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January 23, 2007

Punishing Big Oil

Rev. Sensing has a must-read post on how punishing oil companies winds up punishing those consumers of oil.

Which is basically all of us.

Posted by Doug at January 23, 2007 03:47 PM

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The cited article said:
"if the whole Congress votes to remove them, and the president signs, the economic effect will be to reduce oil companies’ financial incentive to explore and pump domestic oil."

Yes. That is correct. What that will do will help the price of oil reflect the actual cost of oil. Currently, our oil prices are artificially low - that is, the price is below the costs. What this does is remove incentive away from living within our means.

If oil prices reflected their costs (in actually obtaining the oil, in money spent defending "our" oil in other nations, in costs to the environment, in costs in lives, in costs to future generations, etc), it would be closer to $5-15/gallon, according to various estimates I've read (here's a source:)

The article went on to say:
This whole thing isn’t about the money anyway, not really. It’s about eeevvviiiillll oooiiilll.

Indicating to me that this author is not serious about the problems associated with a global economy utterly dependent upon a finite resource, but rather that he's more interested in trying to marginalize those who'd question the wisdom of doing so.

My guess is that this person has economic ties to the existing system and the status quo and is failing to recognize the inherent difficulties of the status quo and, rather than rationally discuss these limitations and ramifications and solutions.

In short, it's not a matter of "punishing oil companies" but rather just letting market forces work in favor of longterm solutions.

Posted by: Dan Trabue at January 24, 2007 11:15 AM

Rev. Sensing is, indeed, a minister, not an oil lobbyist, employee or on any related payroll. So let's get that out of the way.

Yes, oil is artificially low. And while I'm generally a market-forces kinda guy, oil is a necessity used by everyone. If the prices were hiked, everyone would pay more, including the poor who could afford it least.

I find it funny, the switharoo here. A Republican arguing for government's hand in the market, and a Democrat arguing for market forces alone. And really, you're going to have subsidies no matter how you slice it. If the poor can't pay for their heating oil, you really think there won't be a government hand in the market?

Now if we could only get Democrats as much on board with a more market-driven solution to health insurance. But anyway...

And frankly, for a lot of folks, this is about "evil oil". It's Democrats (and a few misguided Republicans) that buck the market-driven concepts and try to punish (and that's the right word) oil companies for supposed "windfall" profits, and Rev. Sensing covers that ("oil to iPods").

Everybody uses oil and needs oil. It's a commodity unlike most. I do hope you're behind the President's plan to get the market forces working to come up with alternate fuels. Oh wait, I read your blog. You don't think that noteworthy. So much for market forces talk.

Posted by: Doug Payton at January 24, 2007 11:59 AM

I'm in favor of us living responsibly and within our means. We are currently living off fossil fuels at a rate that our world and our children can't afford.

It's like a family that inherited $100,000 and who decided to quit working, buy a car and house (on credit) and live off the $100,000. The problem, of course, is that is not a sustainable solution. In a few years, that 100k will be gone and then what?

Of course, the difference with this analogy is with the family, they could always start working again once the money was gone and get money from some other resource. When the oil is gone, there is no other resource currently available in the amounts necessary to support the global economy.

It is a bit of a switcharoo - here the "liberal" is arguing pro-responsibility and the "conservative" is arguing putting off the problem on future generations and the environment. Maybe I'm not all that good a liberal...

Posted by: Dan Trabue at January 24, 2007 12:27 PM

I agree with your analogy, and I want us to act responsibly with regards to future energy. But I'm not in favor of the government playing kingmaker with alternative fuel research. I think it can encourage alternate fuel development via free enterprise with some incentives, but it shouldn't be decreeing from on high what will be done. When bureaucrats make the choice, it's often wrong and more expensive. If you're going to argue for market forces in prices, you ought to be arguing for it in R&D as well.

Posted by: Doug Payton at January 24, 2007 01:12 PM