Congress Wants To Sue OPEC
There are times when one has to wonder if our elected representatives are capable of running our country. This week was one of those times. By several actions with week, the U.S. House of Representatives demonstrated that they do not understand cause and effect and are generally clueless about how economics works.
Congress is feeling the heat about gas prices. Consumers are angry about paying nearly $4 per gallon for a commodity that historically as been pretty cheap here. The elections are only 5 months away. Thus, Congress has decided to act - by avoiding the very cause of the problem.
In their infinite wisdom, Congress voted to authorize the Justrice department to sue the the Organization of Petroleum Exporting Countries (OPEC) over the high gas prices. The vote, which was 324 - 84, authorizes the Justice Department to subject the oil producing states to U.S. anti-trust laws. Apparently, Congress thinks this will play well for the elections this fall. In reality, it not only shows how clueless our elected officials are - it also raises a serious risk - both to our economy and to our national security.
The number one entity to blame for high gasoline prices is none other than Congress. While I am all for the development of alternative fuels (something Congress talks about but has done little to really support), I also understand that it will be a decade or more before most of these fuels will make a meaningful dent in our need for oil. Until new technologies come online - we will be dependent on oil. Thanks to Congress, that oil will cost more than ever before.
The first reason that Congress is to blame for high gasoline prices in that Congress has repeatedly fought oil industry attempts to produce and refine more oil domestically. In 1970 the U.S. produced 9.4 million barrels per day. (This is the last year that the U.S. was essentially oil self-sufficient). By 2007, that number had dropped to 5.1 million barrels to day (a fifty year low). Thus, while our consumption of oil has increased significally, our dommestic production has almost been cut in half. Currently, the U.S. produces only 25% of its consumption.
The irony is that the U.S. has billions of barrels of oil. While Congress routinely calls oil industry executives to testify about why gasoline prices are so high, they seem to ignore the testimony. Oil industry execs have repeatedly made clear - in addition to China and India suddenly becoming major consumers, a big part of the high price of oil is because Congress will not allow the oil companies to extract oil reserves that we know are there. The U.S.'s refusal to extract its own oil will be a pretty good argument in defense of OPEC. It is like a person suing the local grocery store for the prices being to high when the person has a full panty at home and just does not want to use it.
During the grilling of oil industry executives, Rep. Maxine Waters of California threatened to solicialize the oil industry if prices do not come down. Yes, we really want the government that has overseen the U.S. transition from oil self-sufficiency to producing only 1/4 of its petroleum needs running our oil companies. Simply put, much of the reason you are paying higher prices at the pump is because Congress has seriously hampered domestic oil production. Maybe we should sue Congress instead of OPEC.
The second reason that Congress is to blame for higher pump prices is that Congress is virtually incapable of controlling spending. To get re-elected, Congress loads up its legislation with pork. Unfortunately, Republicans have decided to take the same approach as Democrats and "bring home the bacon." President Bush, of course, has only recently realized that he is allowed to veto Congressional overspending.
The lack of fiscal control in Congress and low interest rates in the U.S. has lead to the U.S. dollar falling like a rock against foreign currencies. In 2002 I was in Europe and could get 100 Euros for about $90. Today, 100 Euros will cost about $158. The fall of the U.S. dollar means that everything we import, including oil is now about 70% more. Yep, that $132 per barrel oil could be about $80 if the dollar had held its value.
While suing OPEC would make the U.S. look silly in light of its refusal to develop its own petroleum reserves, it is also dangerous both economically and for national security. Most who read my blog are probably too young to remember the oil embargo and oil crisis in the 1970s. In 1973, OPEC was upset by the U.S. and its allies support for Isreal. They decided to embargo these countries. The result was oil shortages and a major hit to the U.S. economy. (At the time I lived in Germany and driving was banned on Sundays). Gas prices shot up - when you could get it. I can still remmember back in the 1970s waiting in lines to get gasoline - lines that stretched for more than a block. I can remember service stations that were closed - because they did not have gas to sell.
The scary part is that domestic production of petroleum is far lower today (both in gross barrels and in percentage) that it was in the 1970s. Back then, we still produced most of our gasoline. Today, what would happen if suddently our supply of gasoline were to drop 75%?
If OPEC decided to retaliate for the lawsuit, we may look back longingly at the dates of $4 per gallon gasoline. Where will the U.S. economy snap $6/gal., $8/gal. or $10/gal? Realistically, we would not be completely cut off from gasoline. We get much of our gasoline from Canada and other non-OPEC countries. However, if OPEC were to even cut back on supply by 10%, it would enough to send oil futures soaring. OPEC countries have plenty of money thanks to the current price of oil (ie. thanks to Congress) and a number of them, including Iran and Venezula do not particularly like us.
Rather than threatening lawsuits to look tough before November's elections, the best thing Congress could do would be to vote to allow more domestic oil production, while promoting alternative energy for the future. Of course, the best thing the American people could do would be to use their vote in November to get rid of the people who created the problem in the first place.
Congress is feeling the heat about gas prices. Consumers are angry about paying nearly $4 per gallon for a commodity that historically as been pretty cheap here. The elections are only 5 months away. Thus, Congress has decided to act - by avoiding the very cause of the problem.
In their infinite wisdom, Congress voted to authorize the Justrice department to sue the the Organization of Petroleum Exporting Countries (OPEC) over the high gas prices. The vote, which was 324 - 84, authorizes the Justice Department to subject the oil producing states to U.S. anti-trust laws. Apparently, Congress thinks this will play well for the elections this fall. In reality, it not only shows how clueless our elected officials are - it also raises a serious risk - both to our economy and to our national security.
The number one entity to blame for high gasoline prices is none other than Congress. While I am all for the development of alternative fuels (something Congress talks about but has done little to really support), I also understand that it will be a decade or more before most of these fuels will make a meaningful dent in our need for oil. Until new technologies come online - we will be dependent on oil. Thanks to Congress, that oil will cost more than ever before.
The first reason that Congress is to blame for high gasoline prices in that Congress has repeatedly fought oil industry attempts to produce and refine more oil domestically. In 1970 the U.S. produced 9.4 million barrels per day. (This is the last year that the U.S. was essentially oil self-sufficient). By 2007, that number had dropped to 5.1 million barrels to day (a fifty year low). Thus, while our consumption of oil has increased significally, our dommestic production has almost been cut in half. Currently, the U.S. produces only 25% of its consumption.
The irony is that the U.S. has billions of barrels of oil. While Congress routinely calls oil industry executives to testify about why gasoline prices are so high, they seem to ignore the testimony. Oil industry execs have repeatedly made clear - in addition to China and India suddenly becoming major consumers, a big part of the high price of oil is because Congress will not allow the oil companies to extract oil reserves that we know are there. The U.S.'s refusal to extract its own oil will be a pretty good argument in defense of OPEC. It is like a person suing the local grocery store for the prices being to high when the person has a full panty at home and just does not want to use it.
During the grilling of oil industry executives, Rep. Maxine Waters of California threatened to solicialize the oil industry if prices do not come down. Yes, we really want the government that has overseen the U.S. transition from oil self-sufficiency to producing only 1/4 of its petroleum needs running our oil companies. Simply put, much of the reason you are paying higher prices at the pump is because Congress has seriously hampered domestic oil production. Maybe we should sue Congress instead of OPEC.
The second reason that Congress is to blame for higher pump prices is that Congress is virtually incapable of controlling spending. To get re-elected, Congress loads up its legislation with pork. Unfortunately, Republicans have decided to take the same approach as Democrats and "bring home the bacon." President Bush, of course, has only recently realized that he is allowed to veto Congressional overspending.
The lack of fiscal control in Congress and low interest rates in the U.S. has lead to the U.S. dollar falling like a rock against foreign currencies. In 2002 I was in Europe and could get 100 Euros for about $90. Today, 100 Euros will cost about $158. The fall of the U.S. dollar means that everything we import, including oil is now about 70% more. Yep, that $132 per barrel oil could be about $80 if the dollar had held its value.
While suing OPEC would make the U.S. look silly in light of its refusal to develop its own petroleum reserves, it is also dangerous both economically and for national security. Most who read my blog are probably too young to remember the oil embargo and oil crisis in the 1970s. In 1973, OPEC was upset by the U.S. and its allies support for Isreal. They decided to embargo these countries. The result was oil shortages and a major hit to the U.S. economy. (At the time I lived in Germany and driving was banned on Sundays). Gas prices shot up - when you could get it. I can still remmember back in the 1970s waiting in lines to get gasoline - lines that stretched for more than a block. I can remember service stations that were closed - because they did not have gas to sell.
The scary part is that domestic production of petroleum is far lower today (both in gross barrels and in percentage) that it was in the 1970s. Back then, we still produced most of our gasoline. Today, what would happen if suddently our supply of gasoline were to drop 75%?
If OPEC decided to retaliate for the lawsuit, we may look back longingly at the dates of $4 per gallon gasoline. Where will the U.S. economy snap $6/gal., $8/gal. or $10/gal? Realistically, we would not be completely cut off from gasoline. We get much of our gasoline from Canada and other non-OPEC countries. However, if OPEC were to even cut back on supply by 10%, it would enough to send oil futures soaring. OPEC countries have plenty of money thanks to the current price of oil (ie. thanks to Congress) and a number of them, including Iran and Venezula do not particularly like us.
Rather than threatening lawsuits to look tough before November's elections, the best thing Congress could do would be to vote to allow more domestic oil production, while promoting alternative energy for the future. Of course, the best thing the American people could do would be to use their vote in November to get rid of the people who created the problem in the first place.
Interesting article. My understanding is that big oil companies are making most their money by producing crude oil, and that most of these companies invested in oil fields when prices were much lower. At the time of their investment they figured to be able to break even at roughly $25 per barrel. Now that crude oil is going for over $100 a barrel oil these companies are being accused of price gouging. I think it is more a result of global markets i.e., supply and demand rather than market manipulation. If oil companies could control the price of crude oil, then they would not have allowed the price to fall to almost $10 a barrel as it did in 1998.
My grandfather owns an avocado ranch in California. Some years he makes a profit, and other years he doesn't. His avocado output doesn't change much year to year. It is not his fault if the avocado enjoys a particularly good market value any given year.
To me the soulution seems to be either increase supply or decrease demand...not a lawsuit.
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I am sure that Maxine Waters and the gang will be more than happy to slap your grandfather with a windfall profits tax. To make the analogy consistent, however, Congress needs to limit the land which can be used to grow avocados and make it harder to process them.
The real irony is the a substantial portion of those profits end up in taxes anyway. The U.S. has one of the highest corporate tax rates in the world. If the brain dead in Congress like Maxine Waters keep talking about windfall profits taxes and the like do not be surprised if you suddenly hear that ExxonMobil is now the larger company based in the British Virgin Islands or some other local that does not try to punish corporations for turning a profit. I would send her a copy of Atlas Shrugged - but I don't think she would understand it.
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