Six irrational ideas about oil and gas prices debunked
It’s not pretty when several irrational ideas collide. On May 12, the Senate conducted a hearing to discuss the removal of a $2 billion per year tax break for the top five oil companies. The New York Times called the testimony at the hearing “a big whine for big oil.” Eliminating a tax break like this should be a no-brainer, but that idea is blocked by six irrational notions from the right that come together in an explosion of false logic:
- Speaker John Boehner (R-Ohio) claims that “unsustainable debt and deficits threaten the prosperity of our children and the health and retirement security of our seniors,” but yet …
- Stopping a tax increase, no matter what kind of tax, is economic priority No. 1. Sen. Orrin Hatch (R-Utah) said that “all this hearing is about is providing a justification for tax increases.”
- The conservative media pundits argue that an increase in taxes paid by the hugely profitable oil companies would raise the price of oil. So …
- For many conservatives, the answer to our oil problem is “drill, baby, drill,” the implication being that drilling for more oil within the U.S. would lead to lower gas prices. Therefore …
- If we drill for more oil, we’ll find oceans of it! The right-wing pundits say that we have enough oil to live happily ever after. If you need more of something, it will magically appear. And finally …
- If we don’t get oil prices down, civilization will collapse because civilization is not possible without oil.
Let’s give these ideas a reality check.
First, as many at the Roosevelt Institute have argued, fiscal deficits are not the biggest problem we face right now. Our priority ought to be digging ourselves out of the hole that the global financial industry has placed us in. Many countries currently have deficits much bigger than ours, and the U.S. has had much bigger ones in its history. And in any case, the way to address a huge deficit is to follow smart fiscal policies that focus on reigniting the economic growth engine that then creates enough jobs to provide the revenues the government needs. Sort of like what FDR did in the Depression.
That leads us to irrational idea No. 2: that you can’t raise taxes for anybody, especially not Big Business and billionaires. In reality, one way to reignite economic growth is to take economic resources from those who have them and aren’t using them particularly wisely — like the oil companies, financial industry, and wealthy top 1 percent of the population — and use them to invest in things that rebuild the economy, infrastructure, a decent school system, or a manufacturing economy. Tax increases are a very bad thing in a recession for the bottom 90 percent or so of the population because they would dampen spending, which makes economic activity decline even further. But as Keynes showed in his classic book The General Theory of Employment, Interest, and Money, the rich don’t tend to spend as much of their money as the rest of us (their marginal rate of consumption is lower), and their lack of spending makes things worse in an economic downturn. So tax increases for the top of the economic pyramid is a good idea.
Which leads us to the wacky world of oil. The notion that denying an oil company a few billion in profits would lead to a rise in prices is demonstrably wrong, as the Congressional Research Service has proven. But worse is the idea that drilling for a few billion more barrels in the United States’ already depleted oil zones would have much of an effect on prices. If you manage to increase the amount of oil produced in the U.S., most of that oil will actually go to other countries because the oil market is global. The U.S. uses about 21 percent of the world’s oil supply and produces about 8 percent. This means that we can’t buy our oil in some fantasy America-only market. (See figures from the BP Energy Review [PDF].) In fact, if you want to increase the supply of oil, you might want to, say, help the Iraqis fix their oil infrastructure (alas, we’ve already wasted hundreds of billions on a war over there). Bottom line: the U.S. has become a small player on the global oil scene because it has already used up most of its oil — it only has about 2 percent of the world’s proven reserves.
Moving on to the next irrational idea conservatives are pushing, we come to the belief that somehow oil is forever, like diamonds. Well, petroleum is a finite resource, created over 100 million years ago, and is not replenishable. According to quite a few well-versed scholars and engineers, we have hit the halfway point in our siphoning of the global oil tank. This theory of peak oil was initially explained by the renowned oil engineer, M. King Hubbert, who predicted in 1956 that the U.S. would peak in oil output in 1970, which turned out to be accurate. He then predicted that global oil output would peak in 2000. And guess what? Global oil output, at least of the easy, cheap oil, peaked in about 2005.
But this message doesn’t seem to get through on the right. Since the decline and eventual end of the use of oil would lead to a shift from our car-centered, single-family-home-and-mall-centered lifestyle, the usual reaction to the idea of peak oil has been to stick one’s head in the sand. Many people simply can’t imagine a world that doesn’t run on oil. But we are innovative creatures and we could take up the challenge of building a different kind of society. For instance, I have argued that we can have a completely electric transportation system — and transportation accounts for about three-quarters of all oil use!
Since conservatives tend to do well in suburbs and in the South — and suburbs and the South run on oil — the Republican party will not even countenance the possibility of less oil being available for all of our cars, trucks, and planes. (Not that the Democrats are much better, but at least some of them support electric rail.) And so it seems that a perfectly rational idea — eliminating a tax deduction for oil companies swimming in profits they can’t use — doesn’t seem to have a chance in Congress. Why? Because according to conservatives, the deficit will destroy the economy; taxes will destroy the economy by bringing higher gas prices; drilling more is the only way to bring down prices; there will always be more oil; and if there isn’t more oil … the economy will really be destroyed. Ka-boom!
And there you have it: the sound of the collision of a half dozen irrational arguments.