Posts Tagged ‘energy’

Will Inexpensive Gasoline Ever Return?

Friday, February 24th, 2012

Can Gingrich Deliver?

This is a question leftists are now asking in response to the fact that Barack Obama’s policies have resulted in the most expensive February gasoline prices we’ve ever known. Rather than treating it as an economic question, they tend to discuss it as a matter of politics, and mostly as a matter of damage control. Newt Gingrich is promising that if he is elected, he will work to reduce the price of gasoline to less than $2.50 per gallon, but what the liberals contend is that such a reduction isn’t possible, but more importantly, even if it were feasible, it’s not desirable. Let me make it perfectly clear for those of you who have questions about this issue, because it’s something we should examine in looking at the potential nominees: Newt Gingrich’s intention to reduce fuel prices to sustainably lower levels is an important national initiative in which government can play a role, and it offers a chance to boost the US economy in a way that nothing Obama has done will ever accomplish.

In previous articles, I’ve discussed with readers the important relationship between economic growth and the price of energy. By taking note of this fact, and addressing the issue in his campaign, Gingrich has signaled that he’s more in touch with the economic problem with which our nation is now confronted. Over the last dozen years, nothing has had a greater influence on economic prospects than the cost of fuels. Not financial market collapses. Not terrorist attacks. Not government spending. If you want to view the track of economic growth, all of those things have had short-run effects, but nothing undermines the economy more thoroughly than increases in the cost of energy. The reasons should be obvious under even superficial examination.

Everything humans do requires energy. Recognizing this fact is critical to economics, because as energy costs increase, there is a direct effect on the cost of all other commodities, and all other services.  There are no exceptions to this fundamental, structural fact of life.  More, since some items require much more energy to produce, and consume more energy along the entire chain from raw material to distribution, any increase in energy costs quickly ripples through the market.  As such, this creates a drag on production, but also consumption, since energy needs tend to come first in one’s priorities. If you’re an employee, you must travel to and from work.  This is something most employees share as an expense from which there are few option in relief.

For that employee, his or her pay is not likely to react to his or her costs.  This fact means that at energy prices increase, the people who will feel it hardest are those who must engage in commerce, but whose compensation is least elastic with respect to the costs they must absorb.  Most businesses can react by adjusting prices, although the competition they face places pressure on them to  delay passing along costs to customers as long as possible.  This was evident in the trucking industry and more broadly throughout the transportation sector when fuel prices first exceeded the three dollar mark a few years ago.  This gave rise to a new phenomenon called the “fuel surcharge,” and it was intended to show that they weren’t simply jacking up prices without justification, but instead that their costs had dramatically increased. The point of all this is that there is no way to avoid the fact that for most people, and most businesses, you can’t easily augment your income simply because your costs have risen.

This being the case, there will be choices to be made, and all of those involved will need to decide which of their ordinary expenditures may have to be curtailed.  New projects and investments are delayed, and necessary repairs or upgrades are put off indefinitely.  What this means is that economic activity is curtailed, and therefore, fewer jobs are created, and thus unemployment rises.  As this happens, it feeds back on itself because  when unemployment is high, the average employee’s negotiating power on wages diminishes, and this makes the average person even less able to spend money on all of those things that create increased economic growth.

After a time, if this continues, the quantity of fuels demanded will begin to contract, and this will lead to the prices falling again, but there is a lag until economic activity recovers.  Clearly, if this is the cycle, then what we should see is precisely what we have seen over the last few years: An economy that fails to launch because just as it begins to heat up, the corresponding increase in energy prices causes a clear diminution of the economic growth.  The only way to combat this is to increase our energy resources, and to make safe such resources as we already enjoy.

Back in the 1990s, one of the things from which the American economy benefited was the reliability of OPEC members to undercut one another on production quotas.  The quotas were intended to maintain a higher price point, but as prices went upward, one or more member nations would get greedy and cheat on the quotas.  This increased the supply in the market, and the prices would inevitably fall.  This was in an era when China’s demand in the market was relatively negligible, but since then, their bite out of the production pie has done nothing but increase proportionally to all others.  It was also an era when OPEC was more fractious, and most of their members couldn’t coordinate on much of anything for long.

What Gingrich recognizes is that our economy cannot function properly, and in a healthy way without the energy we need at a price we can afford while still building economic activity, buttressing the points made by former Alaska Governor Sarah Palin.  His stated goal of seeing a reduction in gasoline prices is the right thing to do, and he recognizes that it’s not just a matter of reducing the price to that point for a day or a week, but in making that the effective ceiling even as the economy roars back to health.  That will require that we develop new sources of energy, and not just empty promises of “green energy.”  President Obama can mock “Drill baby, drill” if he likes, but the truth is that developing domestic oil resources is critical to getting this economy moving in a sustained way.  In short, we can’t merely increase the temporary supply on a short term basis, but must increase it in a structural sense: We need more wells, we need more oil-fields in production, and we need to develop other alternatives simultaneously.

This flies in the face of what leftists want and believe.  They believe the ultimate goal should be to reduce consumption, but the only way to do this without eliminating people is to substantially reduce their standard of living.  In short, their plans demand we return to a pre-industrial state where most people do not consume much energy.  Wave goodbye to your electronics, your hobbies, and your lifestyles if these lunatics get their way.  There’s no way to have what they seem to promise, and they know it. There is no rational way to grow or even sustain an economy while cutting the use of energy in any dramatic fashion.  Can efficiencies be found?  Absolutely!  Can they be created by dictate or order?  Absolutely not!

This is the difference in the position between Barack Obama and somebody like Newt Gingrich who actually recognizes that wishes are not the same as facts, and that nature is not to be cheated.  You cannot build a modern, technologically advanced culture with prosperous people and a growth-based ethos when governmental policies are mandating a reduction of energy consumption.  Nature doesn’t respond to arbitrary wishes, and yet that is the stance of the leftist, who thinks a government mandate can overwhelm the forces of nature and the rules of physics.  The disparity in the two positions demonstrates their relative fitness to the presidency, and by no measure is Obama suitable to his office.  Whether Gingrich is qualified remains a question to be answered, but on the matter of his understanding of the critical importance of energy, it’s clear he passes the test. We can have inexpensive fuel again, but it will require a comprehensive effort by the President and Congress to remove obstructions to the growth of the energy sector that is so vital to our future.

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The Economy and the Price of Gas

Thursday, February 16th, 2012

The Costs of Bad Policy

Most have noted with disgust the rising price of fuel.  In most places around the country, the price per gallon of regular unleaded is creeping up on $4.00.  There has been some talk about an improving economy, but that’s mostly fluff.  The truth is that our economy is in miserable condition, and as I’ve previously reported, the price of energy has the most immediate deleterious effect on our growth.  As you look at the numbers for housing starts, as fuel ratchets up over $3.50, it begins to retard growth and investment.  This happens because it affects every stop along the production chain, from the raw materials to final distribution, delivery or retail sales.  Now that the price of fuels is driving markedly upward again, it is important to note the causes.  The first is the inflationary policies of our government, and the second is a whole host of worries over the world supply of oil, now threatened by an increasingly hostile and vociferous Iran.  These two factors threaten to drive prices over six dollars by summer’s end.

This would collapse our economy completely, and the only thing leveraging against it is that as prices soar, more projects will be canceled, and new construction will not commence, leading to a balancing reduction in demand.  This natural signaling would not be so bad if it weren’t for the fact that our economy is already flat-lined.  Anything that would cause a serious price spike at this juncture would likely ruin our economy for the immediate future, and might even push us off the economic cliff.

At present, the Obama administration is claiming unemployment numbers that are plainly rigged.  What they have done is to discount people who have expended their unemployment benefits, but who still have no job, and they consider them to have disappeared from the job market.  More, they’re started lop off people who have attained a certain age, and now consider them retired, thus removing them from the work force.  In short, they’re rigging the outcome of the quotient by reducing the number of people in the job market in statistics only, as many of the people they have excluded are still actively seeking work.

If the current rise in energy prices continues, it will put a downward pressure on economic activity.  As we’ve seen in each previous instance when this administration has claimed the economy was in recovery, the rise in fuel prices will tend to knock down the recovery.  An economy cannot grow with a shrinking pool of energy resources, and this president knows it, or should.  This is why such actions as the denial of the construction of the Keystone XL Pipeline was so astonishing.  The construction alone would have provided tens of thousands of jobs with decent wages, and it wouldn’t have been very long before we would be receiving the Canadian oil at the distant end, proposed to have terminated in Texas, in the refining centers along the Gulf Coast.

The presumably short-sighted thinking of this administration is so baffling that many have begun to conclude this is all by design.  What is clear is that we will not truly begin a recovery until energy prices are brought down by the government standing aside as the primary obstacle to energy development.  The federal government under this president has been pushing various “green jobs” initiatives that promise much, but have delivered very little, either in the way of job, or in the production of energy.  The scale of the problem is gargantuan, and no collection of windmills or solar panels is going to do much about it, but worse, since these are still not economically viable models, they actually waste money.

The immediate future of American energy production is weak, because we have a president hostile to the various forms of energy most Americans for the near-term future will employ, in the forms of coal, gas, and oil.   The problem is that these still represent the bulk of American energy production, with coal-fired power plants still accounting for at least half of all electric generation in the country.  Worst of all, Obama’s EPA is shutting down coal-fired plants, as three more plants are scheduled to be shut down this year in Texas.  Texas may see a summer of rolling black-outs that will have been the product of these mandates, and there is no way to build an economic recovery in that environment.

Be prepared to see fuels to continue their uphill climb through the spring, and as they do, you will see a repeat of the pattern we have seen numerous times over the last four years.  As energy prices increase, any alleged recovery will falter. It’s the unavoidable result of a policy that has set us up for repeated failure.  With the monetary problems in Europe, however, it threatens to be much worse.

 

Obama Threatens Veto – Setting the Stage for Crisis

Wednesday, December 14th, 2011

The Less You Know...

A day doesn’t pass in which this president isn’t spoiling for a fight with congressional Republicans.  In the House on Tuesday, the Republicans passed a bill that would continue the payroll tax cut, fund the so-called “Doc-Fix” to keep funding doctors who will otherwise face reimbursement  cuts, and also clear the way for the Keystone pipeline that will provide for tens of thousands of jobs without a single tax-payer dollar.  President Obama is threatening a veto, because it contains the pipeline provision,  and since he’s beholding to environmental extremists, he’s more concerned with getting their support than seeing job opportunities for the American people.  More than this, I now believe Obama is trying to engineer the failure of the United States, and create a crisis from which the republic will never recover as we have known it.  This is what Barack Obama does:  He is driving this country from one manufactured crisis to the next, while offering up greater government controls as the means of our salvation.

Consider how many times this President has pushed us to the brink, in one form or another, whether over the budget, or the debt ceiling, or Obamacare, or any of a large number of issues that has grown even more rapidly since the Republicans took control of the House of Representatives.  It has been his default position to find something absurd over which to fight in virtually every instance, and sadly, in far too many of these cases, house leadership has buckled and bent and capitulated for the sake of electoral expedience, not wanting to be saddled with the accusation that they are obstructing the welfare of the country.  This is the Obama strategy, and so is the continual creation of these crises.  He must make the American people desperate and the best way to do that is to heap new deprivations upon you.

Part of his aim has been to deprive you of energy, all in the name of some apparition of “environmental justice,” that is an absurd and unattainable notion that contradicts the liberties and rights of all Americans.  This is why he now stands against this bill, and for no other reason:  Not only will it create jobs for tens of thousands of Americans, but it will also provide you a source of more fuel for which the nation is slowly starving.  Every simpleton understands the critical nature of energy resources to the growth or recovery of our economy, but this president pretends that such things are less important than another environmental study.

The pipeline plan has been studied and cleared and studied some more, but this president has directed his EPA to undertake another study.  The idea is to delay the pipeline, because he needs to cripple the country, and restricting our ability to develop or receive energy resources is a lynch-pin in stopping us cold.   Speaking of temperatures, you can prepare yourselves as the EPA will be forcing more coal-fired power plants off-line next year, under the auspices of the Cross-State Air Pollution Rule.  It is estimated that this rule will force the shutdown of as many as 20% of the coal-fired power plants in this country, which account for nearly 50% of our electric generation.   This will disproportionately affect Texas, Pennsylvania, Ohio, and Indiana, as the top generators of electricity from coal-fired plants.  In other words, next year, Americans are going to be forced to do with roughly 90% of the electricity produced in 2011.    If you think you think you can recover or grow an economy while shutting down electricity production, you missed a basic economics lesson somewhere along the way.  Every direction you may look, the Obama administration is choking off your economy, and trillions of diminishing dollars are being flushed down the drain.

Yes, I am well aware that “it can’t happen here.”  That’s what every nation being led over the precipice and down into the abyss tells itself right before the plunge.  The problem is that this isn’t mere alarmism any longer: Obama and his regulators are implementing this, step-by-step, as the nation sits idly croaking while the pot now shows the first signs that it will begin soon to boil.

A First Step to Restoring our Economy: Drill Baby, Drill!

Thursday, August 18th, 2011

The Energy President?

It’s a sad fact:  For each dime the price of fuels rises above $2, more jobs are lost.  There’s no way to escape reality.  Our economy depends upon growth – all life does, and growth requires energy, but as energy becomes more costly, the less growth you will necessarily see.  We have other issues too, but with each day that Obama sits at the helm, our ship of state wanders farther off course.  We need a steady hand at the wheel, one who knows about energy production, and how to create the conditions in which energy production is boosted, and not hampered by regulations.  That leader also needs to hold energy giants’ feet to the fire, preventing them from squatting endlessly on resources the market demands.  There is only one potential candidate in the country who has done this.

Don’t let the propagandists lead you astray: What’s doing more to keep our economy in decline and hamper growth or recovery is the big government regulations and myriad obstacles Obama has placed in its way.  If you want to make a substantial change, you’re going to need to strip from him the power to obstruct you, and put in his place a President who understands the critical importance of energy to our economy.  We need an “Energy President”, and that can only be Sarah Palin.

It’s really very simple.  Every dollar diverted to the cost of energy is a dollar that cannot go for other things.  You cannot upgrade your machines, hire more employees, or buy as many raw materials if a larger proportion of your expenses is taken up by energy costs.  Any sensible examination of the economy of the United States immediately demonstrates the foolhardy nature of an economic policy and a regulatory regime that promises to drive the prices of energy up, while simultaneously driving down the value of our currency.  Either one would be be a disaster on its own, but the two in combination sends devastating effects through the entire economy to create a spiral of cannibalistic decline which is nearly impossible to arrest.  This is the simple fact.

Like most instances of cause and effect in macroeconomics, there is always a lag between the two.  Fuel prices sky-rocketing today will depress economic growth in the statistics that will be tabulated in three to six months.  When fuel prices decline, the lag of the effect in response to this cause means economic growth will be well behind, but it will respond favorably to energy prices.   So you want proof?   I’ve gone out and found the first graph for each measure I could find to cover the period of the last 6 years.  They come from different sources, different sites, but I’d like you to look closely. First, let’s look at the prices of gasoline:

Fuel Prices

(H/T Gasbuddy.com for the graph)

Next, let’s take a look at the US Gross Domestic Product’s growth(or decline) in the same period:

United States GDP

(H/T TradingEconomic.com for the chart)

As you can clearly observe, there’s a clear lag, but the tepid growth we began to experience beginning in second half of 2009 tracks well with the lower fuel prices under which the economy had been operating for roughly six to eight months. At the same time, the bottom of the GDP numbers in Janurary 2009 tracks well with the peak in fuel prices in the summer of 2008. If for some reason, you view these graphs and remain unconvinced, notice later in the same charts that while the trend is a little less clear, the results are the same. Fuel prices began a steep climb in February of 2011, and now, six months later, look what has happened to GDP growth. (Note, the 2nd quarter numbers represented in this GDP chart do no show the revised GDP numbers, as that last bar should be half as high above the line as this chart reflects.)

So what can you make of all of this? Simply put, there is no escaping the fact that the rational among us have always known: Our economic future is directly tied to the relative cost of energy. None of this should surprise anybody reading this site, but the colossal ignorance among those on the other side of the argument is shocking. We cannot resume economic growth until we have a president who is not a servant to leftist causes, particularly environmental radicals, who wish to constrain economic growth by making it too expensive to operate.

This is the meaning of Obama’s campaign promise:

“Under my plan of a cap and trade system, electricity rates would necessarily skyrocket.”

In other words, he knew this would be the effect, but he damned-well did it anyway. People wonder why Rush Limbaugh wanted Obama to fail? Ladies and gentlemen, we should have been so fortunate, but sadly, we’ve not been lucky and Obama’s plan has succeeded, and it’s reflected in the anemic growth we’ve experienced since his policies to constrain energy production have begun to press down on the economy.

(As I prepared to post this, this headline appears as the Dow drops 400 points: US Jobless Claims Up, Gasoline Lifts Consumer Prices)

Case Closed!

If you ever need evidence that we need a President who understands the importance of energy to our economic growth, you now have it, and if you need further evidence that Sarah Palin is best suited to be that President, I suggest you read up on her own many energy proposals, and look at her record on energy as the Governor of Alaska.  Nobody has done it better.  It’s time to choose, and if you want a future not stifled by policies that are becoming more entrenched daily, and ever more difficult to reverse, it’s time to give serious thought to 2012 and what you’re going to do.  I’m going to support a candidate who knows the way to repair this. I support Sarah Palin, and I say “Drill Baby, Drill!”