SOUTH DAKOTA STRAIGHT TALK

There is probably no more hot button political issue than Gasoline Prices.

Two years ago when gasoline prices hit 3 bucks a gallon, I wrote the post that follows on politicians getting all lathered with their outrage over high prices. What I said then is just as true today.

As we enter the Presidential Campaign season our pols are still posturing and pontificating but not really working to solve the problem. The problem is a supply and demand problem. The increase in Demand is coming from industrialization in China, India and other developing nations – Without any significant increase in Supply.

To further politicize this issue and use their votes in the November election Democrats dusted off their old Windfall Profits Tax on the Major Oil Companies. The bill also would have eliminated the tax credits that oil exploration companies receive. Admittedly with huge profits currently reflecting high petroleum prices the Oil Companies an attractive target. Generally Republicans in the U S Senate blocked the bill from debate. You will hear much more about this vote in the upcoming election.

Consider that the proposed Windfall Profits Tax would not have lowered prices. The profits then instead of going to the Oil Companies would simply have gone to the politicians.

Very Partisan Sidebar – It almost goes without saying that the Democrats just cannot help themselves that the solution to most every problem is a tax increase.

Also consider that when the drilling incentives were put in place the price of oil was at the $15 a barrel level and the cost of exploration was something like $20 a barrel. With current high prices and income it may be time to remove the tax credits because with $130 a barrel oil there is no need for an exploration incentive. The market will take care of it.

Price Supply and Demand is an economic fact. Another political and economic fact is: When you tax something it gets smaller and when you subsidize something it gets bigger.

What our Government needs to do is put policies in place to increase supply and reduce demand. Currently there is universal agreement that we need energy independence. Our politicians also agree on renewable fuels and finding alternative sources of energy. For the moment I will not venture into calling names or discussing policy but only to say that many Democrats seem opposed to employing known resources at sea or in the Alaskan Wilderness. We also should very aggressively be working on finding solutions to make Coal clean and of using Nuclear Power.

It is getting to be an old theme with me but the Washington Crowd needs to stop talking and start doing.

Gas Pains

Nothing gets the public and politicians excited like high-energy prices. Energy prices like taxes are one of the ultimate pocket book issues.

Consumers are reluctant to acknowledge it but they have been spoiled by relatively inexpensive energy. Higher prices cause pain to consumers and the economy. The public wants affordable energy and a higher price reduces discretionary spending and raises the cost of many goods.

Elected officials react to the outrage of higher prices with outrage of their own, they blame producers and distributors and come forward with quick fixes and salve but no real long-term solutions. Our Politicians try to find quick fixes to keep prices low (i.e. demand release of the Strategic Petroleum Reserve) or concoct schemes like the $100 rebate idea to act like they care and are dealing with the problem.

Of course they just want to deal with the next election. To work toward solutions causes pain, not something elected officials and politicians want to be associated with. In fairness except for minor tweaking not much has been done since our first “Energy Crisis” – The Arab Oil Embargo, thirty-five years ago. Yes we have CAFÉ standards for automobiles (although trucks and SUVs are exempt or have their own special rules) and yes we have made some very limited progress on renewable fuels (whose debates have been about special interest politics not solving problems). And standards for insulation and energy efficiency have been mandated in construction.

For more specifics on Inaction and possible approaches see the previous post Why Wait.

On energy and demagoguery Republicans are equally to blame as Democrats. I prefer free market approaches (generally favored by Republicans) but Government action (favored by Democrats) is also necessary.

The problem is one of Supply and Demand . We have done almost nothing to deal with them. We need more supply and relatively less demand or more efficient use of energy to solve the crisis. Giving rebates or taxing so called windfall profits will not create any more energy or reduce usage.

Mandating ethanol is just a small part of any solution. Ethanol is a step in the right direction but will not solve in a significant way shortages. Farm constituencies and ethanol plant owners love their Representatives, Senators, Governors and Presidents for championing it. But we need more than helping our agricultural constituency to solve this problem.

My generations of political activists have failed our children. We are less well off today on the energy front than when we were coming of age and when our children were our age.

The political pandering should stop and Statesmen should deal constructively with energy.

Fixing the problem takes political courage. Continuing to fail to do so simply mean that prices over time will continue to rise and our standard of living and national security will be diminished.