We Elected These Buffoons?

Imagine that you were the CEO of large automobile manufacturer and last night the plant that manufactured the transmissions for your product was destroyed in a massive fire. What would you do?

Would you work extra hours, demanding that your executive team make the same commitment?

Would you burn up the phones looking for a new supplier, someone to provide the product that is essential to your production?

Or would you take a vacation and tell your shareholders that you want to use this opportunity to develop technology that will make transmissions obsolete?

The government is the only organization in the world in which we pay leadership to not solve problems. Perhaps it is time that Americans wake-up, demand solutions, demand an end to the polarizing positions that our congressional leaders have taken and reestablish accountability within the government.

Our economy is not improving and will not improve unless our congressional leadership takes immediate steps to address rising energy prices. We are oil driven society and regardless of your environmental positions, our reliance upon oil is not going to change anytime soon. As we approach the Independence Day weekend oil prices are once again in record territory and the market has been pummeled by a continuation of credit worries, a dollar that continues to fall, and news coming from the manufacturing industry of rising productions costs and falling sales.

So…Where is Congress????

On Vacation!

Our congressional leadership apparently feels that they are deserving of a nice relaxing vacation after their months of hard work at avoiding economic issues. Both parties are responsible for the polarization within our government; they have adopted strategies in which they place blame on others while doing nothing to solve problems. The only thing that congress has done successfully is the exploitation of our nation’s challenges for their political gain.

Eighteen months ago, Democrats swept into power on a platform that criticized the Bush administration and congressional republicans for oil prices that had jumped from $25 to $60 per barrel since 2000. They promised us that they would solve rising energy prices; yet 18 months later oil has hit new record highs closing at over $140 per barrel. This week the President of OPEC made statements eluding to his belief that oil would reach $170 per barrel by the end of summer, nearly 3 times the cost when our current congressional leadership promised action.

So what action has our congressional leadership taken? They tried to pass a Windfall Profits Tax, a tax that admittedly would not lower oil prices and would base consumer relief upon government rebates provided by the newly generated revenue. When we passed a WPT under the Carter administration domestic production fell, prices increased and the IRS stated that it cost taxpayers $150 million dollars a year just collect the tax. Now imagine the costs associated with the proposed government rebates tied to this new WPT. The WPT would result in a massive new bureaucracy charged with the redistribution of these taxes based upon a government determination of who is eligible to receive the funds.

Congressional leadership attempted to pass a Price-Gauging bill, a useless piece of legislation that only mirrored the price gauging laws already in place in every state of the Union. And finally, they blocked an amendment attached to the mortgage relief act that would have provided $6 billion in renewable energy incentives. Then they went on vacation.

In recent weeks Congressional leaders have blocked legislation that would allow individual states to determine if offshore drilling would be allowed off their coasts. The irony is that the legislation has the votes to pass and the support of over 60% of Americans. Congressional leadership has referred to the bill as a “band-aid” providing no long term solutions and doing nothing to lower prices or increase supply for at least 5 years. So rather than relying upon American ingenuity and attempting to increase domestic production, our congressional leadership has determined that no action is the best action. Congressional leadership has told the oil companies to drill on the land they already lease, of course they conveniently left out that much of the land that is not being drilled on has been explored and does not have sufficient oil reserves to warrant the cost of drilling. But would it take 5 year to start to see new oil flow from these areas? Perhaps, but then again if we can watch a cable TV show, Black Gold, in which a fully functioning oil rig can start producing oil in less than 55 days, then why would not believe that our ingenuity could further speed up offshore production.

Congressional leadership has also demonstrated their complete lack of understanding as to the economic costs of high oil. Only 65% of our oil consumption stems from transportation; with a majority of that 65% being consumed by the transportation of manufactured goods and the airline industry, both of which would not receive rebates stemming from a WPT. The other 35% of our consumption is used for petroleum based consumer goods, manufacturing, and heating. Dow, for instance announced a 20% increase in the cost of their petroleum-base products. High oil prices affect much more than the cost at the pump.

Congressional leadership has also proposed closing the so-called “Enron” loophole. An idea that would work in theory, but in practice could have a wide-ranging and devastating effect on personal savings. Congress jumped on the speculator bandwagon only to learn that the influx of commodities investments includes the movement of billions of dollars of pension assets into these markets. Once again, congressional leadership has decided that no action is the best action.

Perhaps the best indicator of whether our congressional leadership is truly concerned with solving the oil crisis rests in the mindset of this leadership. This week Senator Reid attacked our use of Coal and Oil as being “dirty” products that make us “sick”. The media for their part has turned these comments into a debate as to whether these comments are accurate. The issue isn’t the accuracy of these statements, Coal and Oil are dirty products that do make us sick; but attacking these necessary resources does not solve our energy problems. Our society is dependent upon oil and coal. Even if technology were produced today, it would take decades to retrofit our infrastructure and wean our economy off of oil and coal. But the fact remains that these new technologies are not yet developed and if we do not take action to stabilize the energy markets they may never be developed. After all, a country that has bankrupted itself due to the inaction of leadership cannot afford to research and develop new technologies.

Congress could solve the energy crisis that will only strengthen when temperatures fall this winter. But there actions must be bi-partisan and our leaders must be willing to take steps that will anger the special-interests on both sides of the debate.

• We must be willing to attempt an increase in domestic oil production (including drilling, the use of oil shale, and coal gasification) with stringent environmental regulations. Domestic oil production will create new jobs, strengthen the falling dollar, reduce the trade deficit, and increase government revenue.
• We must be willing to invest and provide incentives to private industry and entrepreneurs seeking the development and improvement of alternative energy sources.
• We must be willing to strengthen our relationships and promote new agreements with our true allies such as Canada; as opposed to passing new regulations which demote the use of Canadian oil while promoting the importation of oil from Middle Eastern countries.
• We must build new refineries and be willing to re-examine our environmental regulations. Re-examining does not mean that we lower standards, but it does mean that our government applies uniform standards.
• We must be willing to push for regulations aimed at increasing performance and gas mileage within the auto industry; but again, an auto industry that is going bankrupt will not be able to develop enhanced technology.
• Finally, we must be willing to return to the principles of Teddy Roosevelt. Roosevelt understood that our capitalism must be a “modified capitalism” based upon a government that promotes strong competition within industry rather than freedom of the market. Since WWII, our government has abandoned the promotion of capitalist competition thus allowing our economy to drift back into a late 1800’s capitalism based upon mergers, acquisitions, and the monopolization of industry. Our government has led us down a path in which every aspect of the oil industry is controlled by monopolizing entities. The production side is monopolized by OPEC, intent upon manipulating prices through production controls. The refinement and delivery of the product is controlled by a limited number of non-competitive, monopolizing oil companies, supported by our government. For years, private companies have absorbed the costs of rising oil but are no longer able too. Meanwhile, oil companies have passed along their increased production costs and maintained record profits. There is no competition within the oil industry and free markets cannot control an industry in which there is a lack of competition.
  
  So what can we do?
  
  It is too late to invoke anti-trust laws to break up these monopolies and price controls will not work so long as production is controlled by OPEC. Taxation is a method for generating government revenue and no substitute for genuine regulation. Taxation has only strengthened the collusionary ties between our government and the oil companies. But in a lack of competition, profits-caps will work! There is no reason why our government cannot enact a profits cap on the oil industry. A profits cap based upon an averaging method would immediately lower prices, allow the oil companies to retain healthy profits, encourage oil companies to develop new technologies by allowing increased profitability for the development of such technologies, and protect the American consumer against the genuine lack of competition. It is a solution that will work without nationalizing the companies and creating further bureaucracy. It is time that we return to the politics of Teddy Roosevelt.

Our solutions to rising oil prices must be found in a comprehensive effort that provides immediate, intermediate and long-term solutions. Genuine energy reform will anger special interests on both sides of the debate, but then again we elect our officials to cater to our challenges not to the lobbies pursuing specific interests. It is time that our leadership gets off their duff, abandons the special interests, abandons their pursuit of political power and does the job we pay them for.

So while our legislature enjoys a “well-earned” vacation perhaps the American people should begin to work on the job of replacing them.

J Brown
July 2nd, 2008

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