Just when you thought the economy had hit rock bottom. The Conference Board, a non-profit global business organization has reported that its consumer confidence index has dropped to its lowest point since the last recession in 1992. The New York Times paints the grim picture:
Tuesday’s data suggested a nation struggling with expensive gas and devalued homes, where people are fearful for their jobs and wary about where the economy is headed.
Any positive signs that economists and forecasters may have cited need to be thrown out the window. Even with the consumer confidence index at 50.4%, down a whopping 7.7% from May, the worst may still be yet to come. This report should be a wake up call to legislators across the country on behalf of a nation in desperate need of more help.
As the economy worsens, more and more key players are getting on board with the idea of a second economic recovery package. But not everyone’s where we need them to be to get something done in time to matter. For example Rep. David Obey (D-WI), powerful chairman of the Appropriations Committee free associated to Congress Daily (subscription only) and revealed that he doesn’t quite get how urgent doing something to stave off this recession is:
“People use all kinds of terminology; I don’t care if you call it a second supplemental or a second economic [stimulus] package — to me there are all kinds of things that we need domestically — but we need finish this job [war supplemental] before we can start thinking about the next one”
This pains me. Not only are House Democrats punting on telecom immunity, they’re putting war spending ahead of domestic spending.
As I posted on myDD, Bush’s first economic stimulus package just didn’t work. We didn’t get the big sweeping surge of economic growth we were promised. Even what good news we’ve gotten was drowned out by a chorus of story after story of bad economic news. The costs of living are growing rapidly as employment becomes harder to find. Food is getting more expensive as food bank lines grow longer. The longer Congress waits to act, the worse things will get.
And the states can’t wait for the aid that Democratic leaders say must be included in a second stimulus package either. State spending is the last prop holding up the economy and is at a tipping point. More than half of the states are facing crippling budget shortfalls that total $48 billion for the upcoming fiscal year. In the absence of aid from the federal government, states have been forced to cut vital services for many of our most vulnerable citiznes. The Center on Budget and Policy Prioritiesgives outlines the chopping block:
At least 12 states have implemented or are considering cuts that will affect low-income children’s or families’ eligibility for health insurance or reduce their access to health care services.At least 10 states are cutting or proposing to cut K-12 education; three of them are proposing cuts that would affect access to child care.
At least 11 states have proposed or implemented reductions their state workforce. Workforce reductions often result in reduced access to services residents need.
And when states are forced to do things like cut their state workforce, the economy suffers even more. According to CNN/Money:
With falling revenue from sales and income taxes, and property-tax declines looming, states, cities and towns have already laid off tens of thousands of government employees. Many expect more job cuts ahead as public officials struggle to balance their budgets.Economists say that cutbacks in jobs and spending by local governments could be a major drag on the overall economy.
It’s cool that Obey recognizes the need for a second stimulus package. But he also needs to understand that each day he lets pass without doing something means the economic hole we’re in is that much deeper and is going to require that much more federal spending to help us get out of.
Price increases for food
Price increases for food and fuel began a couple of years ago. That’s when the Democrats took control of Congress, and stopped all new oil drilling on good land. Arab bribes?
While they’re busy blaming the mythical boogeyman, “Big Oil”, who wants to drill, and President Bush, who also wants to drill, they’ve succeeded in getting the simpler people to believe them. Thus encouraged, they continue to screw up things.
They can’t help making things worse. Consider, after all, what the Democratic Party has become, Mugabe lite.
I think you may want to
I think you may want to reconsider the simpler people. The Republican Party has for many years supported corporate profit and huge tax cuts for corporate America on the backs of the working class…the simpler people. By your comment, I can only assume that you are one of the elite that profits generously from the years of Republican tax breaks for the upper .5% of the population. If you are not, than your comment is nothing more than babbling from a lost Conservative looking for someone, other than the present administration, to blame for the present state of affairs. I for one do not blame the administation for the oil scourge, but I do blame them for sitting back month after month for at least 2 years and doing absolutely nothing. The reason they are doing nothing? They can’t…without military action against OPEC, without nationalizing the oil companies, without completely regulating the oil industry. Drilling offshore will do nothing more than give the oil producers more oil to sell to us for extreme prices. The huge amount of oil coming out of the Gulf of Mexico is being sold to us for over $4.00 a gallon, what makes you think the oil coming from added drilling on the Continental Shelf is going to be cheap. You are dealing with oil companies and executives that really don’t care if can’t buy food because the price of oil is way out of whack. These companies are enjoying hundreds of percent increases in profits and domestic drilling will simply add to the profit. Its time to look at this for what it really is. Pure unbridle rape of all of us by the oil companies and OPEC. Its not a Democrat thing or a Republican thing. This is much more powerful than either political party this country has.
“Just when you thought
“Just when you thought the economy had hit rock bottom…”
What gave you any indication that the economy has hit rock bottom? I’m honestly interested.
If there’s more of
If there’s more of something, the price will go down.
Whether it’s oil, gold, or corn.
Liberals don’t seem to understand that.
Or, they like making us all poorer.
That’s the real reason they don’t want more drilling.
Man up, morons!
Listen. You have to think a little before you speak…or post.
Take this, for example. You’re an oil company. You think, “How do I improve my bottom line?” Hmmmm? “Maybe I’ll just withhold a bit and refine a bit less…and the price will rise!” Easy, peasy!
I mean, what is the impetus for oil companies to do anything to help you or I? All they want to do is make more money. So, of course, they’ll manipulate the supply chain as a way to bolster their bottom line. After all, aren’t they one of those corporations/sector that the GOP is so fond of? Aren’t they the timidly regulated multinationals which the GOP gets so much of its funding from?
Or, look at it from another angle. What if there simply isn’t all that much “extra” oil out there? What if ANWR isn’t the answer? What if the peak oil people are right? What then?
The “energy” companies are clearing gaming the system. They are doing all they can to milk every bit of profit from all of us…and I mean all of us, worldwide! They are smart enough to make money on both sides of the equation as well; they make money off their “product,” and they make a ton by playing the commodities markets at the same time. For them, it’s a win-win, for us, it’s lose-lose.
Drilling off the continental shelf isn’t going to change that for ten minutes…
Piltdown Man
A Game of Mistakes
You theory of oil company behavior, Piltdownman, seems very wrong to me.
Reducing production to increase prices would only work if there were but one monopolist oil company or, perhaps, if companies controlling the lion’s share of oil production colluded and the minority producers could not increase their production more than trivially. The oil companies exist within a market and as such must sell at the equilibrium price of that market, viz. the point where the supply curve and demand curve intersect; a single company, unless it is a monopoly, cannot significantly affect either the supply or the demand. If a company were to decrease its oil production, the effect would only be that it would earn less revenue while other companies would earn more revenue. High oil prices are caused by high, and every higher, demand for oil and presumably by low elasticity of demand, viz. the quantity of oil demanded is not very sensitive to changes in price. I might be incorrect about that and I certainly expect that as substitutes emerge and infrastructure changes, the elasticity of demand will increase; the strangely distressed news that has appeared from time to time in the press about people driving less surely demonstrates that it is far from perfectly elastic.
There is another reason that suppliers of oil would want to increase supply to decrease the equilibrium price: A prolonged period of high fuel prices will likely inspire refinements and new developments in technology to decrease, if not eliminate, oil use; that would have the consequence of reducing demand and therefore the price of oil, thus imperiling the future profitability of oil suppliers. Such a result could be ruinous to some nations that are dependent upon oil for their wealth; consider that Saudi Arabia not long ago increased the number of barrels of oil it produces daily by 200,000 barrels. That is, of course a trivial portion of the whole daily oil production and suggests that Saudi Arabia is near the height of what it can produce.
I am not sure what you mean by decrying energy companies for, “gaming the system,” but if you are referring to commodities market speculation, neither Paul Krugman nor James Hamilton thinks that that is a significant cause for the growth of oil prices.
Opening the Arctic National Wildlife Refuge and continental shelf to drilling will probably not significantly affect the price of oil, so I concur with your conclusion on that point, but I think that the reasoning that you reached it by is erroneous and that you badly exaggerate the villainy of the oil companies.
“Reducing production to
“Reducing production to increase prices would only work if there were but one monopolist oil company or, perhaps, if companies controlling the lion’s share of oil production colluded and the minority producers could not increase their production more than trivially.”
Are you aware of OPEC? Do you understand its function?
No need to read the rest of your post, as this statement solidifies Pilt’s arguement.
A Further Gambit of Errors
I think that you would profit by reading the rest of what I wrote.
I thought that Piltdown Man’s was referring to domestic oil companies, not national oil producers. It is difficult to assess quite what he means because he wrote so few specific references. I am half surprised that he did not invoke the Illuminati and Freemasons. OPEC is not, in any case, a monopoly of the kind that would allow for such pervasive, safe command of oil markets.
OPEC is a cartel of thirteen nations that control a little more than a third of the world’s oil reserves. Because it has neither sole, absolute control of the reserves nor absolute control of the United States oil market, it is not a monopoly. The oil crises of the late seventies was supplanted by an oil glut because demand declined in response to less supply and nations that were not members of OPEC produced more oil; the consequent loss of market share by the members of OPEC induced some members, particularly Saudi Arabia, to increase their oil production, thus breaking the cartel. This quite probably taught them not to attempt such a scheme again. As I wrote before, if oil prices remain very high, more efficient use of oil and more use of substitutes will be pursued, which will lead to a decline in demand, thus one in prices and of the profitability of oil.
Neither Piltdownman nor anyone else who is castigating the oil companies has supported their assertions with economic reasoning or empirical facts.
I would like to see evidence that a large majority of oil producing nations or oil companies have either decreased their production or artificially slowed its growth. The theory that greater demand for oil caused for things such as a the significant rise in automobile purchases in China still seems far more compelling and better supported than theories of collusion and conspiracy.
“OPEC is a cartel of
“OPEC is a cartel of thirteen nations that control a little more than a third of the world’s oil reserves”
While this may not be the lion share you quoted in your previous post, surely it is enough to distort the world’s oil market. I simply cannont ignore this economic fact.
Also, if the oil companies were overwhelmingly concerned with the decrease in demand caused by surging prices, why wouldn’t they invest a portion of their record profits into alternative energy, or at the very least increasing efficiency?
Response....
I appreciate your thoughtful take on economic theory. However, let me point out something. First, your comment;
“....if companies controlling the lion’s share of oil production colluded and the minority producers could not increase their production more than trivially.”
Obviously, one of the largest producers already does collude. I refer to the nations/producers of OPEC. They essentially exist to collude and manipulate prices.
In addition, if we assume that we are at or near “peak oil,” (and I know that is a contentious issue) it is very possible that both the major and the smaller producers simply are not in the position to pump more oil and increase production. One of the unknowns in this entire debate is the fact that no one really knows how much oil is left in the Saudi fields and in other parts of the Middle East.
On another point you made;
“A prolonged period of high fuel prices will likely inspire refinements and new developments in technology to decrease, if not eliminate, oil use; that would have the consequence of reducing demand and therefore the price of oil….”
True enough, theoretically. But the problem with this statement is that is assumes that there is a readily available and scalable replacement for oil, when there simply is not. This isn’t a matter of buying more carrots because the squash crop was ruined. Your theory depends on the idea that, as-needed, we can ALWAYS find a technological solution to our problems. I would posit that, while we often have, this time it’s unlikely…particularly in the near term of 20-40 years…
Pilt
Its not as complicated as
Its not as complicated as all this. The prices are being increased by all parties from the sands of Saudi Arabia to your cars tank. The reason…because there is no way to stop it. Price hikes have been slowly tested for several years and these tests on the public show that we will simply take whatever increases come along. This is not a drill. This time the prices will climb until the bubble breaks and I can’t tell you what that break means. But the villainy of the oil producers and suppliers is very evident in their profits. These profits are so far above the norm for any industry they don’t border on larceny, it is a holdup in plain sight.
Short-Term Solutions for Long-Term Success
Hopefully I’m not alone in the thought that this entire, never-ending blame-game on energy and the price of gas is both ludicrous and extremely unproductive. When gas hit $4 a few weeks back, all ends of the political spectrum, as if on cue, let loose with their best partisan renditions. Industry blamed environmentalists. Environmentalists blamed industry. Conservatives blamed liberals (and vice versa). I’m fairly sure I saw a few reports of cats blaming dogs as well. Let’s step back, remove the politics, and examine the simple economics. The United States imports most of it’s oil from overseas, meaning we don’t rely on our own means of production. When the economies of other countries experience rapid growth (i.e., China, India, et. al.), those countries require more and more energy resources, meaning other countries (i.e., us) can’t bring as much to our shores for consumption. What happens when demand outpaces supply? Bingo – $4 a gallon gas. With limited domestic production resources, we are at the mercy of global market fluctuations just as much as anyone else.
Another point: both presidential campaigns, like the American people at large, seem to be angling for a “quick fix”, as if the next POTUS can wave a magic wand and bring gas back under $3 at will. I think everyone is adult enough to realize this is absurd. America didn’t work it’s way into this terrible position overnight, and it may take even longer to dig it’s way out. Like I said in a previous post, all sides MUST come together and agree to put ALL options on the table in the near future if we are to see ANY relief before 2015 or 2020. Yes, I believe it will take that long before energy prices stabilize permanently. We must consider more domestic drilling, clean coal, nuclear, wind, solar, mopeds, kites, Power Wheels – well, ok, only the really cool motorized Power Wheels.
Seriously, I believe we all understand this isn’t just another summer where gas prices spike, then stabilize in the fall. China isn’t going to stop expanding. India’s economy isn’t going to stop growing. What are we doing here at home to blunt the effect of being the odd-man out? We can all take our partisan sides are toss around insults, accusations, etc., or we can come together and realize a few basic truths. One, right now, we need oil. Our economy, perhaps unfortunately, literally runs on it. Less oil means less production, which means less jobs, less tax revenue, etc.. Is being dependent on oil an ideal position? No. Is it the reality we are confronted with? Yes. So what do we do? Do we head over to the Kingdom of Saud and literally beg the Crown Prince to increase production (and President Bush recently did)? It’s actually pathetic if you really think about it. We sit on MILLIONS of barrels of oil (under the sea, shale reserves, etc.), yet we would rather hold ourselves at the mercy of countries who really don’t much care for us because we simply don’t have the political will accept reality as it stands now. Should we move toward alternatives? Of course. The federal government (along with states) have spent millions of dollars encouraging this in the recent past, and those trends should continue. I personally believe alternatives are our energy future (although I also believe oil is never going to go completely unused). However, at present, wind or solar doesn’t keep America running – oil does. The only way to inoculate ourselves from the fluctuations of global energy markets (and not be held captive by outfits like the Saudi royal family) is to follow my grandmother’s advice: if you don’t like (or can’t afford) what somebody else is offering or selling, make your own.
Once again, Gent, I must
Once again, Gent, I must agree with all you say. More than anything else, I second the motion to set all politics aside. The terrible widening of the schism between the two parties and Americans over the last 15 years is in my opinion the most destructiive force in America today.
A little story…My 17 year old son works with me until he’s off to Duquesne in the Fall and we were sitting in heavy traffic on the Baltimore Beltway. The backup due to road construction that had not yet been cleared. My son turns to me and says, “Just think of all the gas we would not use if this construction were done at night.” There were literally thousands of cars and trucks inching along. Foot on the gas…foot off the gas…foot on the gas…foot off the gas. By simply changing the work hours of a road construction crew, a huge difference in gas consumption. Then multiply that across the country. HMM!
JP
True, JP.
You have an extremely smart kid, JP. Maybe he’ll be the one that fixes our energy mess someday. You never know…
Don't forget the hedge funds
The oil companies have found themselves the happy recipient of the “law of unintended consequences” of the Clean Air Acts because they didn’t want to build new, clean refineries or upgrade their current facilities and now those same refineries can’t produce enough to meet demand, thus causing higher prices and higher profits, but we need to look at the role of unregulated hedge funds in the pricing as well. Only seven years ago, oil was selling for $10a barrel and now it’s $140. This is NOT a result of just supply and demand. It’s a result of the extreme gambling/speculating mentality that has infected all markets for the last decade.
pd
Moderate speculation is
Moderate speculation is necessary to mitigate some of the market’s risk. However, when over blown, just as it is in commodity markets, speculators drive the price well above market value creating a huge bubble. Unfortunately, we all know what happens when the bubble burts.
It all boils down to: More
It all boils down to: More oil lowers prices.
86% of ALL Democrats have consistently voted against drilling.
86% of ALL Republicans have consistently voter FOR drilling.
Democrats are killing us, but they’re so dumbed down they blame refineries and the usual “big oil”, both groups that want MORE oil. Democrats are like people who commit hari-kari, and want everyone else to do so. More and more people are thinking that Democrats may be just plain dumb, on top of being bitter and hateful.
You must be a
You must be a Democrat…you sound so bitter and hateful!!
OK. Let me try to sort this out....
I’ll admit that I don’t have all the empirical data I need to tell you whether there is, or is not, enough oil out there…and whether the oil companies are fixing the prices at levels that, in the end, play only to their advantage. No, I don’t have that information. But sadly, it seems, no one else does, either! Think about it. The industrialized world RUNS ON OIL, but we really don’t know how much there is, nor how the market for it is operating? Isn’t that a bit frightening? And isn’t that a recipe for corruption and disaster?
To those who have taken issue with my assertion that oil companies are complicit in the price run-up, I can only say; they are massively powerful organizations whose sole purpose is to make money….what do you think they’re going to do? Haven’t you ever worked for a company? Don’t you get it? Paying dividends and juicing the stock price is the holy grail for these people…. It’s ALL that matters. In addition, the oil companies are a BIG part of the commodity trading in oil futures. They have found a nifty way to create a win-win situation for themselves.
To the “drill, drill, drill” crowd I have to say; what about those thousands of leases that already exist? Why aren’t your beleaguered oil barons out there drilling right now? No makin’ enough money? Profits too low?
And seriously, most informed experts say that additional drilling is only a stopgap. We may push the problem off for a few years of a decade or so…but what happens after that?
In the end, the truth is, we can’t allow our nations to be run by companies who are only “in it for the money,” and that’s exactly what the oil companies are all about. Maybe Chavez is right. Since we all live or die on our access to oil (and don’t doubt that for a minute) perhaps we should take control of the product and leave the slimy oil manipulators looking for another line of work…
As to alternative fuels? I am wary of the “technology will save us” mantra. With all the computing power that now exists, we still haven’t been able to raise the MPG ratings of most cars about 25? What, exactly, is going to save us? What will be as easy and energy neutral as poking a hole in the earth and harvesting that slippery black goo? Mind you, I am not adverse to new ideas or discoveries, I’m just not sure there is one on the horizon that has the ability to replace our fixation on oil…
Pilt
Its difficult for modern
Its difficult for modern man to think that he is the cause of his own demise. We have for years thought we would go the way of the dinosaur and be exterminated by a meteor crashing into mother earth. The fact is we are speeding toward an end of our supply of oil (try thinking of the future in terms of decades and decades, not days and months). There is a specific quantity of oil and when its gone…its gone. At some point we need to realize that oil will run out. But we also need to realize that alternative energy sources will not guarantee our present life and work styles. We will be traveling less and we will be living closer to our work places and we are probably experiencing the end of travel by air. Cities will once again become the center of civilization and outlying areas will be agricultural, not bedroom communities. The list of changes could go on and on. Is it a bad think? Probably not. The revitilization of America’s cities could put an end to gun violence. Could make it very difficult for drug dealers to find safe havens and ample customers. Clean air could be the norm when fossil fuels are nolonger burned.
Perhaps running out of oil would be the saving grace this species called Man desperately needs.
JP
JP, I have never seen
JP, I have never seen anything so wrong. First of all, we can’t run out of oil. It’s produced underground by magmatic heat and moves toward the surface. But, the left doesn’t recognize that, though it was Stalin’s scientists who discovered it and built the Soviet oil fields on that discovery. The deepest oil well are far below the imaginary dinosaur graveyards that leftists think oil comes from.
Go back to worrying about meteors, if you have to spend your life worrying.
I appreciate your
I appreciate your confidence in the unending supply of our natural resources and I will admit I am not a geologist. But I’m inclined to place oil on that same list of natural gifts from Mother Earth that Man will eventually eat up and cannot replace. We have a fairly good grip on the amount of oil consumed by the Earth’s population, what we don’t know and perhaps you can share with us, is the amount of oil PRODUCED by magmatic heat in a specific time period and if this exceeds the amount we use?
This is just like your tax forms…if the magmatic production exceeds our consumption, we have a winner and no more worries. If the opposite is the case, no need to worry, but it should be a stimulus to look in other directions and search for alternatives.
This is not a Conservative vs Liberal thing. At some point, we will be forced by Nature to solve these problems together. The Earth we stand on cares very little about our differences, but it does care about what we do to it.
JP
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