies. And legislation passed by the Republican-led House of Representatives this week provides billions more in tax breaks to the oil refining industry, rolling back environmental laws unrelated to the nation's energy problems, but doing nothing to lower gas prices.
Indeed, Americans deserve to know why oil company profits continue to skyrocket as families and small businesses suffer from high gas prices. Just last month, Exxon Mobil announced that its profits reached $110 million per day — up 60 percent from this time last year. Yet the Administration remains unresponsive to the impending home heating crisis. Fewer than one in five families who qualify for the Low-Income Home Energy Assistance Program are getting help. This, as one study finds some seniors are choosing between heat and buying prescription drugs.
This as almost 12,000 families with a loved one serving in Iraq or Afghanistan are unable to heat their homes. There is something fundamentally wrong with families having to use their stoves and ovens to heat their homes as their spouses, sons and daughters are fighting for their country abroad.
Democrats believe this is a moment for leadership — time for a new direction. America can do better.
Our values tell us that government has a moral obligation to protect families and businesses, making sure that our most vulnerable citizens are cared for. With the Bush Administration's failure to act in response to more than 7,000 complaints of price gouging at the pump, Congress should pass tough criminal penalties for oil company executives who engage in price gouging. America's leaders did not stand for price gouging during World War II — nor should ours today.
But we owe working Americans more than short-term solutions that put a Band-Aid over our mounting energy problems. Rather than rolling back our clean air and water laws and drilling in pristine places like the Arctic Refuge, Democrats believe we should renew our commitment to creating tax credits for hybrid vehicles, increasing fuel efficiency standards for cars, and investing in ethanol, biofuel, hydrogen fuel cell technology. These new strategies can harness the power of American ingenuity and our farm economy to solve our energy problems, grow our national economy and liberate America from its dependence on Middle East oil.
Democrats believe that the time has come to seize this moment and develop a bold energy policy that invests in new technology and prepares us for the challenges of the 21st century. We need to declare our energy independence. We believe as America unites to rebuild New Orleans, so too must our leaders summon the courage to address our country's energy needs. Making our families and the nation more secure is a matter of urgency — a matter of values.
The one true thing they said is that President Bush signed an energy bill full of pork, but he is not completely to blame. He approved a package that members of Congress laid out, including Democrats. Will Senator Cantwell and Rep. DeLauro continue to be hypocrites, or will they admit their own parts in the 2005 Energy Bill Giveaway? I don't suppose either of them made any speeches, on or off the House and Senate floors, assailing the energy bill's waste? I also wonder how many of their pet projects made it into the transportation bill, which is infamous for spending on something in every Congressional district.
I've previously addressed the nonsensical accusations of price gouging (with a follow-up here), and I also noted Jim Tisch's wonderful debunking of that fallacy. The main problem is people's false perception of business: oil companies, like any other, do not hoard their money. For one, they constantly invest a large part of their profits in finding new sources of oil, because believe it or not, they can't let oil get too expensive lest it drive people toward competing fuels. Also, any profits going to their workers, from janitors to middle managers to CEOs, wind up spent in the economy. It's merely a shift in spending; nothing is lost. There's nothing being hoarded by these mythical greedy executives, because because the money does indeed trickle down as wealthy people spend it on goods and services that lower-income people provide.
Socialists like to crack a rather stupid joke about averages: Bill Gates walks into a bar, and someone says, "Hey, our average income just went up!" Even if it weren't so economically ignorant, it still wouldn't be funny. What that joke forgets is that in a real economy, Bill is spending and saving his money. He's not keeping it all to himself, nor is he trading only a small portion with only one or two people. In a real economy, he'd be spending money, which sustains jobs for other people. When he saves the rest in bank accounts, government and corporate bonds, stocks, property, and other assets, he's also sustaining jobs for others. In short, there's not a damn thing to fear from someone being rich. If anything, as Jon Henke of Q&O recently put it: "we don't have inequality in income—we have inequality in output. Some of us haven't been producing our share."
People should be no more concerned about oil companies' higher profits than if automakers had sudden windfalls because people cut back on meat purchases and suddenly bought more cars. It's not the end of the world, only that one industry is more competitive than another. Now, you most definitely should worry if you had to cut back on one expenditure because a government policy made another expenditure more expensive, but that's not happening with oil. The price increases are a normal result of free market forces, but history promises disaster if we attempt price controls.
Senator Cantwell would have learned from an introductory microeconomics course that any attempts from autarky are on the road away from prosperity. The problem with her notion of being "economically stronger" by reducing oil imports is that it isn't true in the least. She apparently has never heard of the principles of comparative advantage and free trade, which for over 200 years have been economic fact. Importing, even from OPEC nations, is far from being the victim in a parasitic relationship. It's symbiosis, because why did we purchase foreign products if we didn't benefit more than making them ourselves?
The simple reason that people buy from others is because it's overall cheaper than the buyers doing it themselves. Oil is no exception. The Democrats want independence from OPEC, but they are the short-sighted ones, not realizing (or ignoring for the sake of partisan politics?) how reducing our oil imports will wreck Americans' standard of living more than any so-called "price gouging" by oil companies. We buy oil from other nations not because we can't produce it on our own, but because it's more expensive to rely more on our own oil.
Average gasoline prices at the pump have not hit $4 or $5 per gallon, contrary to the fearmongers' doomsaying. But there's a guaranteed way to make $5 per gallon gasoline come true: we only need to follow the Democrats' plan to make the U.S. "independent" from foreign oil. We buy half of our oil from other nations because it's cheaper than what we could produce ourselves. That's not to say we shouldn't continue to explore and drill more off the Texas and Louisiana coasts and other places, but when we need oil today, it's cheaper to buy half of our needed oil from others, and there's nothing wrong with that. When we stop using foreign oil, even if we found ways to boost our domestic production to meet demand, prices would still spike. If that oil were in fact cheaper than buying from the Middle East, we'd have already been pumping it. So we can have "independence," but at what price?
I recently came across this AP article that talks about a possible 1 trillion barrels of oil in the western U.S. -- locked away in shale. It's not a feasible source of oil with today's technology, but it may be in the future. But it may not, so why do we tolerate politicians throwing our hard-earned tax dollars into subsidizing these ventures? It should be left up to businessmen, who invest only their own money and their partners' money, and only after calculating risks -- and they must calculate carefully, since after all, it's their money. They don't have the luxury that Robert Byrd and Ted Stevens do: the power to coerce money from taxpayers and throw it into their pet projects.
There's a second, often forgotten way that we'll hurt our own economy by placing restrictions on imported oil. Nations that export oil to the U.S., including OPEC, use the dollars earned to buy goods and services from Americans. The rest is invested in American assets, like U.S. Treasury bonds and corporate bonds; some is used to buy housing in the United States. So if we told Saudi Arabia, for example, that we'd now import $1 billion less, that's $1 billion less that they would spend on U.S. goods, services and assets. That means Americans would be thrown out of work, which will ripple through the U.S. economy, Saudi Arabia's, and the world's. As those people are thrown out of work, people who sell to them (in any country) will lose income too -- a death spiral which, as I've said before, decreases at each stage, but it doesn't stop until everyone's impoverished by protectionism. This is hardly theoretical: it's precisely what the Hawley-Smoot Tariff did. (Whoops, I called it "Hawley-Smooth" and have corrected that typo.)
Democrats are hypocrites for claiming concern about the effect of higher gas prices on Americans, because they still oppose drilling in ANWR that would help ease gasoline prices. Their environmentalists lobbied the EPA to require 42 different gasoline blends in the name of "clean air," such that when a region runs low on gasoline, it must often import its specific blend from two, three or more states away. Democrats pushed for the environmental regulations and restrictions that hinder the construction of new oil refiners and make it more expensive for existing refineries, which would ease gasoline prices the most. What Democrats apparently want are price controls that will assuredly lead to shortages just like in the 1970s.
Democrats want to "invest" money in alternative fuels, which amounts to spending $2 per unit on new technology so you can save $1 per unit. In 2004, without needing the outrageous pork-laden energy bill, the federal government was giving $3.3 billion annually to ethanol producers, who produced only 3.41 billion gallons of ethanol. Thus the true price of ethanol is 88 cents per gallon higher than it actually appears, because ethanol producers cleverly use subsidies to make their product artificially competitive. It's a very old trick that's been around for so long that Bastiat cautioned against the illusion. You would notice paying 88 cents more at the pump, but not when your taxes are invisibly and painlessly taken via withholding.
Even so, alternative fuels like ethanol and biodiesel are not dominant simply because they're more expensive than using oil. In fact, new studies indicate that ethanol isn't even worth the energy used to produce it. These alternative fuels require petroleum to make, and they produce less energy per volume (meaning lower fuel economy), so you're not breaking even in the end. Hybrid cars may use less gasoline, but they retail for thousands more; most Americans would take at least four years to break even. And if the federal government gives you a "tax incentive" (i.e. a subsidy) to buy a hybrid car, who doesn't realize that it comes at the expense of higher taxes elsewhere? All this should make sense to any thinking person, which explains why the Democrats' leaders will never understand it.
This article from the Christian Science Monitor touts how well Brazil is doing with "flex" cars that run on both gasoline and ethanol, which is possible because so much of Brazil's economy is devoted to sugar production, enough that it offsets the cost of the petroleum required to produce ethanol. But what has happened to price of sugar? Not surprisingly, it's gone up, and sugar on the world market has recently hit its highest price in seven years. This is what I tried to tell someone last June, after he left comments insisting that the federal government had to push us toward (corn-derived) ethanol. Corn would become very expensive, because the U.S. doesn't have enough of an agricultural base; there's nothing wrong with that, simply a fact that our economy is more technology-based than agrarian-based. Ethanol's price would therefore shoot through the roof once government mandated it as a mainstream fuel. Why, then, should we bother when we instead have the alternative of affordable petroleum?
But wouldn't subsidies, these so-called "investments," for alternative fuel industries support jobs and boost the economy, like the Democrats claim? I need not elaborate on this, nor should I attempt to, because Bastiat already did, long, long ago. His "Candlemakers' Petition" is the ultimate argument against protectionism and the involved subsidies, using protectionists' own arguments to prove their absurdity.
Another absurd argument that the Democrats made in their radio addresses is that it's a bad thing for people to use stoves and ovens to heat their homes. People do that because it's cheaper, since, as I already noted, oil has unavoidably become more expensive because of a supply crunch. When did it become wrong for people to seek a cheaper alternative, especially when it conserves a resource that has become more scarce? I thought these Democrats wanted people to conserve oil.
But that's the thing: these Democrats don't want people to conserve because of economic forces or personal choice. They want people to conserve because that's what paternalist government has decided for them. Sadly, even President Bush and other Republicans have fallen for the same idea that government can legislate conservation, and that government should "protect people" from oil companies' "predatory pricing."
What of the Democrats' assertion that trade breeds dependency? Well, aren't you dependent on your local supermarket, department store and other businesses? Would you really be better off if you grew your own produce, raised your own animals for food, and sewed your own clothes, so that you won't have to depend on others' goodwill? Not in the least. We trade with each other because of comparative advantage: we buy from someone because it was cheaper than the total cost of our time.
I invariably buy breakfast and lunch during the work week, because it's not worth my time to fix my own meals and bring them from home. Am I not, then, dependent on the delis, restaurants and food carts that I patronize? What if I had a problem with a particular business and refused to go back, or if they "blacklisted" me from coming back? (That reminds me, the Seinfeld-famous "Soup Nazi" on 55th St. isn't too far from my job.) Not to worry! If I lost one option, there are many other places I could go. Even if the neighborhood had only one restaurant, an entrepreneur would eventually start up a competing business, recognizing that there were people looking for an alternative. And trust me, in midtown Manhattan between Rockefeller Center and Central Park, there's a lot of business.
For the same reason, we need not fear this mythical "dependency" on trade with China. As I said toward the end of my entry The face of the enemy, China would shoot itself in the foot were it to stop exporting to the U.S., because it has too many competitors in low-grade industries like textiles, cheap plastics and inexpensive consumer electronics. For the same reason U.S. sanctions did not work on Iraq (because the French, Russians and Chinese continued to do business with Saddam, especially illegally), China could hardly wage an effective economic war against the U.S. by cutting off trade. There are too many other nations who could take its place, like Indonesia and Vietnam for textiles, They would likely sell the goods and services at a higher price (if they could then they'd have already competed with China), but probably not so high that it would wreck the U.S. economy. Meanwhile China would suffer greatly from the loss of income.
So just who's dependent on whom? The reality is that neither side is more dependent than the other: as I said, trade is symbiosis. That's another wondrous thing about free trade, whether between nations or individuals. Cato constantly reminds us that trade fosters peace, and that is true. The same principle of cooperation that governs our individual, everyday transactions also governs trade on the national level. It also encourages each party to have its own internal peace. It's in a nation's best interest to maintain its own rule of law and encourage its own economic growth, just like it's in my best interest to maintain a stable personal life so that I can continue working. If my own life is so chaotic that I'm undependable, who would want to do business with me?
All in all, I'd rather the Democrats stop this claptrap about "energy independence" and talk about real independence: freedom from Big Brother government, freedom from stifling taxes that discourage work, and freedom to make decisions for myself. Now that's leadership I would welcome.