Category Archives: Energy

Updated: Pawlenty Or Ponnuru; It's All The Same

Conservatism, Elections 2008, Energy, Environmentalism & Animal Rights, Republicans

The Republican Governor of Minnesota, Tim Pawlenty, has declared:

“‘Drill baby, drill’ by itself is not an energy policy. It’s not enough. We’re going to need wind and solar and bio mass.”

What Pawlenty is saying is that arguing with global warming politics is not viable. Therefore, the logic of drilling must be substituted with the illogic of expensive, and hence dirtier, sources of energy. As I wrote in “The Goods on Gas“:

“The more efficient the source of energy, the less waste and pollution are involved in its conversion into energy. Think of the totality of the production process! The fewer resources expended in bringing a fuel to market, the cleaner and cheaper is the process.”

So, Mr. Pawlenty, drilling is so an energy policy—especially if one hasn’t drilled in decades, and if oil is one of most viable sources of energy. Most Republicans have simply lost the ability to make a case, any case.

Update (Nov. 20): It’s my theory that the quest for power, among the punditocracy and the pols alike, creates a convergence toward opinions most acceptable to power brokers and voters.

To wit, in “Rebooting the Right,” Ramesh Ponnuru, editor of National Review, ladles out the same lukewarm, happy, middle-grounds we’ve heard from most GOPers–and I surveyed in “GOP, RIP?“:

“At the GOP governors’ meeting this month, Tim Pawlenty of Minnesota argued that Republicans need to stay conservative but also modernize. A revitalized conservatism would push for tax reform with an eye on middle-class families, not hedge-fund operators. It would seek solutions to global warming rather than deny that it exists. It would place a higher priority on making health care affordable than on slashing pork programs. It would promote the assimilation of Hispanics rather than regard them as a menace or a source of cheap labor.”

Obama On the “World’s” Resources

Barack Obama, Elections 2008, Energy, Environmentalism & Animal Rights, Socialism

I grow weary listening to the idiots Hussein and McCain. So, last night, I switched off the debate (the last one, thank God).

I did catch the ass Obama claim that the US uses the greatest share of the world’s apparently collectively owned oil and gas resources.

Two things:

1) The idea of private property is anathema to this man. (Let’s not kid ourselves: McCain is none the wiser.) Oil and gas are not communally owned; entrepreneurs use their privately owned property to extract these resources from the ground. The same, or other, people then use their private property to turn the useless smelly compounds they’ve extracted into stuff that powers the economy—and life itself.

2) Resources are not finite. So long as man is allowed to innovate, and is free to think and act, he will find ways to turn compounds that lie inert and useless in nature into vim for the economy.

Energy Independence Idiocy

Economy, Energy, Free Markets

I’ve spoken frequently on BAB about the folly of “Energy Independence Isolationism,” including about comparative advantage:

“The idea of trade is that everyone does what he is best and most efficient at, and exchanges the products of that labor for stuff others do better and cheaper. To aim for self-sufficiency is to aim for bankruptcy.”

John Stossel expounds on the concept in “The Idiocy of Energy Independence”:

“It’s amazing how ideas with no merit become popular merely because they sound good.
Most every politician and pundit says ‘energy independence’ is a great idea. Presidents have promised it for 35 years. Wouldn’t it be wonderful if we were self-sufficient, protected from high prices, supply disruptions and political machinations?
The hitch is that even if the United States were energy independent, it would be protected from none of those things. To think otherwise is to misunderstand basic economics and the global marketplace.
To be for ‘energy independence’ is to be against trade. But trade makes us as safe. Crop destruction from this summer’s floods in the Midwest should remind us of the folly of depending only on ourselves. Achieving “energy independence” would expose us to unnecessary risks — such as storms that knock out oil refineries or droughts that create corn — and ethanol — shortages.
Trade also saves us money. ‘We import energy for a reason,’ says the Cato Institute’s energy expert, Jerry Taylor, ‘It’s cheaper than producing it here at home. A governmental war on energy imports will, by definition, raise energy prices‘. Anyway, a ‘domestic energy only’ policy (call it ‘Drain America First’?) is a fantasy.”

Read the rest here.

Updated: The Politically Incorrect Guide to Capitalism

BAB's A List, Capitalism, Energy

Economist Robert Murphy, Ph.D., a delightful capitalist PIG, has joined Barely A Blog’s A-List with this debut essay. He’s selling something, of course.

The Politically Incorrect Guide to Capitalism
By Robert P. Murphy

When my book, The Politically Incorrect Guide to Capitalism (Regnery, 2007), first came out last year, Ilana graciously invited me to plug it here on her blog. As is obvious, I rudely dragged my feet in getting this promotional article to her—but hey, at least the publisher sent her a free copy of the book. You, dear reader, will get no such treatment—unless you tell me you have a popular blog and might favorably review my book. (What do you expect from a capitalist pig?)

As its title suggests, the The Politically Incorrect Guide to Capitalism tackles the popular myths of the alleged evils of an “unregulated” market economy. I show that on issues ranging from labor unions to anti-discrimination laws to financial speculators, the conventional wisdom about the supposed necessity of government oversight is exactly backwards. The market in theory should be able to handle all of these potential problems, and then I also show how in history the market really has performed up to snuff.

People have “learned” that white people on the whole benefited from the existence of slavery, that the free market caused the Great Depression, that the New Deal got us out of it, that the War on Poverty reduced poverty, and that Ronald Reagan’s tax cuts led to huge deficits. But as I show in my book, these historical “facts” are obviously wrong.

On some issues, I merely summarize defenses of the market economy that other popular economists (such as Walter Williams and Thomas Sowell) have given. On other issues, I offer the wisdom of the Austrian School of economics, providing insights from Ludwig von Mises and Friedrich Hayek.

And then on a third set of issues, I broke new ground, to the best of my knowledge. For example, in one chapter I explain the benefit of derivatives markets and financial speculation in a depth that I haven’t seen used elsewhere. The true fan of the free market will probably gain the most from reading these sections.

A basic understanding of derivatives markets, such as the market for oil futures, is crucial to guide citizens through the upcoming months. Right now politicians are promising to regulate or even ban institutional funds from investing in oil futures. To understand the ramifications of such meddling, you must first understand the role that futures contracts play in allowing producers and consumers to plan more confidently because they are inoculated against oil price movements. For example, a car manufacturer might produce more vehicles if it can hedge its exposure to gas prices through purchasing oil futures (which go up in value when oil prices rise).

What is particularly ironic about this case is that, if the punitive politicians get their way, then the average Joe has been deprived of one of his most basic defenses against skyrocketing gasoline prices. Yes, Joe Sixpack is getting killed at the pump, but at least his retirement has (say) a 2% allocation in a Commodity Index. If that type of position is soon rendered illegal, then Joe Sixpack will have to start trading in the oil futures markets himself if he wants to offset the harm of rising oil prices. Oh wait, I forgot—since he would want to do such trading electronically, he might have this option thwarted too once the regulators close the “Enron loophole.” Gee thanks, guys.

The problems don’t stop there. If large potential buyers are chased from the market, then it becomes less liquid. This is exactly what all the financial analysts have said regarding the credit crisis: nobody knew how to value a counterparty’s balance sheet because its mortgage-backed securities didn’t have any price. Because the market for such “toxic” derivatives had completely dried up, everyone was stuck with their contracts. They couldn’t alter their holdings at a convenient price. What had once been very liquid like an ounce of iron was suddenly illiquid, like an expensive piece of art.

Yet if everyone can see the downside of a shallow market in mortgage-backed securities, why in the world would we want to force such a fate on the oil futures market? If certain rich people think oil prices are going up, they will find somewhere in the world people who will field such wagers. The price of oil will still move in response to speculators. But the benefits of futures markets will be reduced, because the market will be shallow. Producers and consumers of oil would be much more willing to rely on oil futures contracts if they knew they could unload them on a dime without suffering a huge price cut. Without large institutional funds to “pick up the slack,” day-to-day fluctuations in the oil market will lead to wilder price swings.

The operation of futures markets is just one of the topics I cover in The Politically Incorrect Guide to Capitalism. There are plenty more issues, including the space program and seatbelt regulations, where I restore the free market’s good name. Once you buy a copy for yourself, you will then arrange for copies to be mailed to your six closest friends who either love or despise the free market.

Robert P. Murphy has a Ph.D. in economics from New York University and is an economist with the Institute for Energy Research. IER has recently released a study exonerating speculators from the charge that they have caused massive hikes in oil prices.

Updated (June 27): We have been fortunate to have the Doctor on Call. Many thanks to Bob for taking the time to reply to readers. Now go do the right thing; buy Bob’s book.