Friday, April 28, 2006

Krauthammer's Article.

Charles Krauthammer has written a reasonably true article in today's Washington Post. Despite the title, Say It With Me: Supply and Demand, which to me, implies that the rest of us are just too stupid to understand what's going on.

But he is kind enough to try to enlighten those of us who don't possess his superior mental acuity.

He makes some very good points:

· Demand is up. China has come from nowhere to pass Japan as the number No. 2
oil consumer in the world. China and India -- between them home to eight times
the U.S. population -- are industrializing and gobbling huge amounts of energy.

American demand is up because we've lived in a fool's paradise since the
mid-1980s. Until then, beginning with the oil shocks in 1973, Americans had
changed appliances and cars and habits and achieved astonishing energy
conservation. Energy use per dollar of gross domestic product was cut by 30
percent in little over a decade. Oil prices collapsed to about $10 a barrel.

In March 2000, the price of gas hit $1.80 per gallon. Scandalized
congressional Republicans shamelessly pushed for repeal of Clinton's whopping
4.3-cent gas tax increase. Now that the president is a Republican, what do you
think Senate Democrats are proposing? A 60-day suspension of the federal gas
tax. It would cost $6 billion and counteract the only good thing that comes with
high gas prices -- the incentive to conserve.

George Shultz once said,
"Nothing ever gets settled in this town." But even Shultz, who has seen
everything, must marvel at the perfect regularity, the utter predictability, of
the bottomless cynicism of Washington in the grip of gasoline fever.

Then the points get a little fuzzy:

Then amnesia set in, mile-per-gallon ratings disappeared from TV ads and we
became "a country of a million Walter Mittys driving 75 mph in their
gas-guzzling Bushwhack-Safari sport-utility roadsters with a moose head on
hood, a country whose crude oil production has dropped 32 percent in the
last 25

Yea, you go Charles!

...but which will not drill for oil in the Arctic National Wildlife Refuge for
fear of disturbing the mating habits of caribou."

Cute, but opening ANWR to drilling won't solve the problem, in fact it won't even make much difference. Except to the caribou's social lives. First it would take about 13 years to bring ANWR on line

If you can see the little bump on the graph, that's the boost we get if we gutted ANWR.

Why don't we import the missing ethanol? Brazil makes a ton of it, and very
cheaply. Answer: the Iowa caucuses. Iowa grows corn and chooses presidents. So
we have a ridiculously high 54-cent ethanol tariff and ethanol

Another regulation requires specific ("boutique") gasoline blends for
different cities depending on their air quality. Nice idea. But it introduces
debilitating rigidities into the gasoline supply system. If Los Angeles runs
short, you cannot just move supply in from Denver. You get shortages and more
price spikes.

Well, he certainly states the petroleum industry's case well. But there are studies that say this is pure bull.

Neither the MTBE phaseout nor the substitution of ethanol is a serious part of
the increase
. If the MTBE phaseout or ethanol blending specifically
increased costs for oil companies in California, other states in the West using
conventional unblended gasoline should be much less affected. Yet Washington
State, which uses only conventional gasoline and has similar refinery capacity
and crude oil sources, mirrored California's increase;

And his whole premise, that this is just a supply and demand situation and the rest of us are just too dense to understand, is at best specious.

You see most of us realize that the majority of refinery production in this country is controlled by the oil companies themselves and there's just too much evidence of their working together to reduce supply and artificially keep prices up.

Say it with me: Racketteering and Demand.

Investigating Refining Capacity Rhetoric:

Why gasoline prices are headed for $3.50 at the pump.

Internal Memos Show Oil Companies Intentionally Limited Refining Capacity To Drive Up Gasoline Prices

New Gasoline Study Shows Profits, Not Crude Oil Prices Or Ethanol, Are Driving Pump Price Spike

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I did not mean that Conservatives are generally stupid; I meant, that stupid persons are generally Conservative. I believe that to be so obvious and undeniable a fact that I hardly think any hon. Gentleman will question it.

John Stuart Mill (May 20 1806 – May 8 1873)