Addicted to Oil

We aren’t addicted to oil. Russia is. So are Iran, Venezuela, and all the other petrocracies. They have not developed alternative revenue sources and they are spending the oil windfall as though it will be permanent. The problem is the rest of the world’s dependency is on liquid fuels that can be produced from raw materials other than petroleum. Oil’s dominance rests on being cheap and plentiful. Today it is neither and the world will find other sources for gasoline, diesel, and aviation fuels. It’s been done before. It will be done now. Let me make a prediction. By the end of the next US President’s first term the price of oil will be half or less than it is today. Gasoline will be under $2 per gallon and it will be there to stay.

The necessary fuels can be produced from coal at a cost equivalent to about $50 per barrel of oil. The US has more than enough to satisfy the needs of the entire world for many decades. The only reason we haven’t done it already is an inability to compete with low cost oil. But now demand has outstripped oil’s capacity at any price. Its day will soon be over. Technology is or soon will be here to compete not just with coal but with shale oil and we have more of that than the proven reserves of Russians and Saudis combined. Biofuels from algae aren’t far behind. That supply is limitless

This is all bad news for today’s more belligerent autocrats. It’s been said that credit for the Soviet Union’s collapse shouldn’t go so much to Ronald Reagan or Pope John Paul II as to $10 oil, or rather $80 oil followed by $10 oil. At $80 the Soviets were fat. They could subsidize all sorts of mischief around the world and compete in the arms race at the same time. When oil collapsed their economy collapsed with it. They fell like a house of cards. Russians can be slow learners. They failed to modernize their military after a disastrous Russo-Japanese War in 1904-1905. That led directly to an even more disastrous performance in WWI. It cost the Tsar his throne and his life. Now problems are more clearly economic. Vladimir Putin feels flush and is throwing his weight around. He thinks folks at home will back him in anything while the money keeps on pouring in. Europeans will do nothing to put energy supplies at risk. It’s a colossal strategic blunder. Europeans don’t have to go to war to stop him as they did with Hitler. They just have to find a new supplier. They can, they will, and it won’t take them very long. Russia’s economy will collapse again and she will find herself in need of Europe’s good offices. With less oil to export, Iran already has internal problems, even at current price levels. Their economy will eventually force them to behave as well.

We have only to look at Germany at the outset of WWII. They lost access to most of their oil supplies and switched to coal hardly missing a beat. The Wehrmacht wasn’t exactly awash in fuel but did have enough aviation gasoline to keep Messerschmitts flying, and diesel for Panzers. It may take us a little longer but only because the situation is less dire and our environmental lobby is dazzled by what they see as an opportunity to force the abandonment of the internal combustion engines. They are on the wrong side of that argument. We have already begun to see it. Our economy really does need those engines and will for decades. Keeping prices artificially high is a huge economic damper we will not long tolerate. Even if we would the Chinese and Indians would not. There is nothing keeping them from building their own coal refineries. They already explained that in no uncertain terms when they refused requests this summer to sign on to new restrictions on carbon dioxide emissions. Their prosperity is at stake. So is ours.

Don’t Tax You, Don’t Tax Me

Tax that fellow behind the tree. That was Russell Long’s famous 1918 definition of tax reform. He got it about right. I was reminded of it last week as Barack Obama was promising to cut taxes for 95% of Americans. The 5% behind the tree are in for it. For 2006 that would have meant anybody earning more than $153,542. They already pay more than 60% of all personal federal income taxes. Presumably that will go up. The fifty percent who earned less than $31,987 paid less than 3% of the taxes. A lot of people paid none at all. I guess they will be getting larger rebates.

Now that the conventions are over and candidates are recharged the media are making their quadrennial complaint that they aren’t focused on the issues. Actually it’s the media who are ignoring the issues. Both candidates post their positions on everything from health care to trade right there on their web sites for any who bother to read. For tax policy they both have a fairly specific set of proposals for cuts, although both are light on how they intend to pay for them. Senator Obama wants lower taxes for working families, the middle class, the elderly, and small businesses, as he says, just about everybody except large corporations and the wealthy. He also wants to simplify tax forms for most people by having the IRS fill them out based on W-2s and 1099s they already get from employers and banks. The taxpayer would just have to review and sign. The only revenue raising measure I see in his economic plan is a windfall profits tax on big oil to pay for a second general rebate to compensate for high energy costs.

John McCain outlined his economic initiatives in a speech back in April. His are a bit simpler than Obama’s and his tax cuts would appear to be restricted to people who actually pay taxes. He wants to double the personal exemption for dependents from $3500 to $7000. The Republican’s approach to a simplified code is based on a switch to two flat rates with a generous standard deduction. Anybody wanting to remain under the current system can. McCain also wanted a suspension of the federal gasoline tax for the summer driving season. We’re past that and he never did say how he would replace the revenue for the highway trust fund. Given today’s news that it is out of money and payments may be cut for state construction projects, that is of more than passing concern.

I can’t find a reference on either web site but the single clearest difference in tax policy may be in respective positions on the Bush tax cuts, set to expire in 2010. Most Democrats and presumably Senator Obama want them to expire. McCain wants them extended. Expiration would mean a lot of people who don’t consider themselves wealthy would owe substantially more than they do now. The Obama claim to be cutting taxes for most Americans probably depends on expiration, and on not calling it an increase.

So tax issues are there for anybody who is interested. The candidates like to talk about their proposed cuts, but not how they would pay for them. I would hope some people in the media would ask. That’s easy to do in a televised debate, which I presume is why Senator Obama has mostly avoided them. It’s hard to do in the blogosphere. It’s one thing we are still pretty much dependent on the mainstream media for. The other issues are all there too, all with just as many unanswered questions. Each of the four candidates has a huge traveling press entourage. I hope some of these people start asking real questions and soon. The phenomenal audiences for the acceptance speeches suggest a lot of people will also watch the debates. But three short sessions on TV isn’t enough. These folks need to get serious. Just who is that fellow behind the tree?

Hurricane Sarah

Well let’s see now. Her daughter is seventeen, unmarried, and pregnant. Her husband was arrested for DWI 22 years ago. Somebody has accused her of misusing her office to get her former brother in law fired. There is a rumor going around that her four month old Down syndrome baby isn’t really hers but her daughter’s. She presents herself as a reformer who turned down the bridge to nowhere but she’s a fraud because as mayor of a small town she lobbied for and got some earmark legislation. It all raises questions about the McCain campaign’s vetting process. Baloney, McCain says he knew about all this before he offered Governor Palin the nomination. He doesn’t consider any of it pertinent. So what’s the question? There isn’t any. It’s just a smoke screen for the press to engage in an orgy of malicious gossip. Now don’t get me wrong. The press has not only the right but the obligation to do its own vetting, especially of a candidate who is not well known nationally. But vetting does not include idle speculation, slander, or outrageously catty remarks. Yesterday The New York Times carried no fewer than three front page articles on the governor, all of them essentially about her children. One went so far as to make the blatantly sexist suggestion that a young mother of three has no business running for Vice President. She should stay home with her kids. Nancy Pelosi has five children. Can you imagine them saying that of the Speaker of the House? Anyone who did would find themselves confronting a feminist lynch mob. The hypocrisy is palpable.

The whole brouhaha should be good for Republicans. For one thing nothing rallies the conservative base like the mainstream media ganging up on one of their own. They haven’t been this excited since Dan Rather used forged documents to smear George Bush. For another the MSM will no doubt be shamed into finally focusing on issues, and soon. I can’t remember when lines were more sharply drawn in a presidential election. National security, health care, energy, global warming, and the economy all are major concerns with the two parties adopting radically different approaches. Of the four candidates, Sarah Palin is the most knowledgeable on energy and holds the clearest views on its relationship to global warming. Given the impact gas prices and climate change have on the economy, and the effect the economy has on our ability to deal with health care and national security, she has a lot to contribute. This should be interesting. Not that I expect a lot of clear eyed analysis from the media, but we do need a rational public discussion and we may finally be about to get it. The measures we adopt, or don’t adopt, over the next few years seem likely to have an outsized impact for several generations.

The feeding frenzy over her daughter’s pregnancy should answer any questions about the treatment a conservative woman can expect from the media. We should expect a continuing campaign of veiled charges and innuendo. I don’t think it will have much effect on the public at large however. We’ve grown accustomed to these shenanigans and learned to take them with a very large grain of salt. Committed Obama supporters will be outraged of course if so much as a jay walking ticket turns up in her background, but the rest of us will remember when Bill Clinton’s perjury didn’t rise to the level of high crime or misdemeanor. Her real test will be in how she reinforces the first impression she made when Senator McCain introduced her. If she rises to the occasion in her acceptance speech tonight and in her coming debate with Joe Biden she will put to rest any question about her qualifications, or the McCain vetting process. We have every reason to expect she will. I expect big TV audiences.