A day before a recent White House gathering of minority small businesses which I had attended upon invitation from its organizer, Mr Roger Campos, Dr Chu was posed this imminent, yet lingering question with no real answer in response to this legitimate economic and political expediency. There are no silver bullets besides garnering political will to mind our own backyard on a war footing by adopting the correct policies for structural change, as I had asked of Congressman Mulvaney at the Willard Intercontinental Hotel in Washington, D.C. Doing so does not require new thinking on the policies. It requires action at the Federal Reserve.
The politics of gas prices dates back to drilling in the Alaskan National Wildlife Refuge (ANWR) for more domestic gasoline production, one reason behind the selection of former Governor Sarah Palin of Alaska as Senator John McCain’s running mate in 2008, besides, of course, the offshore drilling debate until the BP disaster in the Gulf of Mexico and importing oil from tar sands in Canada by building the Keystone XL pipeline all the way to Texas. Now, there is broad consensus that more domestic oil production is necessary, at least as reserve capacity for on-demand use, provided that extraction is safe and clean for the environment and people.
The economics of gasoline is the undercurrent. One-half of the trade deficit of the United States is because of oil imports (its twin, the cumulative budget deficit or national debt, is running higher than the national income) and the country has about 3 years of declared oil reserves under the ground to meet its current demand assuming only domestic oil usage. In the best case, America will run out of oil because of its current way of life within a decade.
The fat lady can sing by 2016 in more ways than one unless American way of life and the economic structure which enables it changes dramatically and soon enough by raising the allocative efficiency of oil. In the meantime and in parallel – because the economic structure in the immediate term is what it is largely due to the political myopia and corruption in the age of post-Nixon-Operation-Independence Bob Woodward’s Shadow of worse than Nixon offenses in a capital climate of benign kid glove treatment of president-kings – gas prices must go down without raising imports if food prices are to, at least, remain stable (in a separate article I present the issue and resolution to the debate about natural gas).
The band-aid until Bernanke’s successor can learn to follow the laws on the books governing the Fed to trigger structural change for responding to the imminent economic emergency, however, is simple: to temporarily eliminate all taxes on domestic gasoline (and keep it revenue neutral by raising taxes elsewhere). A savings of $9 on a 20 gallon fill-up about once a week is good savings -
(Data Sources: American Petroleum Institute and AAA, Averages as of July 2012)
Moreover, simple demand and supply equilibrium suggests that greater domestic control over local oil production and refining – similar to the local prices of oil products in oil-rich countries despite the global market determinants of oil prices – lowers gasoline demand at the pump and shifts the demand curve to the left. Assuming the local supply curve remains where it is, price at the pump can be lowered by inducing artificial deflationary conditions in the gasoline market, case in point being cycles of global oil prices when demand rises and falls: because people demand ever less gasoline, over time less and less will be refined into gasoline while in the immediate term producers will lower gasoline prices within the constraints of their current production infrastructure in the refineries.
In the medium to longer terms the above picture implies that despite technical changes in refining to accommodate the changed demand for gasoline, the oil industry must adjust to new demand conditions for the various products of refining by fractional distillation of oil, thereby necessitating global development to achieve profitability through less gasoline sales and more sales of other components of oil.
In a new cash-for-clunkers deal, people might as well be driving Chevy Volts, Prius gas-electric hybrids, and the all-electric Teslas, Nissan Leafs and BMWi than bother with anything else and use trucks sparingly. I get nearly 50 miles-a-gallon on my 2008 Prius gas-electric non-plug-in improvised Victor Wouk gas-electric hybrid and 400 miles on a full tank of 10 gallons. Better yet, renting, as needed, a gas-electric hybrid or an all-electric vehicle as a utility can well serve the country.
Who created Osama bin Laden? United States of America.
Why are Americans paying the price for government incompetence, gross negligence and misconduct?