Chris B

Invest Now with a Keen Eye and Be Regarded a Genius for Decades

Let's see, if I was in charge of Iran right now what would be the logical thing to do? The revenue that props up my regime has dramatically declined as oil prices have fallen. How could I influence the price of oil to rise? Think. Think. Think. Got it!

I'd test-fire a few more missiles and announce that I have a nuclear weapon ... perhaps even threaten somebody with it. Or threaten to close the Persian Gulf over the perpetual Gaza conflict.

The US administration then does its part (well publicized threats & bluster) and oil hits $100/barrel again. My government would again be flush with cash and the American public that supports the worldwide price of oil will again fail to notice that they've been had.

Congress Considers Bailing Out Its Ethanol Mistakes

It was said at the time that we just had to build economies of scale in order to lower the costs of production. Well, $25B of taxpayer debt later, we built the economies of scale, got cost per gallon down to just over $2, and the companies we built are about to go bankrupt because their costs of production are now higher than the suddenly collapsed price of oil.

This experiment illustrates a couple of dilemmas with government efforts to get us off foreign oil:

1) How to deal with oil prices that can fluctuate between $150 and $35 within the space of a year and stay irrationally low for decades. Will ethanol producers have to hedge against oil price collapses in the future? That could raise overall cost.

2) If periodic infusions of taxpayer money are necessary to partially insulate our economy from the violent price swings of oil and prevent recessions such as the early 70's and early 80's, then how do we determine HOW MUCH is worthwhile spending. Obviously, even partial energy independence is worth something, as it reduces the economic destruction that high oil prices can cause. Lassiez faire is not an option unless you think 15% inflation, 12% unemployment, oil wars, and the bankruptcy of American businesses caused by the whims of the tinpot dictators at OPEC is acceptable.

3) If taxpayers are going to lose massive amounts of money either way, through petroleum dependency OR through subsidies for alternatives, why not just use fuel taxes to reduce consumption (cutting the income tax by an equal total amount)? Europe has about the same population and GDP as the US but uses only 20% of the oil we use. If we only used 20% of what we use right now, our economy would be more or less indifferent to oil prices and we could get almost all our oil domestically or from Canada. Of course, a consumption reduction of just 10% would do more for our energy independence than the ethanol experiment ever did and the net cost would be zero if a $0.50 gas tax was offset by income tax cuts. I burn 750 gallons a year, so if my income tax dropped by $375 I would break even. Actually I would do better than that, because no additional government debt would be created trying to keep gas prices low.

But of course, that idea doesn't buy off any Midwestern swing states, so I guess we'll continue to spend billions chasing pie-in-the-sky technologies and fighting oil wars with Chinese debt.