Wednesday, August 6, 2008

Obama Energy Plan: Redbull Gives you Wings!

This week is all about energy. Speaking in Lansing MI on 08/08/2008, Obama delivered his New Energy for America speech. The transcript is available here:

In what is becoming his characteristic style, Obama serves up several Really Bad Ideas, layered inbetween fluffy wish-facts and surrounded in a candy coating of sugary language. It's pure junk food for the American soul.

After chanting the magic mantra, biofuels, solar power, wind, he drops one of the anti-energy left's favorite wish facts: "[offshore drilling] won't make a dent in current gas prices." Uh, yeah Barack, it will. Even Paris Hilton gets it (see her campaign commercial). It's undergraduate level economics. Currently the price of oil is sky high because future supply is not expected to meet future demand; therefore, when supply is short and demand is high then price is high. Suppose you know you have a 1000 barrels of oil in your backyard. It doesn't cost you anything to 'store' that oil underground until you are ready to sell it. If you know the price of oil is going to be sky high 10yrs from now, you'll keep that oil in your back yard to sell at the future high price. However, if you know that the future supply of oil is going to increase to keep pace with future demand and your oil won't be worth that much more in the future than it is right now, you will pump your oil now and put the cash somewhere else where it can earn interest. Thus, the US announcing that it will contribute to the supply in the future means lower prices in the future thereby increasing the current supply and lowering current prices.

That is my layman’s, hand-waving version; here is an editorial from a few weeks ago that gives a more elegant explination:
A more scholarly treatment is available here:
And if you liked all that stop by and sign their petition: Drill Here, Drill Now

Inflating our tires and investing in alternate forms of energy are good ideas, no one is arguing against them. However, they aren't sound policy on their own. Another myth Barack subscribes to:

But we should start by telling the oil companies to drill on the 68 million acres they currently have access to but haven't touched. And if they don't, we should require them to give up their leases to someone who will.

This is just plain silliness. If there is oil to be had at a profit; it’s been drilled. There may be oil on those leases that hasn’t been drilled because with current technology it wouldn’t be profitable. For those of you tempted to say ‘those greedy oil companies; they should drill even if it’s not profitable; we neeeeed that oil,’ I ask you: how would you feel if the government demanded that you go to work without being paid? You would be pissed, and rightfully so because that would be slavery. So let’s get over this notion that profit is somehow evil; it’s not.

Furthermore, there is really nothing extraordinary about oil company profits. Our Dear Leader likes to single out Exxon-Mobile for special derision, but their profit margins are not out of line with the rest of the industry. The oil industry as a whole underperforms compared to manufacturing, computers, or chemicals. However, whenever the oil companies make a profit off of you, big government makes a bigger profit:


Keep in mind those taxes come out of your pocket. At least the oil company earned their profit; they had to hire a geophysicist to explore for the oil, a guy in overalls to go drill and refine the oil, and a bunch of guys in suits to figure out how to get it to the pump. What did Congress or Barack Obama do to deserve a chunk of those profits?

While we are on the topic of evil profits; let’s talk about the windfall profits tax that Barack just loves to throw around. This one of Our Dear Leader’s trademark Really Bad Ideas. Jimmy Carter tried it in the 1970’s and proved it was a Really Bad Idea. Barack is going to try it again, just to make sure. Obama supporter, investor, and billionaire, Warren Buffet, had this to say about the tax:

With copper at $3.60 a pound, you could say that the copper producers are getting a windfall. The networks are getting a windfall because of the Olympics. So, I don’t think that picking anybody that’s had a commodity that’s increased in price a lot and saying that there’s a special tax because of that makes any sense. (06/25/08 on CNBC with Becky Quick)

Even Barack’s supporters admit that his tax policy is arbitrary and nonsensical. Note that the definition of extortion given by the Random House Unabridged Dictionary is:

2. Law. the crime of obtaining money or some other thing of value by the abuse of one's office or authority.
Once again, the WSJ has a concise editorial that sums it up:

They conclude:

The point is that what constitutes an abnormal profit is entirely arbitrary. It is in the eye of the political beholder, who is usually looking to soak some unpopular business. In other words, a windfall is nothing more than a profit earned by a business that some politician dislikes. And a tax on that profit is merely a form of politically motivated expropriation.

It's what politicians do in Venezuela, not in a free country.

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