From the LA Times:
The proposal would offer concessions to Republicans who have called for increased domestic production: An area of the Gulf of Mexico, 50 miles off Florida's coast, would be open to drilling; and Virginia, the Carolinas and Georgia could decide whether to allow drilling 50 miles off their shorelines.
In a significant shift, the group's Republicans agreed to repeal a key oil industry tax break and force oil companies to pay billions in royalties to the U.S. Treasury for drilling in the Gulf of Mexico.
.....
An estimated $30 billion that would be paid by the oil companies over 10 years would help fund initiatives such as $7.5 billion to help U.S. automakers expand the production of alternative-fuel vehicles. Funding also would be provided for tax credits to encourage consumers to buy more fuel-efficient cars and for extending tax credits to promote energy efficiency and cleaner energy sources, such as sun and wind power.
Let me explain why this is a good compromise.
First, let's review about where we are fiscally. Over the last 7 years, the US government has increased its total debt outstanding from $5.8 trillion in 2001 to the current total of $9.5 trillion. This amounts to an increase of over $500 billion per year for the last seven years. As this debt increase has gone unchecked, the US dollar has lost approximately 44% of its value. Here is a chart from teh St. Louis Federal Reserve showing the decline:
This decline in the dollar is a direct cause of our current problem. Because most commodities are priced in dollars, the drop in the dollar is a de facto price increase in any commodity that is priced in dollars. Hence, as the dollar drops in value commodities increase in price.
At the same time, the US economy is at a point where it desperately needs a large cash infusion from the federal government. We've already seen the government issue stimulus checks. We have also seen the government pass a housing bailout bill and there are also discussions about federal cash going to states to help alleviate growing cash shortfalls across the country. In short, everyone wants to spend money -- which is warranted by the current economic condition.
But here's the rub: as outlined above, we're at a point where we have to start paying for spending which no one wants to do. Everyone on both sides of the aisle is looking for a free lunch. The Republicans have perfected their brand of economic free lunch with the "tax cuts pay for themselves" canard -- which the current budgetary problems clearly disprove (the same way the Reagan years disproved this theory). Yet the Democrats are now moving into their own brand of economic free lunch with the "we can continue to issue debt if its for the right purpose" logic. This line of thought says "if we are spending on infrastructure and unemployment insurance and other programs which are for the public good, the dollar won't fall any further." This may be -- forex traders may agree. But they may not. And that is the underlying risk of the current situation. We can ill afford to see the dollar drop further. Yet that is what increasing deficits and debt issuance by the federal government may do.
There is a deeper reason why this compromise works. If we are to solve our problems -- and there are plenty of them -- then both sides have to start compromising. I am hearing and reading an awful lot of extremely partisan rhetoric from both sides of the aisle, as if the current situation is somehow a test of one's loyalty to each respective party. What is lost is that while President Bush's approval is at low levels, Congress's approval is worse. In other words -- no one likes anybody in government right now -- Republican or Democrat. And the overall reason is painfully obvious: no one is governing -- making difficult choices to solve problems. Instead, everybody is desperately telling us how they other guy is a bigger idiot.
If you look at the deal above, both sides have given something to the other to arrive at a consensus. That is what governing is all about.