Hey C’mon

Those guys are just honest capitalists trying to make the hard-earned buck. You got something against free enterprise?! So what if a few guys on the top make the millions (billions) they so richly deserve while everyonelse struggles to pay for gas and oil. So what if some poor people can’t pay to heat their homes. It must be their fault anyhow. Let them pick themselves up by the bootstraps. Those CEO’s at Exxon-Mobile picked themselves up by the bootstraps and they worked hard to earn that money. They deserve every cent.

Satirical prose aside, there is more to be done here than vilification of “Big Oil”, although that’s certainly in vogue these days. Gas prices around Pittsburgh hit a high of $3.30 in late August-early September, after Hurricane Katrina. It’s now about $2.20 for unleaded (the grade I normally use). Coincidentally, the summer driving season ended a couple of weeks ago, when prices began to steadily drop. Just to step back and examine for a moment – increased demand (summer vacations) coupled with decreased supply (hurricane damage to production facilities) led to higher prices. Sounds like tenth-grade econ to me (sorry – more satirical prose). The political points supposedly scored by bashing oil companies overshadows the very real problem of low-income and elderly persons paying for their winter heating needs. I certainly feel that all levels of government (and the private sector, for that matter) can play a role here. Government can provide vouchers, but wouldn’t a better solution involve lowering property taxes on seniors, or completely eliminating income taxes for low-income families via true tax reform? What about lowering prescription drug costs for seniors? Wouldn’t that put more money in their pockets? I think we need to step back and look at the total economic picture in this situation, not tee off on a favorite partisan target. Why do low income families and the less affluent elderly have trouble paying for anything? Less resources. Why do they have less resources? All of these families surely weren’t victims of well-executed ploys by “Big Oil” or “Big Pharm” or “Big Villian-of-the-Week”. A more likely scenario is that each of these families faced a different set of circumstances to bring them to their current situation, whether it be lack of educational opportunity, poor decision-making, or circumstances beyond their control (personal tradegy, etc.). So, the question becomes – what is government’s role here? We don’t need to turn over every leaf here, but beyond repairing America’s schools or welfare-to-work programs, I think freeing low-income families and the less affluent elderly from their most crippling tax burdens (such as property) is a good starting point. Theoretically, this makes all sides happy. Progressives should rejoice in the concept of “free public services” being extended to the poor and conservatives will gain satisfaction from taxes being lowered. Action in other areas seemingly unrelated (prescription drug relief, energy policy, etc.) will lower costs to low-income families and the elderly, which will grow their respective disposable incomes even more. I know I’ve expounded a bit here, but I think a responsible middle ground can be struck on a very real problem (one that I have faced personally). Demonizing “Big Oil” and telling the poor to essentially shove it do nothing but grow political war chests. As the contributions grow, both the people and the problem become overshadowed. Let’s keep the spotlight where it belongs.

Here are some facts:

The run-up in oil prices was driven by the large speculative buys of the huge hedge funds. These hedge funds are the investment tool of choice for the rich given the very high minimum investment amount. Oil futures attracted their attention once prices rose a little, the market got a little panicky and the hedge fund managers saw a chance to make money and bought up futures furiously. This was not supply and demand driven at all.

It’s now known that the major oil companies have consistently
been shutting refineries under the guise of complying with clean
air requirements, but really because they understand that less
capacity means less supply and higher prices. In California, environmental groups actually support building new refineries
because they will be more efficient and less polluting than the old plants. Big Oil isn’t investing much, if any, of its record profits in new refining capacity as one would expect if they
were operating under the supply and demand rule of economics.

Neither of the above two facts have very little to do with pure
supply and demand economics and a lot to do with market manipulation. Big Oil deserves every bit of criticism it is getting.

Further, retirement income is not taxed in Pennsylvania. Seniors living on social security or pensions pay no state income tax. They may also qualify for state property tax relief and/or
federal EITC supplement.

Your view that if only no one paid any taxes and laissez-faire
economics controlled the economy, everything would be peachy
keen is just wrong.

The thing about the free market is that its supposed to reflect true costs and as another poster says, this wasn’t about costs. It was about speculation. Speculation does drive demand, granted, but demand needs to be driven, above all else, true and reflective costs. The prices that we saw, as indicated by the profits that the oil companies brought in, included much more than the actual costs.

As far as political points go, when the hard right stops trying to score points on guns, God and gays, I’ll stop trying to score points on my populist messages. I know you’re not part of the hard social right, but I’m taking aim at them too.

By the way, I’m impressed on your deflection of the issue to property taxes. But I really don’t think the young couple that rents an will find much solitude in hearing that their landlord sees less property taxes (if you track price elasticity on taxation, you’ll see that when a tax is leavied, it is passed on to the consumer at an average of 85-90% of total value, meaning when it is repealed, the total savings are not passed on to the consumer) but they continue to see higher heating oil prices.

I know that the idea of capitalism as adopted by the right stresses making the most profit, but there is a point when these business folks have to consider their place as moral beings in this society. I’m very glad knowing that I walk to work everyday, so these grabbers don’t get very much profit from me. Wish others could say the same.

Where to begin? You vastly oversimplified my posting to fit your apparently preconceived “capitalist pig” paradigm. At no time did I state that if taxes were completely eliminated, economic problems would not exist. A tax-free state would be ideal, but obviously unworkable. I did propose that significant tax reductions for lower-income families and underprivileged seniors (in income and property, respectively) would defray a good portion of the expected rise in home heating costs this winter. I am aware of what is and is not taxed in this state, and I challenge you to walk lower-income neighborhoods around Pittsburgh and ask the elderly about their respective propety-tax bites. I don’t believe my point was lost on you – you simply chose to spin it.
Your point about supply and demand not being involved in increased oil prices was disproven by your own third sentence. “Oil futures attracted their attention once prices rose a little, the market got a little panicky and the hedge fund managers saw a chance to make money and bought up futures furiously.” Your apparent need to blame SOMEBODY other than market forces is just irresponsible and petty. I, however, will not take and route. Did hedge fund investment play a role in increased oil prices over the past several years? Probably. Do we know exact what impact that investment had on actual prices, considering the speed with which hedge funds can enter and exit the market (i.e., what long term impact did it have?) We don’t, and I would challenge you to prove otherwise. How can a supposed “honest observer” look at a global commodity such as oil and not take into account global events/trends in tracking it’s price? China’s booming economy, Venezuela’s unpredictability, the constant Middle East tug-of-war, and natural disasters such as Katrina play a significant, if not the primary, role in the natural setting of prices.
Your point about refineries being built in America was off-base. One hasn’t been built here in years precisely because of stringent environmental regulations, not because of some evil profit motive. As an aside, exactly what proof do you have of this? The costs of bringing such refineries online is simply too great for most companies to make substantial investments. I believe a balance is to be struck here. I tend to think environmental protection deserves a preeminent place in economic planning, but overreach has unnecessarily hamstrung economic growth (and driven up prices in some markets – I won’t profess to know to what degree, however). We should take advantage of new technologies that preserve environmental vitality while pursuing energy independence. Why is this such an unworkable (or undesirable) goal in some sectors on the American left? Perhaps because ideology overtakes sensible planning?

Good points, but just a couple quick notes. The “hedge fund caper” in oil price increases seemingly has become another scapegoat here. Nobody knows to what extent quick hedge fund buys influenced prices, but it seems to make a convenient target for some. I’m glad you realize speculation doesn’t drive demand (unlike others on this site) however.
I enjoyed your comment on “God, guns, and gays”. Straight from Mr. Dean’s mouth into progressive talking points. I don’t always agree with every strategy in the Republican party’s playbook, so the Screamer’s infamous line isn’t entirely lost on me. I believe we should allow room for debate there.
My emphasis on senior and heating costs was deliberate, because I feel they are hit the hardest by increased prices on basic necessities. I can identify with the trials and tribulations are rent-paying, however, so you’re point on young people was well-taken. However, most young people (unless they receive well-paying jobs straight from college) will struggle economically for a while, placing them in a lower-income demographic. Their tax responsibility should be next to nill, maximizing their disposable income which provides a cushion against price upticks in such areas as home heating. They would also benefit (as would Americans as a whole) from energy reform, increasing supply domestically.

Actually, I don’t disagree that there were some forces that played a part in increasing oil prices. I agree that the situation in Venezuela where their oil industry was shut down for a few weeks disrupted supply, but that was handled rather routinely
by the market. As it should be. IMO, The war in Iraq should be discounted because only minimal production has been flowing out of that country for some time.

The oil industry analysts were the ones saying the hedge funds and “fear” (note no supply disruptions ever occurred) pricing added between $10-15 dollars to the price of a barrel of oil. The market was acting irrationally, it had little or nothing to do with actual supply and demand, but a great deal to do with wild speculation about what might happen. Sometimes markets do that. When they do, it requires gov’t or regulatory intervention.

Further, if you look at the production quotas of OPEC producers, the targets were actually cut last January because of excess supply. Even when the oil producing nations increased production, they still couldn’t reign in prices because the market was in a speculative frenzy. That shows the market was not reacting to supply and demand. This out of control commodities market should have triggered immediate intervention by US, European and world financial market regulators and governments. The same rules that the SEC now uses when the stock market drops too far, too fast to suspend trading.

Now, is it unexpected that demand will increase as more countries enter the global manufacturing market? No. Would it
be unexpected that prices of oil and oil-derived products will
rise? Again, no. Would it be unexpected for alternative sources of energy to found when prices rise? Not at all. But that is how normal supply and demand work. What happened the past several years in oil price isn’t related to normal market forces, but to speculative forces causing an abnormal run-up in prices.

On your point about refineries, the Sierra Club has supported building new refineries in Calif. The oil companies are making record profits. Investing in new plants and closing old ones makes business sense under the usual theories of economics. New plants are more efficient, ergo, they can yield more product for raw material input. New plants also have the advantage of being compliant with clean air laws and so companies don’t have to waste resources in litigation and so forth when those financial resources could be employed more productively. One needs to ask why aren’t the oil/energy companies behaving as economic theory would predict. I’d
argue it’s not because of onerous environmental laws, it’s
because they know that more or more efficient refining capacity
would yield more supply and thus lower profits. I’d say this is
greed, plain and simple.

I am blaming the oil companies for creating an artificial shortage of product because they have chosen to shut refining
capacity or build new even in the face of 90+% operational capacity. That is contrary to what economic theory would suggest happens.

I am also pointing out the market, in the case of oil prices, began acting irrationally at the beginning of Iraq war and was
not going to correct itself. It literally took Katrina to cause a market correction – to show that the “supply fear” was bascially unfounded. That’s why prices have fallen as rapidly as they have on the spot and futures markets.

You said: “We should take advantage of new technologies that preserve environmental vitality while pursuing energy independence. “ I completely agree and could not have said it better.

Finally, I live in Philadelphia county and know exactly the pain property taxes can cause to the less well-off, seniors or otherwise. We have plenty of people here who struggle every day and live paycheck to paycheck. That’s one of the reasons
I contribute automatically each month when I pay my utility bill to the fund set up to help folks who might not otherwise
be able to pay their heating costs. I am glad you share my moral outrage that any American has to placed in this kind of situation.

Ok, maybe the markets drove oil/gas company profits. Nevertheless, and NO this isn’t demonization of “Big Oil”, but would it be so bad a scenario if Big Oil was “encouraged” to give back some of those profits to the elderly, poor & needy or used some of that profit to help rebuild the gulf coast?

And as for your comments on seniors, yes they have all that, but still many fall under the radar and are very, very needy. I say that’s going to be us someday, so let’s take better care of the elderly now.

increasing energy supply domestically isn’t reform… it’s increasing supply. Reform means altering the dynamics of the supply/demand equation. Saying increased supply is reform is like saying Act 72 is reform. It just isn’t so.

As far as the comments on young renters, they do pay taxes property taxes, just not directly. It’s structured into their rent. And if the property taxes were cut, they wouldn’t realize full savings. They would see, likely, somewhere in the line of 80%, if that b/c we aren’t entirely certain of the impact drastic cuts would have in the housing market. We do agree, however, that those of modest to low disposable income (a term I frankly never liked… even two income earning homes with cushions don’t have money to burn) are the ones getting burned the most by increased fuel costs. And that cushion you describe for younger wage earners is, at best a modest cushion, one that can disappear in a flash b/c of the lack of savings that most young wage earners do have. Modest cushions don’t account for 20-30% increases in home heating costs.

Let’s face it. Living is expensive.

If you follow the line of thinking of The Chicago School and Milton Friedman, they actually mock fear within the market b/c it isn’t logical or rational. Demand is predicated on need or want. Without need or want the demand doesn’t exist. The exception is when you have fear. You don’t need something any more than you did before nor do you want it any more. There is no increase in the marginal utility that it will provide. Without that uptick in utility, there is not rational reason to see an increase in demand.

As a renter, I can positively 100% predict that if property taxes go down there will NO reduction in rents. Rents might not rise as often or as fast, but they sure aren’t going to decrease. Anybody who thinks rents will go down if property taxes go down isn’t living in the real world.

pd