Obama and McCain have weighed in on spiraling gas prices. But is either proposal workable? If not, what can we do? Is the situation hopeless, or is a real solution possible? Let’s examine Obama’s and McCain’s proposals, see where they’re right, and where they’re wrong. Finally, we’ll consider a bipartisan solution everyone can get behind.
Obama and the left
The main proposal coming from the left is “windfall profits” taxes on the oil companies. How will this have any impact on prices? Do they not know price = cost + profit? If you increase costs (by taxes), you increase prices. How will raising taxes lower prices? Nobody asks, as Obama’s disciples blindly follow their messiah into the twilight zone (or for you Buzz Lightyear fans “to infinity and beyond”).
For example (we don’t have an exact number, so if you do, leave a comment), if the oil companies make about $.10/gallon (we’ve heard numbers in the range of 6-8 cents), if you eliminate profit (not just “windfall” profit), you’ve only impacted prices by about a dime. Whoope. The reality would be quite different as companies consider taxes additional cost — and who pays for rising costs?
In contrast (and a proposal Obama belittled as a cheap political stunt), how much in tax per gallon do you pay? How much of a reduction if taxes were suspended? That would be a real reduction, as taxes are just artificial additions; Federal tax alone is 50% higher than oil company profit:
Fuel taxes in the United States vary by state. For the first quarter of 2008, the average state gasoline tax is 28.6 cents per gallon, plus 18.4 cents per gallon federal tax making the total 47 cents per gallon (12.4 cents/L). For diesel, the average state tax is 29.2 cents per gallon plus an additional 24.4 cents per gallon federal tax making the total 53.6 cents per gallon (14.2 cents/L).
So the average tax is about five times the oil company profit, yet the left displays righteous indignation over the dime, and blissfully ignore the $.47/gallon in taxes. Of course (as Obama recently hinted), many on the left actually want higher gas prices, so the fact their proposals do nothing should not be surprising — they don’t have citizen’s best interests at heart. But they’re stuck in a tough situation, they want higher gas prices, but can’t come out and directly say it or citizens won’t vote for them.
Hmmm. Let’s see, a $.10 reduction is real progress, and $.47 reduction is a cheap political stunt. Yes sir, we need change. With great ideas (and logic) like this, how could anyone not be behind such vision? It’s change!
The other proposal floating around the left is nationalizing the oil industry. Absurd on its face, and of course does nothing to either increase supply or decrease demand. Completely useless. But it does serve the left’s socialist interests (and maybe that’s the point).
The basic economic laws are supply and demand. If demand is up and supply is down, prices go up. Conversely, if demand is down, and supply is up, prices go down. If you want to impact prices, you affect either supply or demand (or costs, like being more efficient, reducing taxes and red tape, etc). Cost + Profit = Price.
But if you propose to increase costs, while refusing to increase supply, you’ve got the perfect storm for spiraling prices. Nobody is that crazy to believe you can increase costs, decrease supply and actually have the result of lower prices. Nobody. The only conclusion we can draw is those that propose such laughable solutions are trying to pull a fast one on citizens. Cynical? Perhaps. But the alternative is to believe these people have an IQ in single digits and shouldn’t be driving a car, much less running the country.
But Obama’s big strength is the ability to influence his followers. If he actually abandons his laughable ideas, and works with real ideas to bring down prices (by decreasing costs and demand and increasing supply), his influence could be huge, and could be a key factor to implement real solutions. But first, he’s got to jettison the far-left group-think (next idea, wage and price controls, and wearing sweaters!), and fundamentally change his idea that he likes higher gas prices (as his current ideas neither increase supply, or decrease demand — at best, the far-left ideas do nothing, and at worst make the problem worse).
Obama and the far-left are simply clueless — increasing costs (via taxes or otherwise) doesn’t reduce prices (a problem compounded when you additionally refuse to increase supply). Nationalizing the oil industry won’t affect supply and demand either. Both ideas simply pander to the far-left who actually want higher gas prices, and socialized anything. But they’re beyond worthless to help the little guy on main street.
As usual, the little guy gets gored (pun intended).
McCain is better on the increase supply side (calling for more drilling), but still won’t call for an all-out, environmentally reasonable increase in drilling. He’s still wrong.
And he’s wrong on failing to call for a massive shift to alternative energy. Oil won’t last forever, and moving off to alternative energy should be a priority. Why isn’t it?
McCain’s ideas would be a short-term reduction in prices, but a long-term loser in overall strategy. It’s time to find, develop and implement other energy. Even Larry the Cable Guy knows — git ‘er done.
In the end (as usual), the little guy gets hosed (another pun intended) under McCain’s plan as well, it just takes a little longer than Obama’s non-plan.
Politicians look out for themselves instead of citizens (shock! horror!) — all they’re concerned about is elections, not citizens. The far-left use increasing prices to move toward socialism and increase government power, and the far-right seek to grab all the money they can while plundering citizens. Neither looks out for the little guy on main street.
Both are wrong, and both lead to the little guy paying the bill for entirely avoidable mistakes, while self-serving politicians cater to their own needs by throwing the common citizen off the cliff — while having the chutzpah to ask for campaign contributions before they hit the rocky shore below.
Supply and demand — you need to work on both. In the short term, you can’t fix demand quickly as increasing MPG on cars and such takes a looooong time. So in the short term (1-5 years), increasing production is the best way to go. But long term, oil well eventually run out (when, of course, is quite debatable and irrelevant to the point anyway), so working to reduce long-term demand by developing other resources is mandatory. And the final wildcard is costs — increasing efficiency, reducing red tape and taxes can also affect real change (oops, used the magic word, that makes everything better! It’s chicken soup for politics … oh nevermind).
Supply, demand, costs. Come on, guys, it’s not rocket science (more on that later).
So what to do? Here’s a four-point plan (many ideas which come from somewhere else) to actually do something to solve the situation. It’s a bipartisan solution everyone should agree on — nobody gets everything they want, but the situation won’t improve by inaction either.
Drill Here. Drill Now. Pay Less. We can do it safely, so the time is now to start developing what resources we have. Objections over hurting the environment are absurd — even Hurricane Katrina didn’t cause an ecological disaster to the Gulf oil platforms.
Yes we can! … increase production, while protecting the environment.
Formulate a real energy policy (no rhetoric allowed) — including biofuel, nuclear, coal, hydrogen, wind, and solar — all are on the table and workable in at least some situations. We must shift to non-gasoline powered cars, for example the Chevy Volt (due in 2010). Oil won’t last forever, stop acting like it will — the time to move is now, will inaction improve the situation in five years?
Yes we can! … develop alternative energy.
A Kennedy-esqe commitment to getting the job done. No excuses. Young people under 30 don’t remember that kind of national commitment, but if you recall Kennedy’s speech calling for a moon landing before 1970 you know how it rallied the cause, and produced results beyond what we thought technologically capable (in 1962 our space program was, well, nonexistent).
We have the technology, what holds us back is red tape, and frankly, a lack of real desire to solve the situation for citizens (as groups exploit the crisis for their own end political goals, ignoring the plight of hard-working citizens). The President should (must) demand an end to bizarre regulations holding back both expanding exploration and new alternative technology, and do it now.
Yes we can! … get the job done (after all economics isn’t rocket science).
- Accept no excuses — demand action.
- When Obama says drilling won’t help, immediately ask follow-up questions — what will supply be like if we don’t act now to increase production? Do you think doing nothing will increase supply? And how will keeping supply low lower prices? Does economic theory no longer hold?
- Ask McCain why he’s not calling for the government to lead in alternative energy usage and move away from oil. Even if what government develops has no commercial use at all, just getting the government off oil will increase supply and help lower prices and lengthen time we can use reserves. The Federal Government should immediately launch a Kennedy-esqe commitment to wean government off oil within 10 years.
- Ask Obama how increasing costs (new taxes) can lower prices. Ask him to cite cases where increased costs and taxes have lowered prices. Don’t fall for empty rhetoric or fancy slogans, demand real answers.
- This is a non-partisan issue. The left gets what they want (alternative energy, higher MPG standards, biofuel, etc), while the right gets increased drilling and production. Neither partisan side “wins” — the citizen does. Isn’t that what government is for?
It’s time to get it done. If you remember Kennedy and the state of our space program at the time he said it, you’re reminded what a dedicated group of people working toward a common goal can achieve — it can be done (we succeeded in rocket science, surely economics isn’t beyond grasp). But it takes more than empty partisian rhetoric and selfish self-serving politicians with catchy slogans saying one thing, but secretly working towards other goals.
This is a breathtaking pace, and such a pace cannot help but create new ills as it dispels old, new ignorance, new problems, new dangers. Surely the opening vistas of space promise high costs and hardships, as well as high reward.
So it is not surprising that some would have us stay where we are a little longer to rest, to wait. But this city of Houston, this state of Texas, this country of the United States was not built by those who waited and rested and wished to look behind them. This country was conquered by those who moved forward — and so will space.
We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win … [John F. Kennedy, 1962]
Yes we can.
Continue with Part II — Moving to the world that works.