Only Nixon could go to China.
Obama must bribe the oil companies.
Oil. Solar energy. Windmills. Clean coal. Biofuels. Nuclear power. I have already taken this trip once.
In the time of Jimmy Carter, he tried to change way energy was and is produced and used in the United States. He got nowhere. His approach to the problem failed. Subsidize new ideas. Tax the evil oil companies. It did not work then. It will not work now.
Americans do not trust the government to solve the problems caused by importing and burning oil.
They don’t like oil companies, but they are not impressed by the alternatives.
The morality of oil company executives is irrelevant. Their duty to their stockholders is to make lots of money. Many inherited their wealth, and want to pass even more on to their families. So they do things which make the most money, the fastest way possible.
They support the right wing because war in oil producing countries makes them more money. They are not part of some brotherhood of oil seeking converts to democracy. They do not care whether Islamofacists or democracy loving Christian converts pump oil in the Mideast. They just want them to pump less. Our oil companies have old expensive wells. They want the highest possible price for that oil. It is not getting any cheaper to produce. If cheap production in the Mideast can be disrupted, the price rises above the profitability threshold for their old wells.
These folks are not interested in more oil being produced in the rest of the world. They just want the best possible price for THEIR oil. Unless of course they are getting a piece of the action elsewhere.
You can call that evil. Or not. But profit is the motivation. Not ideology. Not religion.
It means that they like people to drive big wasteful cars. It means that war in the land of a competitor is a good thing. It means alternatives to using oil are bad. It means special oil or gas taxes are very bad.
It means that they want alternatives to fail. And a great way to make alternatives fail is for oil prices to fluctuate. High prices stimulate investment in alternatives. Low prices kill the market for those alternatives. The investors go bust, and they give up.
So how can the government jumpstart the alternatives? How to keep them alive until the technology matures? This was the Carter way: Tax oil and subsidize alternatives. Carter’s heart was in the right place, but that strategy did not and will not work in America.
Americans do not trust the government to make the right technological picks, especially Democrats. The second you go down this path, two things happen immediately:
(1) The oil companies, rightly, blame Democrats for raising the price of their product, and reducing their incentive to produce oil.
(2) There is big fight over what to subsidize, and how long to do it. All of the promoters of the alternatives traipse to Congress to promote their schemes. Congress, where so few can add, pick many losers. Big schemes which fund jobs in their districts get picked. Republicans, rightly, scream about pork barrel spending. Americans feel used. Taxes finance dumb ideas. Republicans get elected and kill the programs, good or bad.
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There is an alternative. Bribe the oil companies.
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How? Why? At what cost?
First, why.
If more money is going to oil companies, they will be placated. They will stop funding right wing social conservatives for the cynical purpose of protecting their profits. They will not want that money to stop. They will want to show their gratitude.
High priced oil motivates development of alternatives, every alternative. There is no direct subsidy from government to technology startups. The oil consumers will fund the startups. At least those which are economically feasible. It just requires enough profit to keep from going bust. There is no requirement for Congress to referee technologies. No pork barrels to distribute. Companies grow where it is economical, not necessarily in the districts of committee chairmen. This is the Republican wet dream. Entrepreneurs get rich on their own ingenuity, with zero government involvement. Nuclear power could win. Windmills could win. We don’t know. We don’t need to know.
There is a big problem with a special tax on oil. Taxes are hard to enact, and hard to adjust. When the price of oil is high, oil companies are getting a bigger profit but they are not happy. They use the consumers against Congress to get rid of the tax. Because the oil companies know that later, when the price falls, their profit will shrink. So they push to get rid of the tax in order to increase their profit share in times of low prices. And any tax is attacked as a revenue stream to be wasted by the government.
How?
Set a floor price for oil. Buy it when it is cheap, and put it into the Strategic Petroleum Reserve.
If prices are high DO NOTHING. Set NO restriction on oil company profits.
Americans will pay a predictable minimum price for oil and gas. Sometimes the price will be higher. If so, it will not be the government’s fault, because the government stops buying when the price is high. But consumers better buy cars with good gas mileage, because the price is never going to be low again.
We will be sending even more money to foreign producers, right? It is a world oil market, so the higher price will not just go to US companies. Sounds terrible until you realize that we get oil in exchange. Oil which is eventually going to get used up. We can buy it now at a somewhat higher price, or buy it later at a MUCH higher price. That oil will increase in value. In the end, less money goes to the foreign producers, not more.
Sure, there is a big price tag for this. But the money is spent on a physical, useful substance.
If Americans decide that this program was a mistake, the oil can be sold back to the market, probably at a profit. The expense may be large, but the risk of the money being wasted and lost forever is small.
The government stabilizes part of the economy by driving interest rates. Most agree that it is useful to do so. In this spirit, it is completely reasonable to try to manage the price of a strategic resource.
What will it cost? Nothing.
Any money spent will be recovered when the oil is sold. Even if the money is borrowed. The value of the oil will increase faster than the interest cost.
As the world oil price continues the long term upward trend, the expenditure will drop to zero. Unless of course, the government decides to raise the floor price. It probably should raise the floor price – but it would require action to do so. Inertia will cause the program to die a natural death.
Think of it as a savings program. And a new kind of politics.