Saudis of the West

Oil oil, oil, oily oil. It's the subject of the nation. It affects everyone either directly (via actual fuel prices) or indirectly (through higher freight costs for goods purchased). I wish I had a single true cohesive plan to tie everything together, but alas, it's just too complicated. Therefore, I offer up the following thoughts and opinions to the electronic ether.

Effect on Americans - It's very hard to decipher how hard the increases in fuel prices affects the country as a whole. I haven't looked into enough statistical data to truly determine how bad it is (in fact, it may be far too early to draw any solid conclusions). However, I think that we not only have to look upstream (oil markets, exploration, refining, etc.), we also have to look downstream at the consumer. From personal observation, it is shocking to realize how many people live paycheck to paycheck...needlessly. We are raised in a culture of debt. Americans are seduced into believing that their income should be portioned out into payments - car payments, credit cards, cell phone contracts, "no interest, no payments until next year." Americans simply don't save. Thus, when the world changes around them, their income gets pushed in ways they never imagined (mostly because we don't budget either). In short, the effect would be significantly muted if we as Americans had been savvy and saved for a rainy day rather than being self indulgent and hedonistic.

Drill Here Drill Now, Pay Less - I'm not advocating that oil companies should be thought of as victims. I think there's some other factors in play, but let's be realistic and somewhat capitalistic. Factoring in offshore oil, the 1/2 of 1 percent of ANWaR already reserved for oil exploration, oil shale in the west, oil potential in the Dakotas, and the needless oil subsidies paid to well owners in the western U.S. to NOT drill, the U.S. shouldn't be an oil importer. We instead should be exporters. We should be the Saudis of the West. We as Americans need to prove that we can and will do it better than anyone else. Even for those environmentalists that protest that this would further solidify our dependence on oil, the fact remains that today's alternatives to motor vehicle fuel contain far less energy than diesel or gasoline. Any solution that gets developed will be expensive and only purchased by those who can afford it first, then flow to the 2nd and 3rd world as the price for these alternatives drops. In the meantime, the U.S. can establish itself as a global oil powerhouse and render the extremists of the Middle East impotent since we would no longer be compelled to do business with them.

Fuel Tax Holiday, or Sean Hannity Needs Revision - In general, I, as a fiscal conservative can agree with most of what Sean Hannity says. However, I strongly disagree with a temporary rollback of the 18.4 cent federal fuel tax. This is a silly, pandering, gimmicky measure that will do little to ease the burden on Americans. Consider the following figures.

• Between Memorial Day and Labor Day, there are approximately 15 weeks.
• The average American fuels their vehicle once a week
• The average fill is 12 gallons (although I will factor on 15 gallons to have a safe overestimate).
• Therefore, the total saved by an average American on a theoretical fuel tax holiday would be $41.40 - barely enough for a dinner for two (including appetizer & dessert) at a nice sit down restaurant.

In addition to this, how do you think Americans would react to a 18-19 cent increase at the pump after Labor Day? Exactly. Now, a permanent rollback of the fuel tax or a significant reduction would be ok, but it would have to be accompanied by an equivalent or greater reduction in spending, which for Congress is unrealistic.

(Corn) Ethanol sucks - Sorry folks, corn is not the next fuel. Maybe switchgrass will prove itself out, but we need to stop with the corn based ethanol. The energy output vs. input ratio is terrible, it's highly susceptible to shortages, and it strongly and adversely affects food prices. If you really want ethanol, do it like Brazil.

Souring the milk drinking by the GPOM - It appears that the Giant Pool of Money found somewhere to go after taking such a beating in the U.S. housing market. I believe that speculation, more than anything else, is the biggest factor in the run up in oil prices. Unfortunately, the only way to stop this is to either offer a better option (which may come, but will rely on the Federal Reserve raising interest rates) or somehow "sour the milk" by making oil speculation less attractive. I think the first step in this is to publicly expose the groups, trusts, banks and companies that buy oil futures. Oil companies may be the whipping boys of today, but wait until the American people find out that they've been sold out by their local bank, university, or car insurance company.

In any case, I wish everyone well in dealing with the high cost of fuel. Whether you decide to carpool, hypermile, drill for more oil, or just get an extra job. Have a great summer!