Turning Boom into Bust
By Alan Caruba
Energy is called “the master resource” because every other aspect of life operates off of it. Nations that are rich in energy resources such as oil, natural gas, and coal, grow wealthy.
There is also something called “the curse of oil” because, if the price per barrel drops, the fate of some nations goes with it. This is the case, for example, of the former Soviet Russia whose government collapsed when it could no longer secure hard currency when oil and gas prices fell. Venezuela is an economic basket case these days, having nationalized oil and most of its financial and business sectors.
The history of nationalized oil and gas-rich nations is that they tend not to invest in their energy industries. They do not engage in sufficient exploration. They do not expand their capacity to extract their natural resources or to refine it. We have seen otherwise oil-rich nations like Mexico encounter financial tremors as in the 1990s when the Clinton administration had to loan Mexico billions to keep it functioning.
America has adopted anti-energy policies because of incessant environmental propaganda about “dirty” coal, out of the fear of nuclear power, and the refusal to permit exploration of 85% of the continental shelf and, of course, Alaska’s ANWR area, a tiny fraction of that State’s landmass.
If Congress imposes a windfall profits tax on the American oil industry, it will quite simply wreck the economy. As my friend, Seldon B. Graham, Jr., a longtime oil industry attorney as well as a petroleum engineer, points out, “”President Jimmy Carter started the ethanol subsidy on November 9, 1978 and signed the oil windfall profits tax on April 2, 1980.”
In effect, Carter put in motion an anti-oil policy that has existed for over three decades. Why is that a bad thing? The ethanol policy has severely disrupted the price of food worldwide as corn is diverted into fuel. The justification for this is “energy independence” from the purchase of foreign oil, but U.S.-produced oil has always been cheaper than imported oil.
If, however, the government creates conditions under which it is simply too risky, too expensive or prohibited to explore for more oil reserves, obviously oil production declines. There has been a 59% decline in U.S. oil production since 1980, the year the windfall profits tax was imposed. It was later repealed, but U.S. oil companies have a responsibility to their investors to act prudently and that has driven them to explore for oil outside of the U.S. or, to put it another way, to find foreign oil.
When you add in the idiotic ethanol mandates, you compound the problem. Graham points out that, “After thirty years, U.S. ethanol production was only able to produce less than 3% of our oil demand last year.” Moreover, “ethanol cost taxpayers $3.3 billion in subsidies in 2007.” Environmental claims that ethanol is cleaner than oil are false. Not only do you get less energy and poor mileage when ethanol is blended with gasoline, it actually emits more carbon dioxide per mile. “It is absolutely impossible for ethanol to replace foreign oil,” says Graham.
The justification for a windfall profits tax on oil companies ignores, for example, that ExxonMobil, just one of the few remaining oil companies operating in the U.S., pays more than $100 billion in taxes on the average.
Less than 11% of ExxonMobil’s profits come from marketing and refining in the United States and the company recently announced it was spinning off its retail outlets. Yes, it made great profits in recent years, but it also had enormous, risk-filled expenses.
Imposing a windfall profits tax on oil companies will give them cause to consider moving their corporate headquarters to other more congenial nations. The city of Dubai in the United Arab Emirates has been engaged in a vast office building effort, perhaps anticipating the movement of corporate headquarters.
Americans greeted the expiration of the ban on offshore exploration and drilling with the expectation that American oil would begin to flow and thus lower their costs for this vital national asset. That will not happen if the President or a Democrat controlled Congress reinstates the ban and/or imposes a windfall profits tax.
The city of Houston has been enjoying a boom due to the increase in the cost of a barrel of oil. Even at $80 dollars a barrel, it is enough to have created “its strongest resurgence in more than 20 years” according to a 2007 New York Times article about Houston. “Some energy companies are expanding and putting up new buildings.” Others, like Schlumberger among the hundreds of service providers to the energy industry have established their headquarters in Houston.
Houston is home to the headquarters of ExxonMobil, ConocoPhillips, and foreign owned companies like Citgo, BP and Royal Dutch Shell also maintain corporate offices there.
About half of Houston’s jobs, an estimated 1.1 million positions, are tied to the energy industry. The impact of a windfall profits tax would prove devastating to Houston.
Destroying the oil industry in America, a process that has been in place since the Carter administration, has left the nation vulnerable to foreign sources. The U.S. already imports some 70% of its oil. There has been a significant decline in the exploration and development of national reserves.
Unleashing the energy industries in America could dramatically improve our present financial troubles. Congress, having turned boom into bust, has a historical opportunity to reverse that trend.
Editor’s Note: “Why Your Gasoline Prices Are High” by Seldon B. Graham ($10.95) is available from Amazon.com.
© Alan Caruba, November 2008
Once upon a time in a land far, far, away… illegal Immigration was a serious problem and the legal citizens of that land were up in arms about it. Then the issue disappeared. What happened? Methinks the media happened.
Have you wondered why Illegal immigration dropped from the radar screens of the media during the presidential campaign? I have. I suspect many of you have, as well.
Where did it go? The illegal aliens are still with us. Some estimates range as high as 20 million illegals here now. Even more illegal immigrants live and work among us every day in the US. We still have a border so wide open that it begs citizens of other countries to steal across it and take up residence in this country. As a result, they are still coming, by day and by night.
Some recent reports in the press indicate that since our financial crisis arose a huge number of illegals have returned to their hones. Let me ask you…doesn’t that validate the argument many of us made that the illegals are not here to become citizens of this great country? We have been saying, all along, they are here for the money. Now that the money has tightened up, and the job market has shrunk, they’re headed back home.
But why aren’t the two candidates for president talking about it? It is my opinion that there is no meaningful difference between the stances on illegal immigration of the two men running for President of the US.
If the illegal immigration thing ever does bubble to the top of the discussion between the two men the American voter is not going to like what he hears.
For Instance: Remember that John McCain co-sponsored the Senate immigration bill that would have legalized millions of illegal aliens in the U.S. and McCain still supports what he calls a “sensible” guest-worker program for workers who are in the country without legal documentation. Once the heat was turned up on the campaign trail he called for strengthening penalties for those who hire undocumented immigrants.
If we go back and look at McCain’s record in the Senate, on illegal Immigration, what we find is very troubling. John McCain has voted in the past to extend social security benefits to illegals who have broken into our country, taken jobs from American citizens, drained the treasuries of our states and local governments by running up welfare costs, overloaded our schools while forcing the local taxpayers to fork over the money to pay for it. Those same illegals have devastated our hospitals, especially the emergency departments, through non-payment of hospital bills, and they have practically crushed our courts and law enforcement organizations with criminal conduct.
On the other hand, Obama has voted not to cut off funds to those “sanctuary cities,” and he voted for the Senate immigration overhaul bill. You may recall that bill was supposed to create stronger border controls, but, when you look closely, you find the bill would actually expand the guest-worker program and, over time, legalize millions of undocumented, or illegal immigrant workers, already in the country today. Obama has also sponsored a bill, which would allow states to provide in-state tuition for illegal aliens and he even supports giving driver licenses to illegal aliens.
But we aren’t hearing about this today. Why is that? Could it be because neither side wants it brought up? The media, so in the tank for Obama, knows that if they bring it up in relation to John McCain, it opens the door on Obama’s stance on illegal immigration. In other words, you can’t talk about one without talking about the other because there is just not that much difference between them on Illegal Immigration.
So… where does that leave the voter. I’m beginning to think the voter is complicit in all this. There is just no way the American voter can NOT know where these two men stand on illegal immigration. That said, why are so many voters going to vote for a candidate they do not agree with on illegal immigration? Because they feel they have no choice. I suspect the voters in both camps believe they are down to a choice between the lesser of two evils… again. I have to tell you… this is no way to run a country.
J. D. Longstreet