With this video now making the rounds, I have to say that I honestly am tired of hearing candidates on whirlwind tours of the United States talking about how we can’t run our air conditioners or drive big SUVs.
The fact of the matter is that the amount of oil on the planet is not the issue. The issues are
–Where we get the oil.
–How we get the oil.
–Who pays for getting the oil.
–What they do with the oil they’ve paid to get.
–What happens to the oil to turn it into the products we need it to become.
Where We Get The Oil
If you grew your own tomatoes instead of buying them from the supermarket, the tomatoes you eat would be cheaper. It’s the same for oil. Oil we drill here or in our territory doesn’t cost us as much because we don’t have to pay as many middle men.
How We Get The Oil
Walk into any food store–Krogers, Whole Foods, Fresh Market–and take a look at the mushrooms. The plain old white ones that grow like crazy right out in the open are the cheapest. The exotic ones which grow under trees or in special soil or only at certain times of the year can cost megabucks, because they’re harder to get. The same goes for oil. As we exhaust the supply of easy-to-find oil, we have to go digging deeper and that costs more.
Who Pays For Getting The Oil & What They Do With The Oil They’ve Paid To Get
When you were a kid you may have gone grocery shopping with your mother. I did, and getting a basic candy bar was a big treat that happened very rarely. She controlled what we bought at the supermarket, and I only got a candy bar if she was willing to pay for it. Even though there was candy all over the freakin’ store, to me it seemed like a rare commodity because I could only get one if she was willing to buy it for me.
As I got older and had some of my own money from babysitting, working for the phone company and typing other people’s research papers I could buy my own candy bars. I went to a small school, though, and we didn’t have food vending machines. Occasionally the band or the Senior Class would sell candy bars at the lunch break. Even though I could theoretically get a candy bar for a quarter, I had no way to get to the grocery store so I would pay those folks a dollar a bar. I had no choice.
Oil is like that. As it gets harder to get (see #2), the money to go drilling is coming from banks and investors. As banking regulations changed in the late 90s, the way investment bankers like Morgan Stanley and Goldman Sachs made their money had to change. By the early 2000s they were doing two things–investing in oil exploration companies and investing in oil futures. They did this because they wanted to get more out of it than they put into it.
Continuing with the grocery store analogy–those banks gave money to certain companies to go out and buy up as many candy bars as possible. They then bet that the price of candy would go up. And they kept all the candy bars so that it would appear that there was no candy left. And then they said “hey! We have candy. But now it costs two dollars a bar instead of a quarter.” And so they made money in two ways. They make money selling the candy to people at a higher price and they made money off their side bet when they bet that candy would go up.
Meanwhile the politicians are proposing either that we start making cookies (both Republicans and Democrats), open a new candy factory (the Republicans) or eat a lot less candy (the Democrats). Currently no one is going to the banks and telling them to stop buying all the candy bars directly from the factory, stop hording all the candy bars or stop selling the candy bars to everyone at such a stupidly high price. Pissing off the little guy by taking away his candy doesn’t cost you that many campaign contributions.
Here’s where I side with the Republicans, and here’s why. By suggesting we eat less candy the Democrats are expecting that reduction in demand to cause the price to go down. And theoretically it would, but it would also not introduce any competition into the marketplace. So the guys who owned all the candy would still own all the candy and still be buddies with the dudes at the factory who sell them all the candy first.
But the Republican line about opening a new candy factory….that would also theoretically cause the price to drop by increasing the supply. BUT–a new candy factory means that the guys at the other candy factory have some competition.
Me, I like a healthy bit of competition in the economy. Plus I also hate to be told that I can’t have something. If I decide to eat less candy–something I’ve been doing for years–good for me. But tell me I can’t have candy and you’ve got a fight on your hands. It’s all about control. The Republican plan gives the consumer a slight edge in the control game.
What Happens To The Oil
This is the bit no one seems to be talking about. We’re all so worried about getting it, we don’t talk about what we do when we have it. If you got one bag of chocolate chips at the grocery store for a dollar and then turned it into a batch of chocolate chip cookies, that wouldn’t be too much of a hassle. You could sell those cookies at a bake sale for a dime a piece and still make money. But if you had to turn those chocolate chips into ten different cookie recipes, all with slightly different ingredients, then you’d have a problem. It’d be a big hassle, take a lot more of your time and cost a lot more because you had to get so many extras. After all, some people want coconut, some want walnuts and some like raisins. It’s a pain and so you’d charge more at that bake sale. You’d charge even more if you had to make all of the cookies in one kitchen and didn’t have friends helping you out.
That’s what’s happening with oil. For nearly every one of the fifty states there’s a different “recipe” for gasoline. With so few refineries to make the batches of oil, it takes longer and is a more costly process as the dishes need to be rewashed, etc. (Keeping with the whole cooking analogy.)
In all the talk about drilling, I don’t here much talk about standardising fuels across state lines or opening new refineries. That’d help, too.
Now I’ve gone on way too long, I’m sure. But hopefully this makes more sense than just my saying “I’m an open drilling, standardising, free marketer in the oil debate.”
Read Full Post »