Obama's octopus energy policy
Image via WikipediaThe last time gasoline prices were as high as they are today was in 2008, and Barack Obama, the Democratic candidate for president, made it clear that one of his major policy goals was to make fossil fuels expensive, so that “alternative” and “green” sources of energy would be more economically competitive. Three months before he was confirmed as secretary of energy, Steven Chu confirmed in an interview that “somehow we have to figure out how to boost the price of gasoline to the levels in Europe.”I like the octopus analogy. I have seen used before to describe con men who try to cover their trail by creating bogus documents. You can tell that Obama's policies are unpopular, otherwise he would be bragging about the increase in the price of energy which he embraced until the polls moved against him.
With polls making it crystal clear that Americans are not pleased with spiking gasoline prices, President Obama has deployed what might be called the “octopus strategy.” When an octopus is threatened, one of its survival tools is to dispense a cloud of ink to confound predators. Likewise, in response to rising fuel prices, Mr. Obama has dispensed a cloud of obfuscation - one that scapegoats others for high energy prices when his own policies are at fault. His targets are the usual suspects: “traders and speculators” and predictably, oil companies themselves.
Of course, the scapegoating of “speculators” is old hat. They were, for instance, blamed for the gasoline price spike that occurred after Hurricane Katrina but the Federal Trade Commission (FTC) never found evidence to support claims of market manipulation at the pump or a significant pattern of “price gouging.”
The fact is “speculators” are not villains; instead they play a necessary role in making the world energy market more efficient. These individuals are really investors who help smooth out market fluctuations by equilibrating supply and demand over time via futures markets. This function is especially important for companies with serious financial exposure, e.g. airlines and trucking companies, allowing them to hedge against rising fuel costs.
The other target of the president’s demagoguery is “big oil.” As he recently said at a Nevada town hall meeting, “four billion dollars of your money are going to these companies at a time when they’re making record profits and you’re paying near record prices at the pump. It has to stop.”
What in the world is he talking about? Does he intend to eliminate the “expensing” of intangible drilling costs, which has been part of the tax code since its inception? Allowing an immediate deduction for development costs rather than amortizing them over a longer period has always been understood to be necessary in order to provide the capital and cash flow in an industry where the risks are huge and returns are realized, if at all, over many years or even decades. Eliminating this deduction would hit an industry that employs 9 million workers but which has a rate of return on investment significantly lower than that of other industries.
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The Democrats in the Senate are targeting about five major oil companies on tax treatments that will put them and especially their dealers at a competitive disadvantage against some of the biggest retailers of oil and gas products. They will be driving up the cost of product for the small businesses that sell certain brands of gas like Exxon-Mobil and Shell. Other dealers like Valero or Murphy which sells at Wal-Mart would not be effected by the tax increases.
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