What to Do About the Oil Crisis
If the credit and housing crises weren't enough, now oil prices are breaking through the stratosphere. What to do? The President criticized Democrats in Congress today for barring oil drilling on the Alaskan tundra. If he thinks that will bring down oil prices, he's even farther out of his mind than I feared. Even if such drilling were environmentally safe (and it's not -- remember BP?) it would amount to a miniscule addition to global oil supples.
So what else can we do? McCain and HRC are proposing a tax holiday on gas - so this summer you wouldn't pay the 18 cents a gallon that would otherwise go to Uncle Sam. Talk about dumb ideas. This will only encourage Americans to drive more, thereby increasing demand and causing gas prices to rise even higher. Driving more will also put more carbon dioxide into the atmosphere, which fuels global warming. And this will cost taxpayers some $10 billion. It's a cheap political gimmick that does nothing to stem the rising price of oil.
You want to hold oil prices down? In the short term, strengthen the dollar. Part of the reason oil prices are soaring is because the dollar is tanking. The Treasury and financial ministries of other rich countries should buy back dollars to stop speculators who are bidding the greenback down.
Over the longer term, though, China and India's insatiable demand for oil will continue to drive oil prices up, and turmoil in the Middle East will keep them up. So there's really only one way for us to go: Alternative sources of energy - wind, solar, biomass, water, and if we can make it safe enough, nuclear.
Why aren't oil companies investing in these alternatives? They have more money now than they know what to do with. Their quarterly reports, out this week, will show galactic profits. But for them, basic research in alternatives is too risky. And why should we expect them to invest in alternatives to oil, anyway? They aren't even putting as much as they did five years ago into oil exploration, as a percent of their profits. They figure the best way to keep their stock price high is to use their windfall profits to buy back their shares. This may be good for their shareholders but it's terrible for America.
That's why it's time for a windfall profits tax on oil companies to finance our way to sensible and sustainable sources of energy. Forget the summer tax holiday on gas. We need a permanent holiday from oil.
So what else can we do? McCain and HRC are proposing a tax holiday on gas - so this summer you wouldn't pay the 18 cents a gallon that would otherwise go to Uncle Sam. Talk about dumb ideas. This will only encourage Americans to drive more, thereby increasing demand and causing gas prices to rise even higher. Driving more will also put more carbon dioxide into the atmosphere, which fuels global warming. And this will cost taxpayers some $10 billion. It's a cheap political gimmick that does nothing to stem the rising price of oil.
You want to hold oil prices down? In the short term, strengthen the dollar. Part of the reason oil prices are soaring is because the dollar is tanking. The Treasury and financial ministries of other rich countries should buy back dollars to stop speculators who are bidding the greenback down.
Over the longer term, though, China and India's insatiable demand for oil will continue to drive oil prices up, and turmoil in the Middle East will keep them up. So there's really only one way for us to go: Alternative sources of energy - wind, solar, biomass, water, and if we can make it safe enough, nuclear.
Why aren't oil companies investing in these alternatives? They have more money now than they know what to do with. Their quarterly reports, out this week, will show galactic profits. But for them, basic research in alternatives is too risky. And why should we expect them to invest in alternatives to oil, anyway? They aren't even putting as much as they did five years ago into oil exploration, as a percent of their profits. They figure the best way to keep their stock price high is to use their windfall profits to buy back their shares. This may be good for their shareholders but it's terrible for America.
That's why it's time for a windfall profits tax on oil companies to finance our way to sensible and sustainable sources of energy. Forget the summer tax holiday on gas. We need a permanent holiday from oil.
posted by Robert Reich | 10:20 AM
143 Comments:
We're going to have to go nuclear... at least as a temporary step to tide us over 'till fusion reactors become practical. Yes there's always danger from nuclear accidents, and there's the question of what to do with the waste. But breeder reactors can greatly reduce the amount of waste, and the disastrous consequences of global warming are far more pressing and onerous than the potential of a couple of Chernobyls per decade until we get the whole fusion sorted.
I hate the nuclear argument.
Only because I have heard of this mystical burning ball of gas that is hundreds of thousands of times larger than planet earth.
Apparently this ball of gas powers our solar system. Crazy.
Someone tell me if they catch sight of this elusive energy source. I must know if it truly exists.
I didn't see you mention geothermal, which has great potential. Put simply, it means drilling into the Earth's crust to get to hot rocks and pumping water down to get steam back up, which then drives conventional turbines.
Hot rocks can be found everywhere on Earth if you persist in drilling far enough into the Earth's crust. It wont eliminate jobs, it's non-polluting, only mildly radioactive in some cases but needs no extreme measures like nuclear plants, doesn't require nearly as much preparation to get going as the nuclear option, is economical in the long-term (and almost limitless), doesn't affect the balance of trade between economies as oil does, does encourage energy independence, does involve far less carbon dioxide than other processes, and doesn't necessarily involve giving money to people who support terrorism (directly or by proxy). It's a good way to produce *energy*, which can then be used to produce liquid fuels for the transport industry at a later stage.
Dr. Reich,
Why don't you put your money where your mouth is? If the oil companies believe that the future return of alternative energy sources does not justify the risk to their shareholders, isn't that their right? Why does the government have the right to coercively pilfer the fair earnings of shareholders to take more bad gambles exploring energy sources as they are currently doing by subsidizing ethanol production?
If you have evidence that these technologies are worth the risks of investing in, why don't you start a fund and convince investors to take on the worthwhile risk? Wouldn’t it be more moral for you to convince investors to voluntarily risk their labors on unproven technologies than to forcibly steal it away from them?
I agree that the immediate solution is to get the dollar back up and on a par with the Euro. But, just as pressing is getting the global-disruption-factor speculation out of the price as I've read that this represents $10-$30 a barrel. Getting us out of Iraq and being seen as engaged on the peace front are ways to get the price back down.
this is just the chickens coming home to roost.
nobody wanted to listen to the wacky environazis! and now the same people are crying about gas prices and mccain and hilary are pandering to those same idiots.
we deserve what we get.
You're right that no attempt to produce more oil is going to let us go on the way we've been going.
I'm very doubtful, though, that any alternative (or even all of them put together) will come close to filling the gap.
The real solution is going be using less energy. (Only a little less in the short run. Eventually, though, a lot less.)
The longer we try to pretend that there's an alternative to using less energy, the more money we're going to waste on infrastructure that has no future.
Dr Reich,
I believe you are correct in that Bush and McCain/Clinton's plan will be ultimately fruitless. However, I would suggest that rising demand vs flat supply means that the solution to our energy problems ultimately means driving less. The question is really one of quality of life. If we continue to build car dependent infrastructures, this will greatly reduce our quality of life. If we build very nice places to live that require less or no driving, we will not lose on quality of life. The choice is in our hands as far as what sort of future we want to build.
I'll put on the rosy glasses. I think this could be the start of a massive change and a boom in our economy. If we start moving to solar en-masse (which is where we need to be), it will create an entirely new market for electric cars (and electric engines in general). Stimulating the economy. Creating new manufacturing jobs. It could be like the explosion of the Internet all over again. If we see it as an opportunity and not a challenge.
Dr. Reich,
1. I think McCain and Clinton are just trying to "buy" votes, since this is election time. As Obama said, the gas tax-free holiday will probably save each vehicle ~$30 (equates to 160 gallon consumption for 3-month period), and in the end, the manufacturing industries / companies that use oil are going to benefit more from this.
2. Pelosi mentions about Bush to stop buying oil for the Strategic Petroleum Reserve, estimated to save ~24 cents per gallon.
3. Bio-fuels is a very "feasible" alternative, since most newer cars can use the E85. But, we can already feel the effect of food vs fuel debate, with food shortage and rising food prices worldwide. Plus, if bio-fuels becomes the next big thing, we will see all the major rainforests in the world to disappear in no time. Brazil has been cutting the Amazons fast, since they want to export ethanol. With oil, we are dependent on the oil-rich countries (which the US has been so keen on fighting terrorism in). With bio-fuels, we are dependent to every country that have forests.
4. Glenn Beck (from CNN), mentions about the synthetic oil project (which was shot down due to an oil glut in the 1980s). I wonder how far the technology is now.
5. Going to nuclear is going to be tough. We are trying to disarm "the world" from nuclear, and it's ironic if we start investing more on nuclear. Of course, the US govt says it's for alternative energy. But which country is going to believe that we are not going for the "unfriendly" intention?
While the scientists and engineers are battling on the technology front about feasibility / efficiency etc, we should start by reducing consumption, e.g. huge penalty for gas-gustling cars (instead of tax credits attributed to "small businesses"), bigger incentive for high MPG vehicles, more public buses, more tolls etc. This will take care the transportation sector. On the other hand, reducing consumption / increasing efficiency on the manufacturing side is difficult. The manufacturing industry in the US has been hit hard with globalization and with the current economy climate, it's going to be tough to mess around further with the prices of their raw supplies.
Toyota has just passed GM leading car sales. Leadership, however you define it, in America should be encouraging Toyota to ramp up production to three shifts a day, sort of like a war economy footing, for the Prius production so that the law of substitution kicks in. More Priuses will eventually mean more second-hand Priuses, etc.
Then there are the studies that show for driving around town, at 35 mph, you really only need a golf-cart; of course, what kind of fuel is up for discussion. If your biggest carrying load is your groceries, then you need a golf cart with a...storage area.
Washington, DC, is one of several cities offering bicycle rentals for $40/month. I know a company that helps with the rental of collapsible bikes for subway and train riders.
In other words, got off oil altogether by encouraging the economic law of substitution.
Gotta throw my vote with the less-energy crowd. There just isn't enough energy to power 6 billion people's cars, air conditioners and plasma TV's. Period. Solar. Nuclear. ANWR. Doesn't matter. The demand curve will swamp anything we do.
francisco d, I'm sure glad the government didn't follow your ideology-based approach during World War II, when it came time to develop the A-bomb. That would've saved taxpayers some upfront money, most likely at the cost of 1 million casualties incurred while invading Japan.
Why should the government act to help solve the energy problem? Because it's a massive problem affecting all Americans, now and well into the future. It's a problem that has embroiled us in wars and foreign entanglements, caused and contributed to all manner of other problems, and threatens to get dangerously worse going forward, as China, the U.S. and eventually Russia compete for limited resources.
Also, government needs to get involved to keep things at least somewhat fair here at home. That means preventing the gouging and other forms of exploitation too many business executives seem to consider legitimate profit-maximizing strategies these days.
Government is the biggest tool in the shed. I just hope it's big enough and can tune out the free-market religionists, greedmongers and exploiters long enough to come up with workable solutions for everyone's benefit.
You want pure, laissez-faire capitalism with no taxes and no government interference, francisco? Go to the Alaskan wilderness, build yourself a cabin and have at it. You can be the master of your own fate, with no one calling on you for money, help or cooperation. Good luck.
Our energy requirements are so vast that we're going to have to do all we can to develop multiple altnernative sources. All the ones mentioned above and maybe more.
We're probably also going to have to change the way we do things, using more public transportation, relying less on aircraft for routine travel and freight movement, encouraging businesses to allow their employees to telecommute, rather than show up at the place of business every day.
You'd think true conservatives would be all about conservation, conservation and conservation.
I applaud Al Gore's Earth In The Balance for taking a stand for hire gas prices. Our current politicians seem to be like parents telling kids that they can get ahead by spending more than they make. Why sacrifice when you can spend?
In the end it's simple economics, gas prices go up, people conserve more. And I hope that Robert Reich encourages people to be a lot more conservative.
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Dr. Reich,
You hit it on the head, as did many of the contributors here. I tried to add to it but honestly, I'd only be redundant.
Thank you for being as outspoken as you are. The same holds true for the other participants on your blog.
(I apologize for not posting my name, which is Rika ... I can't remember my Google password!)
The rates of interest on the bad credit loans will be greater, when likened to loans provided to folks with good credit.
Now with LOANS you have an opportunity to solve the financial crisis.
Instead of thinking global, I think we need to start thinking domestic. Our global appetite has killed our independence. We are getting apples from China and our apple farmers are now growing grapes for wine. Why? More money in wine. Our sense of entitlement has caught us with our pants down. When you go to European countries, they drive small cars. Here, we have American car companies that must sell luxury vehicles. We have to change our entire lives if we want to leave something behind for our children. It's time to downsize America.
Dr. Robert Reich you are right as usual! Drilling on the Alaskan tundra is not the answer. A tax holiday on gas is not the answer. Oil companies using their windfall profits to buy back their shares of stock is not the answer. But a windfall profits tax on oil companies is also not the answer. We need a permanent holiday from oil.
You want to hold oil prices down? In the short term, strengthen the dollar. This is a national problem along with energy, food, health care and global warming. It requires a balanced budget and a national tax on personal and business wealth above $5 million to strengthen the dollar and finance our way to sensible and sustainable sources of energy.
In September 2005, Scientific American published a special issue on “Crossroads for Planet Earth” (The human race is at a unique turning point. Will we choose to create the best of all possible worlds?) But politicians didn’t listen. In September 2006, Scientific American published a special issue on “Energy’s Future Beyond Carbon” (How to power the economy and still fight global warming.) But politicians didn’t listen. In January 2008, Scientific American published “A Grand Plan for Solar Energy” (By 2050 it could free the U.S. from foreign oil and slash greenhouse emissions.) But politicians didn’t listen. Scientists have addressed all of our problems but someone has to listen. The best place to start is http://www.sciam.com/all_topics.cfm here are the answers and a wealth tax is how to fund them.
Having done some research into living conditions I have made the decision to move to the US! Apart from the medical care (which having just watched the film Sicko I am slightly concerned about) I have decided that there are more positives then negatives and am therefore very excited about the prospect of moving.
However I am concerned with purchasing a house, are mortgages over there the same as there are here? Do I need a large deposit and having spoke to a few people online I am concerned I wont be able to find a company to give me mortgage broker bonds.
and if I cant can I buy a house? Also I am familiar with the term surety bond so is a mortgage bond just a guarantee I will pay on time or is it more?
Dr. Reich,
Having been in the car and offshore oil industries as a consultant in Europe for many years, it's been a constant shock over these years to watch Ford and General Motors build smaller, compact cars for Europe that are at least 40% more efficient than the cars they have been building in America the past 30 years.
Furthermore,I'm paying abot $5.00 a gallon (euros adjusted to dollars) plus a $300.00 Road tax a year in Holland based on the engine weight of my car.
The gas price includes a Government tax of about $1.00 or five times the U.S. tiny $.18 Federal tax. Little wonder the infrastructure is first class up-to-date here. Taking the tiny $.18 away and giving it to car drivers in the form of lower gasoline prices for a few months will probably put a lot of road and/or bridge builders out of work as well as jump up our soaring national Deficit by $15 Billion.
Our Deficit levels at 5-6% of GDP also encourage less confidence in the Dollar causing it to weaken further... which then causes the Arabs to raise their oil prices to us. So we're caught in a Vicious Trap. Our politicians need an economics lesson here!
What is the result in Holland and Europe of much higher gasoline prices and more efficient vehicles ? ...far lower consumption of gasoline and further stimulated when you compare hybrid car sales here to that in U.S. per 1000 car owners.
The Dutch pay all these premiums without serious complaint. They encourage more mass transit, use of bicycles and even sharper trend lately to sale of ever more efficient cars. Cars are of course rated by gasoline efficiency when you buy a new one.
So we have a long ways to go in the U.S. McCain and Hillary's idea is a "make you feel comfortable" with a quick fix attempt which will cost more than its worth, as most above posts are correctly saying.
Actually, our government should INCREASE the gasoline tax and counter with a Tax Credit if the buyer of a new car buys a hybrid or a highly efficient rated car (or the owner of current car converts it to a hybrid). The car companies would start to get the message (as they belatedly are about the guzzeling HUGE Terrain Wagons) and increase production and sales of smaller, cleaner vehicles. But that's European thinking.
For the long term, the U.S. can gain total independence from oil with its mammoth coal reserves. But first the best technology for cleaning coal of all pollutants must be developed. In true American entrepreneurial style, two or three companies are now feverishly investing in these technologies and results should be forthcoming in 2-4 years time.
Meanwhile, all other alternate fuel sources need to be nurtured as well, such as wind energy, solar and electric (for cars) This is where appropriate Government incentives can also play a constructive role. Research shows that 75% of all trips are less than 25 miles ... another reason for not needing overpowered, oversized high fuel consumption (non-hybrid) cars. Oversized vehicles also increase wear and tear of roads and highways.
Frank Thomas, The Netherlands
Robert, you had me going there, until the last two paragraphs. Agree with the falling dollar as the cause of the runup in oil price. But then, the implication that the oil companies aren't investing in solar energy because they are greedy. Hell, Bill Gates has more money than Exxon, is he greedy because he doesn't build wind farms? C'mon, there's a million reasons alternate energy (esp nuclear) isn't developed -- greed isn't one of them,
The oil crisis is about transportation, not electricity. $120 a barrel oil affects the use of my toaster oven not one bit. So your recommendation about investments in solar, wind, etc. make sense for clean, carbon-free electricity generation, but make absolutely no sense in solving the absolute dependence of our total transportation infrastructure on liquid fossil fuels. This distinction is critical to any intelligent debate aa bout "energy."
Now is the perfect time for a massive government-funded Manhattan Project-style research initiative with two big focal points:
1. super-flexible, put-anywhere, high-durability, high-output solar cells.
2. high-temperature superconductivity.
These two things will employ the giant brains of the world, bring them to the US, inject money into the high tech economy, and open up the research for all to benefit from. The downside? We'll have to take money away from the unofficial billions spent on Iraq to do it right.
We Americans love to complain about how "high" the cost of gasoline is and our politicians don't hesitate to benefit from this perception. Thus you see proposals from both sides of the aisle, all designed to reduce the price of gasoline.
The economic truth is that one of the best ways to encourage investment in alternative energy sources, lessen the need for future wars, encourage conservation of energy, and thereby improve the environment for all of us is to keep the price of energy "high". Remember that "high" is a relative term. Americans still pay less for gas than the rest of the industrialized world.
If the pain of paying at the fuel pump really gets felt, Americans will begin to buy smaller, more fuel efficient cars and Detroit will listen. But don't expect Detroit to lead the way. They are simply following what their customers want to purchase.
It's time for Americans to make the right choices on energy use based upon the real cost of that usage, which includes not only the cost at the pump, but the cost of an expensive war, and the environmental consequences, as well. There's nothing wrong with today's price of energy. Let it go where supply and demand allow it to go.
Dr Reich maybe you can explain this to me - why are oil company profits rising so much if there are such serious supply/demand problems and their customers are paying such higher prices? Shouldn't they be feeling the impact too? If not, why not?
Lastly, why not have tax brackets for corporations, or maybe just for oil companies? So if they make these insane profits, they pay more for it.
Unfortunately, if you look at the ownership of manufacturers and patents in the renewable areas, you will likely find a large amount is already controlled by the same energy companies (BP Solar ?).
By holding back the renewables, they can maximize profit. No conscience at all, just plain greed.
This would be worth a few editorial investigations
What windfall profits? Exxon has about the highest net margin of any of the majors – yet only about 11%, low compared to many other industries. Thus, the large amount of profits of the oil companies is actually a function of the size of their revenues (great demand for their product), and not some "windfall" event. Increase the cost of producing oil (by raising taxes), and less projects will be profitable leading to lower supply and higher prices. Government meddling, as usual, will make things worse.
The whole concept of a windfall profits tax is so anti-capitalism and anti-American. Let us not forget that these “big bad oil companies” - as the politicians like to portray them – are publicly owned companies owned by shareholders like me and other regular folks. Bad policy directed at the “big bad oil companies” ultimately hurts the stockholders – savers, investors, and dividend receivers – and consumers who will face lower supply and higher prices.
S.W. Anderson -
Interesting that you chose the A-Bomb, the most devastating invention in human history, as an example of the success of government research. The A-bomb destroyed 2 cities and killed over 200,000 innocent citizens. It is the fact that such strong governments exist, and that we are willing to defer power to them for protection from the “evil doers,” that lead to a second world war in the first place, and acceptance of that fear mongering continues today.
Is the rising demand for oil a problem? Absolutely, and oil prices of $120 a barrel give investors an incredible incentive to find a solution. The government’s subsidizing of ethanol production, and the resultant food riots we see today provide an undeniable example of why they are the wrong entity to be looking for the solution.
The government needs to be involved to make sure things are fair? How do you propose they do that? How much profit is too much? And what exactly is price gouging? If you want more oil than someone else are the oil companies supposed to flip a coin to decide who gets it? When the demand for a product increases the only fair way to allocate it properly is to raise the price. By not “gouging” the demand will only lead to queue lines as we saw in what must have been your utopia of governments, the Soviet Union.
Robert said………
“That's why it's time for a windfall profits tax on oil companies to finance our way to sensible and sustainable sources of energy. Forget the summer tax holiday on gas. We need a permanent holiday from oil“.
These giant oil corporations scour the earth for profits promoting war and colonial occupations all along the way in their naked greed. The most sensible solution is to transform them into public utilities socially owned and democratically controlled. With the public good rather than a profit motive as their driving force, the globe could be energy and food secure. Massive consolidation of the energy industry has left billions of people under the dangerous control of a few who recklessly destroy the earth in their lust for profits.
The McCain and Hillary gas tax holiday is silly pandering easily recognized as artifice.
Eliminate the $18 billion in tax breaks the oil companies are getting over the next 10 years and instead provide a rebate to drivers. According to Greg Mankiw: “If you want to provide households tax relief, a direct rebate ... is more effective. Not all of the tax relief from a gas tax holiday will be passed on to consumers. Some will likely be kept by refiners."
And yes impose a stiff windfall tax on the energy giants.
Robert, you are correct that we need to develop alternative energy resources. However, I do not believe that these we will be sufficient to continue Autotopia, which is at the root of our oil dependency. The alternative energy we develop will be needed to provide for our residential, infrastructural, and industrial needs, and will not be available to power our current auto-centric society. Until we face the reality of the upcoming transportation crisis, we will not be capable of coming up with lastin, scalable, and reasonable energy solutions.
I fail to understand how solar (especially with improvements) could not power our nations needs. But perhaps that's because I live in Texas where we're constantly aware of the massive power of the sun. I think too many people (including environmentalists) think oil centric and are boxed in by it.
Why couldn't we have solar panels built into every inch of concrete in this country? Panels in every shingle put on a roof? Panels on top of every big box retailer? Panels built into every sheet of glass sheathing skyscrapers?
We're getting there. Walmart seems to think it's the way of the future. Google seems to think so.
The Southern United States should be looking at Solar the same way it looked at oil at the turn of last century. The clean energy revolution still has the potential to pick up the US economy and start a new technology boom.
It's amazing to me how many on the left worship at the cult of environmental holocaust as religiously as those on the right worship the rapture.
Let me repeat: The "energy giants" are you and me, and all our next door neighbors, all who hold the shares of these companies through mutual funds, pensions and direct holdings. Why promote a windfall tax on ourselves?
psangell has is exactly right. Tom Friedman committed the same cognitive dissonance in his column today (4/30): http://www.nytimes.com/2008/04/30/opinion/30friedman.html?partner=rssnyt&emc=rss
Oil is about transportation, not electricity. Very little of our electricity comes from oil, especially outside of the Northeast US. Many families heat their houses with oil furnaces, but for renewables to make an impact on home heating would require retrofitting houses with electric heating systems.
So investing in renewables in general will have a big impact on coal, gas, and nukes, but not so much on oil. Oil is mostly burned in the transportation sector, which consumes well over 60% of the US total. Unless we all those wind farms and solar panels are producing hydrogen, and we have serious market penetration of hydrogen cars, then all the renewable investments in the world are not going to make our cars go. The exception here are plug-in hybrids and electric cars, which could use their own significant R&D tax credits to develop better, lighter battery technology.
This is where we come back to the part about smart growth and transit (which is coincidentally easy to run on electricity, renewable or otherwise). Building transit (with those gas tax dollars, BTW) and encouraging communities to develop in a more efficient, livable manner (i.e. every daily activity and need does not require a car trip) can and must play a significant role in reducing oil consumption.
anon 8:36:
My gracious, 11% surely is not a huge profit margin. Maybe if we can get revenues up a little more we can get profit margins to 20 or 30%. Clearly a reasonable profit margin.
Of course if we look at a little history:
Profit margin in 1999; 4.3%
Profit margin in 2007: 10.4% (down from 2006 of 10.8%; poor management?)
(Dollars in Millions)
Sales in 1999; $181,759
Sales in 2007; $390,328 (increase of 115%)
Net Income in 1999; $7,910
Net Income in 2007; $40,610 (increase of 413%)
Capital & Exploration:
1999; $13,307
2007; $20,853 (ambitious increase of 57%) (in 1999 Cap&Ex was 7.3% of Sales, in 2007 down to 5.3% of Sales)(in total compensation they paid their CEO more than the Cap & Ex expenses for 2007, his pay could have almost tripled dividend payouts)
Cash Dividends in 1999; $5,872
Cash Dividends in 2007; $7,621 (increase of 30%, actually more due to repurchase of stock, but doesn't appear to be an aggressive dividend policy in light of profits)
R&D expenditures in 1999; $630
R&D expenditures in 2007; $814 (increase of 29%, appears far short of aggressive alternative fuels research)
YE Share price in 2002; $34.94(1999YE share price not readily available)
YE Share price in 2007; $93.69 (increase of 168% in just 5 years)
Would not seem financial statistics of a middlin or struggling company.
Pardon me if I hold back my tears.
Maybe a little clarification. When I said "Dollars in millions" that meant that you need to add six zeros after each dollar figure. I should have represented the numbers as decimal billions for the dollars truly represent billions.
Oops an error!
The CEO compensation statement is wrong; I got confused myself between billions and millions. CEO compensation for 2007 was $21.7 million.
I had a great idea for a car that burns carbon dioxide and emits as combustion byproducts pure industrial diamonds (carbon) and medical-grade oxygen. Too bad it's impossible.
Nuclear energy on the other hand is feasible and has an excellent safety record when proper precautions are taken. Unfortunately there is no such thing as a speedy erection of a nuclear power plant.
I foresee a future where we have a huge mix of grid electricity generation fuels/energy sources (all the ones mentioned above) and cars are plugged in to charge like cell phones.
I just read the Thomas Friedman column in the NYT concerning the energy problem.
Dumb as We Wanna Be
Anonymous Anonymous said...
"Let me repeat: The "energy giants" are you and me, and all our next door neighbors, all who hold the shares of these companies through mutual funds, pensions and direct holdings. Why promote a windfall tax on ourselves"?
Answer: To promote the public good; a novel concept in our way of doing things but well worth the sacrifice.
A few comments:
I am a Chemical Engineer, which will probably make many of the readers here weep and shake their heads. But believe me, I only use my skills for good. There are (contrary to popular opinion on this page) Conservatives (and Chem. Eng.) that do believe in conservation, recycling, reduction of pollution, etc., etc., etc. I am one of them. Sterotypes are not always accurate, please remember. There are shades of grey in the world.
A comment was made above about oil companies not investing in alternative energy. Could someone please tell me what that facility is in Frederick, Maryland called BP SOLAR? Must some sort of front.
I used to drive past it many a time in my Luxury model 1987Ford Tempo (4-cyl., 32 mpg everyday until I traded the poor old thing). I now drive a Dodge Caliber, with... 32 mpg. I bought it for less than half of the cost of a Prius.
American cars from Ford, GM, Chrysler fall into every product catagory imaginable, not just Luxo-barges. That is as silly a stereotype as any out there. There are hybrids available, as well as E85-powered vehicles. Why just promote the Prius when we could do something nice for our homegrown businesses?
One last comment: It is wonderful that the alternative energy businesses that are springing up have such support. But I do wonder... I have answered many job postings for such firms actively seeking employees. I have a BS and MS in Chem. Eng., and over 20 years spent in industrial engineering. However, not one, and by that I mean none, of the businesses responded to my submission of letter/resume. No "Thank You," no "Sorry," no "Get Lost." And certainly no job. That's ok, I am working and making a living for my family. But it did make me stop and ponder just how serious these places are. Is it all for show, or are they really looking for solutions to our problems?
Sorry for the disjointed sequence of thoughts...
I think it's great for them to repurchase their shares. It frees billions of capital for more forward-thinking companies to invest. The money they pass on doesn't disappear. It typically goes into other investments.
I'd really rather somebody other than Exxon be the leader in renewable energies, wouldn't you?
Actually, the word is "minuscule."
RE: Windfall Tax
A few years ago, I purchased a company, actually a part of a company, called Exxon Mobil. I was able to do so because I followed my father’s advice which was to spend less than I make, thereby acquiring some savings with which to invest. I decided this was good advice since I live in a low income area of the country and I would need to come up with a source of supplemental income, i.e. dividends. This of course required me to make sacrifices, so I did not do things like buy too much car or too much house, nor did I spend money on cigarettes, alcohol, or even music cds – after all, music was free on the radio. I went to college and gave up the opportunity cost of four years of income from working - not to mention tuition cost, as well.
While all this was going on, my government leaders were spending more money than they were collecting, on productive things, but also on things like pork barrel spending, welfare for the drop out mother, and prison upkeep for the child’s father, who was having a grand ole time while I was studying for mid-terms. Our government decided to invade a country and spend billions on the pretense of a national security threat, very shortly after Saddam had disengaged a long range weapon at the request of the U. S.
I can tolerate all this…the world is not perfect. However, some of my government leaders are now proposing that, as a result of my sacrifices, as a result of being financially conservative, as a result of my risking my savings by making an investment in a business, as a result of my business producing a product that everyone uses and is of great value to everyone, as a result of my business managing itself properly to make a profit like it is supposed to do, and as a result of the government not being able to do any of the above, it is considering seizing part of my business’ income (calling it a “windfall tax”), because it has considered it to be, in a rather arbitrary fashion, too high. To all the business owners out there: this is a slippery slope, don’t you think?
Instead of saving all that time, I should have been consuming more than I was producing so that I could be bailed out by the productive savers later. What the heck was I thinking?
To notsofast,
The “novel” concept to which you are referring is known as socialism. It is a noble concept; the problem is that it just does not work.
Let me get this straight. We should tell our government that they have the authority to confiscate resources of a company simply because government disagrees with the way that company allocates its resources, and thinks it can do better? Yikes!!
It is indeed true that the action our country needs to take is to invest our fiscal resources to develop alternative energy solutions. Just as financial advisors recommend that people should diversify a financial portfolio, as a society, we should explore and develop a range of energy alternatives including wind, solar, hydro, and other alternatives. As a representative of the Hydrogen Education Foundation, I am helping people to understand how all the energy alternatives being investigated can be used to support hydrogen production, and how it is tangible to create a hydrogen fueling infrastructure in the near future.
An initial $10 to $15 billion investment, equivalent to about one month of military spending in Iraq, would establish an initial refueling infrastructure within 2 miles anywhere within the top 100 metro areas and along all US highways. General Motors recently released hydrogen fueling infrastructure assessment that provides details about how developing a hydrogen infrastructure is possible.
Hydrogen not only carries the promise to guide us away from using oil and coal, but can simultaneously improve our environment by reducing greenhouse gases. The advantage certain hydrogen applications have is that in many circumstances, the only emission is water. Two leading fuel cell manufacturing companies, Ballard Power Systems and Plug Power, released a joint report that confirms fuel cells can drastically improve the environment by reducing greenhouse gases, and even when using hydrogen produced from natural gas, emissions are reduced by 50%. The report is readily available at Plug Power’s website.
To learn more about the benefits of hydrogen, we invite everyone to please visit www.h2andyou.org.
We simply aren't going to reduce the demand for oil until we shift our incentives.
The single most important shift in incentives we can enact is land value taxation.
Nothing else -- NOTHING ELSE! -- is going to make the difference in how we conduct ourselves.
With LVT, we will slow and then reverse urban sprawl. Only with LVT will we be able to house a larger share of our population in affordable housing -- affordable to working people, affordable to retirees, affordable to middle class, affordable to upper middle class -- close to the center of things.
I think a lot of people drawm of the house with the large lawn and the white picket fence, for at least some portion of their lives. But I'm pretty sure that if we were to structure ourselves so that they could afford a comfortable, technologically up to date condominium close to the center of things -- close to jobs that pay well, schools that they can count on to educate their children well, and all the other amenities that a civilized society should be able to provide in its cities -- many of them would jump at the opportunity.
And the others could have their white picket fence if that was what really mattered to them, with the extended commute, if they could afford it.
Without the shifts in incentives that land value taxation provides, we simply are not going to reduce our demand for oil.
Nothing else is going to work.
And Land Value Taxation will also put us far down the road to solving a number of our other most serious social, economic and environmental problems.
See http://www.answersanswers.com, http://lvtfan.typepad.com and http://www.wealthandwant.com for more about these ideas.
We can be much smarter.
And, by the way, WE THE PEOPLE are entitled to royalties on that oil. Jed Clampett and Exxon did not create that oil. They owe the rest of us for what they take from the earth. Collecting that debt will not lower or raise oil prices, but will allow us to rely less on dumb taxes.
amen
Hydrogen cars are the solution to the oil crisis. They are to the point where the car companies are PLEADING (Larry Burns from GM is the loudest voice) for the hydrogen fueling infrastructure to be built.
Solar, wind, and nuclear power are mentioned, but the only technology that can utilize them to meet all customer requirements in cars is hydrogen.
Do you know that Toyota has a mid-size SUV (a converted Highlander Hybrid) powered by a hydrogen fuel cell that has a driving range of 480 miles?
Hydrogen cars are the solution, but the fueling stations need to be built. Just look at the recent quote from Larry Burns who is the top R&D person at GM:
“Burns said addressing the infrastructure challenge is essential because the potential benefits of hydrogen fuel cell technology are clear and compelling. ‘This technology promises to deliver family-sized vehicles that are fun to drive, safe, look great, refuel fast, go far between fill-ups, and are emissions-free and petroleum-free. It also holds promise to do all of this while keeping automobiles affordable to own and operate. And just like electricity, it can be made from a broad range of renewable and sustainable energy pathways. No other technology offers this exciting potential,’ he said…"
This quote is in Hydrogen Fact #1 from "Twelve Hydrogen Facts" which is a series of articles about hydrogen cars that is part of the Hydrogen Manhattan Project.
All of the questions regarding the safety, economic viability, etc. of hydrogen cars can be found in these articles.
Here is the link (you will find links to the articles at the bottom):
http://hydrogendiscoveries.wordpress.com/2008/04/09/hydrogen-manhattan-project/
Greg Blencoe
Chief Executive Officer
Hydrogen Discoveries, Inc.
Here's the real reason for the call for a 'windfall profit tax':
http://www.opensecrets.org/industries/indus.asp?Ind=E01
In 2006 oil and gas company political contributions went 82% Republican and only 18% Democrat.
If that contribution ratio was the other way around Robert Reich would be singing praises to the oil companies waxing romantically on how they empower the people.
The 'windfall profit tax' has nothing to do with alternative energy and everything to do with extortion.
Dear lvtfan:
Has someone switched this country to socialism without telling me?
"For society as a whole, nothing comes as a 'right' to which we are 'entitled'. Even bare subsistence has to be produced.... The only way anyone can have a right to something that has to be produced is to force someone else to produce it... The more things are provided as rights, the less the recipients have to work and the more the providers have to carry the load." Thomas Sowell, quoted in Forbes and Reader's Digest.
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Hydrogen? Where does it come from? As far as I know, we don't drill wells for hydrogen, we convert other energy sources into it. As the problem is that we are seeing declines in energy production, hydrogen can't be the answer.
This is like saying that switching to the Canadian Dollar will fix our dollar woes. If we convert our dollars to Canadian at a fee, then spend them, with another fee, we'll avoid our problems with the US dollar.
The problem with alternatives and why they always need higher prices in oil before they are worth it, is because energy is needed to produce the infrastructure and inputs needed to capture the alternative energy. If the energy costs are as high as the energy captured, then there is no energy profit, and thus no monetary profit in capturing that energy source.
If an energy source had a good EROIE (Energy Returned On Energy Invested), then it would be economically profitable too. You can be then that the oil industry would invest in it.
We seem to be at peak uranium now. India is running at half capacity an Europe is using uranium as fast as they can get it, while paying rising prices. It takes a lot of energy to process uranium. It may be a fact that if it weren't for the nuclear weapons industry that commercial nuclear power wouldn't be worth doing. This may be the real reason that we don't have more nuke plants. We don't have a need for a hundred times more nuclear weapons, to subsidize the costs with.
Ummm.. please remember a fact that some folks would rather forget. Hydrogen, pure, clean Hydrogen does indeed produce water vapor when it oxidizes. However, water vapor itself is a so-called "greenhouse gas." I am not suggesting that it is in some way worse than the dreaded CO2 or CH4, but it isn't completely innocuous either. Every expenditure of energy, regardless of source, comes at a price. There is a law of thermodynamics in there somewhere...
weaseldog:
A reasonable post. In the vernacular you are absolutely correct. We get back to a philosophical argument, however, in that is the driver for the welfare of our culture to be profits or the betterment of our people and the environment.
Profits do have to exist. Businesses cannot continue without them. There is sound argument that the R&D expense makes it infeasible for a profit oriented company to undertake unless there is a market price that pays back that expense, with profit. That leads us to government funding of the R&D expenses, to provide for the "general welfare".
The tricky part is how to fund it. If not done wisely then businesses will take advantage and turn to leeches and bleeding as progress.
We started on this path with Carter but Reagan decided that alternative fuel research was a ridiculous waste of money. We now have ourselves buried with so much debt that meaningful funding for R&D on the part of the government is nigh onto impossible. Even though it will provide jobs and economic growth the revenue streams in the short run will do little to allay the debt and debt service problems.
This does lead us to looking at partnering with business to energize the R&D but history would suggest that the government will end up with the short stick in such an arrangement.
There is also sound argument that an industry so vital to our continued existence should perhaps not be left in the hands of profit motivated companies. The advent of free trade and globalization gives us a pretty solid view that profits trump cultural welfare.
Weaseldog,
Hydrogen can be produced from wind and solar power. There is far more wind and solar power in the world to provide all of the hydrogen we would ever need.
In the U.S., there is enough wind power in the Great Plains region to power all of the vehicles in the U.S. with hydrogen.
Furthermore, the cost of hydrogen produced today from wind power (without any subsidies) would be less than the equivalent of gasoline at $3 per gallon. See the following analysis:
http://hydrogendiscoveries.wordpress.com/2008/04/11/hydrogen-fact-7-the-cost-of-hydrogen-produced-today-from-wind-power-without-any-subsidies-would-be-less-than-the-equivalent-of-gasoline-at-3-per-gallon/
Greg Blencoe
Chief Executive Officer
Hydrogen Discoveries, Inc.
Anonymous,
This is a response to the following comment:
"Ummm.. please remember a fact that some folks would rather forget. Hydrogen, pure, clean Hydrogen does indeed produce water vapor when it oxidizes. However, water vapor itself is a so-called "greenhouse gas." I am not suggesting that it is in some way worse than the dreaded CO2 or CH4, but it isn't completely innocuous either. Every expenditure of energy, regardless of source, comes at a price. There is a law of thermodynamics in there somewhere..."
Water vapor emissions from hydrogen cars WILL NOT cause more global warming. The cars we drive today emit about the same amount of water vapor as a hydrogen fuel cell vehicle would.
This issue is covered in the following excerpt which is from the link below:
Every once in a while, you might hear somebody say something like:
“Hydrogen fuel cell cars emit water vapor which is a greenhouse gas. Therefore, hydrogen cars would cause even more global warming.”
However, this is not true. The U.S. Department of Energy says that:
“Hydrogen fuel cell vehicles emit approximately the same amount of water per mile as vehicles using gasoline-powered internal combustion engines.”
Furthermore, this issue was addressed in the Winter 06-07 issue of Earthwise, which is the quarterly newsletter of the Union of Concerned Scientists. Here is the excerpt:
“Since hydrogen fuel cells emit water vapor (a heat-trapping gas), what impact would a hydrogen-based transportation system have on global warming?
To compare the potential climate impact of a future transportation system dominated by hydrogen fuel cells rather than fossil fuels, we must consider all of the heat-trapping emissions produced by these two power sources. If gasoline, for example, fully combusts in a vehicle engine, the tailpipe exhaust will contain both carbon dioxide and water vapor. Tailpipe exhaust from fully combusted fuel cell hydrogen gas (H2), on the other hand, will contain primarily water vapor.
The impact these emissions have on our climate depends in large part on their atmospheric lifetimes. Water vapor remains in the atmosphere only a few days or weeks, and hydrogen gas about two years, but carbon dioxide lingers more than a century. Transitioning to a transportation system based on hydrogen would therefore have essentially no long-term impact on climate due to short-lived water vapor exhaust or minor hydrogen gas leaks, but would dramatically reduce our emissions of long-lasting carbon dioxide-the key factor driving global warming.
We must be sure, however, that the technology we use to produce hydrogen does not contribute to global warming. Fossil fuel-based production methods would release carbon dioxide (and heat-trapping methane) into the atmosphere, whereas production fueled by renewable energy would not.”
http://hydrogendiscoveries.wordpress.com/2008/04/09/hydrogen-fact-4-water-vapor-emissions-from-hydrogen-cars-will-not-cause-more-global-warming/
Greg Blencoe
Chief Executive Officer
Hydrogen Discoveries, Inc.
Greg Blencoe,
We have to burn coal and oil to make the solar and wind capture devices to make the hydrogen.
As long as we're working with electricity, why add the wasteful step of converting the energy to produce hydrogen? the answer is simple, hydrogen is a means of draining pubic resources as subsidy programs to help increase the wealth of well connected people.
And your argument about potential energy, is in essence a platitude. It promises a solution in the future, to our troubles of today.
All of my life I've been hearing about future solutions to the problems we experience today. And yet, those solutions are always in the future. This doesn't differ in substance from the platitudes we hear in religious circles.
What is the solution right now? Not in the unknowable future, but right now? Do we just keep on trucking and hope for the best?
That probably isn't the best solution. But it is the path we'll take. We will try to continue push for infinite growth, while our resource base collapses.
And I understand about the need for profit. We are a short sighted species. If there is no solution available that provides profits, then we'll crash and burn rather than suck it up and do what is necessary.
And I believe at this point, there are no solutions that will make more money for the wealthy. there are pretend solutions like bio-fuels and hydrogen. With subsidies, they can be used to siphon public funds into the pockets of the wealthy.
But honestly, the only answer that 'the math' supports is conservation. And we will not take that path unless it is forced upon us. We will try to maintain infinite growth until nature turns us around. We are like bacteria in this respect.
Some of you are calling for wholesale changes in the culture of America.
Not that I would disagree with what needs to be changed.
Call me a pessimist, but I don't see it happening.
What does a oil windfall tax really do? Isn't it a simple redistribution of wealth from one group to another? I would argue yes. Before you jump on the band wagon of this idea, you should think about who you are taking from. Obviusly, you take money from the oil companies. But who really owns the oil company and is the real stakeholders? Isn't it the share holders? How many Americans are shareholders of American oil companies through either their pension funds or mutual funds that they own either outright or through their 401k plans. i would hope that someone would really dive into the numbers to see what the true benefit of this versus just trying to use it for poitical advantage.
Dr. Reich,
There is a low cost option for reducing our dependence on oil. It is telecommuting. I live in the East Bay, CA and have to travel one hour plus each way to an office to use my laptop and telephone, which, of course I could easily do at home. My company does not encourage telecommuting (except when they need us to work on weekends). Studies have frequently shown that telecommuters are at least as productive as office workers. I think our political leaders need to encourage both telecommuting and car-pooling as being "patriotic".
duhmitdown:
I concur. Prior to my retirement I telecommuted constantly. I was expected to go into work and did most of the time but I often worked from home to finish a task on time. When I was sick, rather than go to work and pass it around, I would work from home. On weekends, my personal situtation is not normal, I worked quite a bit from home rather than just watch TV. A few of my fellow workers did the same.
I believe some of it stems from the economists, sorry Dr. Reich, who have claimed for eons that given the choice we would all opt to do less work. This is why, in America, we don't have reasonable unemployment insurance or disability pay or any other social aid that might impair our need to get a job and work, work, work.
In the vernacular we common men/women are deadbeats looking only for a handout and therefore we can't be trusted to work on an honor system. The truth is, in my experience, that those telecommuting are much more sensitive to the hours they work and are paid for. Granted, working from home you may not stay at your computer as constantly as you might at work, but I have found that the time will be made up, and then some, simply due to the desire to do your job professionally.
American industry is neither as innovative as we exclaim nor as fiscally responsible.
There just isn't enough energy to power 6 billion people's cars, air conditioners and plasma TV's. Period. Solar. Nuclear. ANWR. Doesn't matter. The demand curve will swamp anything we do.
..............
Geeth
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Yes, someone needs to explain to Clinton and Obama (& Dr Reich) that a "company" is made up of owners & laborers - people, and that is all. Their proposal to "go after the oil companies" is a proposal to go after the people who provide labor & capital in a joint effort that benefits everyone. A company is everyday people who make sacrifices to achieve a better life for themselves. Companies are people.
anon 7:25:
Slightly off base. Companies are made up of people, they are not people. If "companies" were concerned about their people, employees and stockholders, they wouldn't be paying their CEOs outlandish earnings while the rest of their employees receive middlin wages. They would be paying out far greater dividends to their stockholders when they have astronomical profit growth.
When you have a "company" in an industry as vital as the energy industry the government must be ever vigilant to make sure that they are not profiting through the advantages of market manipulation. "Companies" exist because we the people, through our government, have licensed them to exist. That license was not intended to allow them unbridled control of assets and revenues that are injurious to the public welfare.
Keep in mind that they are making all this profit by extracting and selling a material that truly belongs to the American people. Due to our euphoria over capitalistism the government collects little in royalties for those materials.
All their protests to the contrary, corporate executives often make decisions to feather their own nests rather than looking out for their shareholders. Rising stock prices are merely a byproduct of the neverending search for more bonuses and higher salaries for those in control.
To LVTfan,
Do you have kids? There's a reason people move to the burbs when they get married and have kids. It's called $20K per year private school tuition.
As long as our city school boards are run by liberals, more worried about the self esteem of minority students than discipline and the 3 R's, white people will move to the burbs.
To me, you can blame suburban sprawl on old hippie school boards more than anything else.
Amen duhmitdown,
Hey, I live in the east bay too. I run a business out of my house. I stopped visiting clients years ago. You know what? They like it. I don't waste their times with power point presentations in their office. I have dozens of clients that I have never met in person. I have become the best listener in the world. I can gain incredible insight over the phone.
There's no reason for me to drive anywhere during the week. I wish companies would encourage employees to do the same.
Art A Layman:
With all due respect, a company is an association of persons for carrying out a commercial enterprise. In the USA, the government derives its powers from the people, not vice versa.
“The government collects little…” eh? Did you know that Exxon Mobil announced first-quarter 2008 earnings of $10.9 billion, and paid $9.3 billion in taxes (that’s a 49% tax rate on gross income)? That does not include the taxes collected on dividends to the owners. But heck, I’m sure with a few more billion in additional tax revenue, our government can solve all our problems…it is doing such a good job with the “little” it collects now.
The big oil companies drill and purchase a majority of the oil that they produce and refine in foreign countries. Do you believe this “material belongs to the American people” as well? Even the oil that is drilled in America had to be purchased or leased by the oil companies from the mineral rights holders at some time. This is the reason the “big oil companies” are making only around 10% over their costs. They have costs that include the royalties that go to the actual owners of the “material.” When you say oil is “a material that truly belongs to the American people”, are you proposing that the claims by the current mineral rights holders are invalid?
I wish people understood more about nuclear energy. Specifically, the facts that:
a) The materials used in and produced by a nuclear plant are not weapons-grade; just because they're radioactive and have the word "nuclear" in their label doesn't mean you can make bombs with them.
b) Nuclear energy is already safe. There have been three "major" nuclear power plant accidents in the past 20 years, none of which resulted in any deaths; obviously there were more, smaller accidents, but a compilation of such accidents by an obviously biased source (nuclear power is to him a "particularly nefarious use of nuclear energy" - yes, it is all part of our evil scheme!) only lists the three as being even worth mentioning. Again, there were no deaths.
And even though large nuclear power plant failures are more catastrophic than fossil fuel plant failures (and thus photogenic - I can't help but think nuclear power would have been accepted had it been introduced in the days before cameras), the low rate of failure combined with the low number of plants needed (Illinois' six nuclear plants provide half of its total power consumption) make it as safe if not more safe in the long run than tons of fossil fuel plants continuously chugging poison into the atmosphere.
People need to bring nuclear energy back into the discussion. Since he's from Illinois, the most nuclear state, I expect Obama will bring it up if he's ever elected. Not before of course; mentioning nuclear energy is political suicide, though not quite as bad as social security reform.
one doesn't bid down the dollar, one offers the dollar down (or one bids it up).
trading-floor-jargon lesson over.
I agree Dr.Reich's post whole heartedly. As a (recently minted) nuclear engineer, I do have a question: what constitutes safe?
Nuclear power is constantly competing against perfect, against which nothing will compare favorably. If we had a standard to compare against a clever engineer can tell you if that standard is a.) reasonable and b.) achievable. But 'safe' means different things to different people, and there will always be some for whom 'safe' means perfect (as least when it comes to nuclear power), which is neither reasonable or achievable.
We have an energy crisis. Alternative sources haven't been developed because that does not help oil company bottom lines sufficiently to provide them the requisite incentive. Who would challenge the hegemony of oil interests in our political economy?
We need to present a viable threat to that hegemony. We need to develop a comprehensive rationing plan together with price controls.
I believe 80% of the public faced with economic depression and the end of life on earth would support it.
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anon 8:03:
Sorry about delay, got sidetracked with other blog diatribes.
I fail to see in your first paragraph any difference between how you are defining terms and how I defined them.
Though the difference is not significant your explanations are confusing. Exxon had net income before income taxes of $20.192 billion. The $9.302 billion they paid in income taxes is 46% not 49% of pre-tax income. This income tax number also represents US federal, state and local income taxes, and all foreign income taxes paid to foreign countries and for which they receive US tax credits. Admittedly a tax is a tax is a tax from Exxon's standpoint but the presentation and reporting of most news media is that this is all US taxes.
Whether the US gov't efficiently handles their tax revenue is not germane to this discussion. It is an entirely separate discussion.
Clearly I cannot maintain that oil originating from foreign countries belongs to the American people. My seeming exaggeration was due to my thinking about the history of oil production in this country and I should have made that clearer.
Throughout most of the 20th century, Exxon and others primarily produced, sold and made profits from oil residing in US properties. Most of the new oil reserves in the US discovered in the latter half of the 1900s was on public lands and not Joe Jones farm. In the early years the vital nature of oil was not nearly as visible and it made sense to allow the industry to flourish as any other commercial venture.
No doubt that current lease/royalty agreements provide greater income to US federal and state governments than was historically the case but our agreements pale when compared to those of foreign governments.
Laws and regulations were introduced for other vital energy industries that serve to mitigate prices and profits. The oil industry has never faced those kinds of restrictions.
In the early years the oil production and distribution companies bought up many of the oil wells or contracted with individual owners to pay royalties. An argument can be made, albeit contrary to property rights laws, that vital minerals existing beneath all US lands belong to the US government and therefore the US people. That too is likely an argument to be made separate from the current oil profit questions. For a better idea of the quagmire resulting from current property rights laws review T. Boone Pickens attempts at charging landowners downstream for water under their properties that he claims originates from his property.
Much is made by the oil companies, and by you, of the piddling 10% profit margin on there operations especially when compared to all the other commercial ventures, I assume in the US. This is a somewhat specious argument. Profit margins are calculated as profit dollars divided by revenues. Exxon, and I would guess all the others, include in their revenues the exise taxes collected by them for payment to the taxing agencies. The payment of these excise taxes is then deducted in their cost of revenues making their revenues appear higher and the profit margins appear lower. This treatment is consistent with current and historic accounting regulations but is clearly a distortion of the true profit margins from their operations. A sound argument can be made that these taxes are imposed on the consumer and as such are never truly revenues of Exxon but rather more like "trust" taxes merely collected by Exxon, et al, and then transferred to the ultimate owner of the funds; the various governments.
The price of oil and gasoline involves an indeterminable number of variables. There is little doubt that the volatility of prices is due to a lot of intermediate players gouging hell out of the system. Even if we assume that Exxon, et al are not involved in these finaglings they are the beneficiaries of much of them. The price inelasticity of gas and oil at the retail level allows traders and foreign governments and oil cartels to manipulate prices and since the 1970s these spot market increases have almost immediately been passed on to the consumer.
The major oil companies work on long term contracts which means that the price they must pay other owners for the oil they sell is not directly effected by the daily machinations on the spot market. Their production costs are not rising any more than normal inflation. Their distribution costs may be slightly increasing due to the increased cost of transportation but they get those at wholesale prices. There is little increase in the cost of pushing gasoline through a pipeline.
It is again specious argument to compare the oil industry with other industries who could see their markets disappear overnight thus requiring them to secure higher profit margins.
I cannot find a history of oil profits prior to 1999 but from 1999 through 2002 Exxon's average profit margins were 6.4%. From 2003 through 2007 they averaged 9.9%. A 64.6% increase. Windfalls could be made of lesser stuff. My guess would be that if we were to go back farther we would find Exxon profit margins floating around the 4% mark or less.
All in all, the oil industry is at the very crux of our economic survival. It is foolish for us to allow prices to just float based on the vagaries of futures traders and other selfish interests. Price regulation is tricky and fraught with peril. Windfall taxes, if not crafted wisely, can produce similar peril. Of the two, a windfall profits tax would seem the less imposing.
Electrification of the U.S. Automotive Fleet
It is proposed that the US Government adopt as a high priority goal (like the mission to the moon) the electrification of the U.S. automotive fleet with the specific objectives of ---
· having energy consumption by motor vehicles in the US X percent electric by year Y, where X is the percentage that would make us independent of foreign oil for at least 10 years past date Y and where date Y reflects the time required to attain this goal on a high priority basis in the judgment of technical experts;
· establishing electric charging/power pack exchange stations throughout the US to support the energy requirements of the US automotive fleet on a timely basis;
· supplying the additional electrical energy required from non-fossil fuel sources at a cost and in a time frame no greater than that now available from expansion of nuclear power. (Currently US energy production is 20%, Japan is 60% and France 80% nuclear).
Further, that the US urge China, India and any other major oil consumer to join the US in this effort, possibly on a cooperative basis if such a joint program would accelerate goal attainment and reduced cost for all participants.
The price of foreign oil is determined by anticipated future demand. Let us make that zero.
Art A Layman
I believe the matter of how efficiently the government “handles their tax revenue” is of utmost importance in this discussion. This is because what we are talking about is the current and future well being of America. This degree of well being is very much dependant upon how the resources of this nation are allocated. Will said resources be allocated to yield the greatest returns, or will they be allocated to yield little or no returns?
When the government or any other entity allocates resources to unproductive endeavors, it is essentially devaluing its currency, because the currency, in our case the dollar, is most simply a claim on a slice of the total of U. S. assets. The more productive those assets are, the higher the dollar’s value, and vice versa. This is akin to reinvestment by a company into less productive resources; the result is that the present value of the company is lowered because of the lowered cash flows accompanying the lower productivity. The devaluation of the dollar is a major factor in the recent increase in oil prices, because it takes more & more devalued dollars to buy a given amount of oil. The higher prices of oil that everyone is whining about are, to a large extent, a result of the reckless way our government “handles their tax revenue”. Greenspan understands this, Buffet understands this; but you will never hear our leaders utter this truth. This makes it rather ironic that some of our Senators are now pointing their fingers at the oil companies, blaming them for high oil prices, i.e. the “energy crisis.”
If we want greater wealth for this country, we must enact policies that lead to maximizing the productivity of its resources, and thereby maximize the underlying value of U. S. assets. Dollars are iou’s, and are only worth the productive assets that back them. We must increase productivity and decrease waste. The government’s “handing of their tax revenue” has always been terribly wasteful & unproductive. “Whether the US gov't efficiently handles their tax revenue” is not only germane to this discussion, it is central.
Robert,
Lets look at the increase of oil speculation over the last 7 years in addition to the weak dollar and the need for conservation.
I suspect this is mostly a speculative bubble. If demand truly outstripped supply to cause this entire price spike, wold we see other effects (such as shortages)?
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Apprise the oil companies and double their taxes. Take all their incentives away and if that is not enough fine them 50 billion for price gouging. Strip them of their money like they are stripping the general public. There is plenty of oil in the USA start drilling it and get it to the pump. Who is Bush kidding anyway!
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I wish people understood more about nuclear energy. Specifically, the facts that:
...................
Joshap
http://fasttrackitc.com/sp/
anon:
Only in the broadest sense can the argument be expanded to your limits but even if we do your premises are, at best, overgeneralized.
Your view of the value of the dollar is an obscure, fallacious and overly simplistic definition. The variables and the numerous players ("the market") who determine the value of the dollar versus other currencies have no idea of the total value of US productive assets. They have no idea whether those assets are being employed productively or not. To a great extent the continued growth of GDP is prima facie evidence that US assets are employed productively, whether maximally or not.
Those purchasing dollars or US debt do so on faith. They have no claim to any US assets, specific or otherwise. Should the US default on all its debt tomorrow, havoc will occur, but no owner of dollars or debt, foreign or domestic, will be able to claim ownership of any US assets in settlement. The value of the dollar is predicated more on the management of the economy and the affairs of government, generally in the short term, than on the productive use of our assets.
It is considered conventional wisdom that the government is wasteful and much more inefficient than private industry. Though this is true to a great extent, it is premised on the idea that governments are poor stewards of managing money. This is folly. All large organizations are fraught with waste and inefficiency. The mom and pop grocery store on the corner is a much better manager of their money than is the huge factory down the road. Joe's Pharmacy is more efficient and less wasteful than ExxonMobil Corporation.
Waste and inefficiency are functions of organization size much more so than functions of management. Are there extreme examples that disprove that premise? Certainly. In general though the premise is valid. The government, being much larger, with many more responsibilities, than any one corporation, will therefore effect more waste and inefficiency.
The government produces no product. Their revenues are dispersed back into the private sector in purchasing goods and services. Their payrolls provide incomes which are spent back into the general economy. Though this is true of much of the private sector expense, including waste, it is a micro versus macro scenario.
The huge, absurd salaries and bonuses paid to executives by most large corporations are not a productive use of assets nor do they provide much in the way of economic growth on a national basis.
Arguments are made that these earnings are the result of supply and demand but that is malarkey. There is very little demand for CEOs versus the supply of candidates who could qualify for those positions. Seldom do companies in the market for a new CEO seek a CEO from another company. They will hire unemployed CEOs, even ones with failed performance histories, but the fraternity atmosphere among Boards of Directors tends to stifle attempts at "stealing" CEOs from another company. It happens, but there is always the concern that if a CEO will cast off loyalties for higher pay from one company, what assurances do we have that he/she won't dump on us?
Our economy and our economic growth and the productive use of our assets would all be better served if those enormous earnings were spread among the lower level workers where they will end up being reinvested in the economy.
Since corporations are not likely to take that tact then it is better that the government tax those earnings at higher rates and through the government disburse them back into the economy, preferably efficiently, but either way the money goes back into the economy, spurring growth or reducing debt which ends up strengthening the value of the dollar.
CEOs and executives are much like coaches and their staffs; they receive much more credit for successes than they deserve and much more fault for the failures than they deserve. The troops in the trenches and the "sergeants" directing them are far more instrumental to the successes and failures of an enterprise.
The earnings of corporations are similar. If they are paid out in dividends they are beneficial. If they were paid out in bonuses to a broader employee base they could provide a more effective value. There is a need to retain some for future corporate growth but most large, profitable corporatons retain much more than is necessary. Few corporations pay a reasonable rate of return on investment in the form of dividends.
Few corporations can effect a huge increase in profit margins in the short term from normal, continuing operations. They can accomplish some gain through mergers and acquisitions or through new product innovation producing greater revenues with stable or lower costs. Generally, if operations and products don't change much the profit margins can increase but marginally because generally costs have increased as well, mitigating the profit margins even if profits themselves are greatly increased.
When we see a huge increase in profit margins, especially where the price (the revenues) are influenced by a variety of outside factors, it raises the question of "windfall" profits. If this phenomenon occurs in companies making and selling appliances or cars or furniture it is of only a moderate concern. When it occurs in an industry that is vital, at the very foundation, to our economic growth and our economic existence it is far more troublesome and requires a regulatory response of some kind. "Windfall" taxes is one of the possible responses.
We have been seguing in recent years to a service, to say nothing of a consumption, economy. The nature of service industries is that they employ little in the way of productive assets. Are you suggesting that the movement from a producing economy to a service/consuming one, which makes minimal use of productive assets portends an ever decreasing value of the dollar? Whether the scenario is good or bad is arguable but as long as we can consume and our economy keeps on growing, the "faith" in the US and its future will make the dollar stronger.
Ending the Iraq War expenditure bleeding; turning around the recessionary pressures; settling down the housing crisis will allow the Fed to get back on track to employing its tools to strengthen the dollar. That should ease some of the price of oil, although it is not uncommon that when a seemingly acceptable price of a commodity has been reached, a change in the variables affecting that price may not produce reductions at the same rate as the increases were absorbed.
The valuation of the dollar is actually a quite simple concept. The dollar is ultimately good for only one thing, and derives its value from that: the value of the dollar in your pocket equals how many units of value of goods and services that you are able to purchase with it. So the value of your dollar depends on two things: (1) the total number of dollars there are (determines your fractional claim on the whole), and (2) the amount of goods & services produced & consumable (the whole). The dollar is therefore a claim on these goods & services. Increase (2) at a faster rate than (1), and the value of the dollar goes up. Increase (1) at a faster rate than (2), and the value of the dollar goes down.
Those who determine the value of the dollar (market participants) certainly do take into consideration how productively those dollar backing assets are being deployed. The market participants simple look at the twin deficits and see that our resource allocation is not yielding a positive return. Our trade imbalance shows that instead of saving and investing, we are consuming more than we produce. Market participants assume that this diminished investing will lead to less production of goods & services later, i. e. less production for which the dollar can be exchanged. Our government debt shows that its revenue expenditures are not yielding a return sufficient to create a budget surplus, or even a balanced budget for that matter. This is the scenario we are in; we are increasing total dollar claims faster than we are growing the productive assets. The dollar is thus decreasing in value. Furthermore, market participants recognize that the U. S. economy is slowing, and have bid the dollar down accordingly. Again, the logic is that fewer goods and services will be produced during a slower economy.
When you say, “Those (foreigners) purchasing dollars…do so on faith. They have no claim to any US assets, specific or otherwise. ”, I ask, “faith in what”? The answer is faith that those dollars can be exchanged for dollar denominated assets. Any holder of U. S. currency, including a foreign holder, has claim to dollar denominated assets, including U. S. assets. Think about it; if the dollar held by a foreigner was not a claim on dollar denominated U. S. assets, as you suggest, it would be worthless to them. The deal is that, for example, an oil producing country exchanges their oil for our dollars under the understanding that it can later exchange those dollars for some of our assets. We take their asset - oil, and give them an i.o.u., the dollar, which represents their claim on our asset. Foreigners are busily buying up U. S. assets right now. Surly you are aware of the sovereign wealth funds and their current buying spree of U. S. assets.
Whether the government produces or not is not really the issue. In the end it is the people, individually or in partnership, who produce goods and services. The issue is do we really want the government, a wasteful entity, to seize the resources of the people simply because it feels it can allocate those resources better than the people can? Maybe in a communist, socialist state. But let’s not allow that in America!
art a layman:
(cont.) My point is that the amount of goods and services that we produce per given input is the real measurement of our wealth. Should we not make sure we optimize this? The obvious answer is yes. The way to do this is to allow capital to flow to the most productive endeavors. The invisible hand of capitalism has always done this the most efficiently. History proves this out.
Also, a company's profits that are not distributed via dividends or not put back into capital investment immediately are still pumped back into the company, even if the profits are invested in short term t-bills. (In this case they would serve to finance the government's debts & keep interest rates low.) Companies just don't take the profits and simply put them in the safe deposit box.
Correction:
"Also, a company's profits that are not distributed via dividends or not put back into capital investment immediately are still pumped back into the economy, even if the profits are invested in short term t-bills."
anon:
One cannot completely disagree with your value of the dollar scenario, although it is somewhat antiquated and speaks more to inflation than the value of the dollar established by the markets in foreign exchange. Your description speaks more to a time when the bulk of our economy was domestic production and domestic consumption.
The advent of globalization and free trade has changed the model significantly. Our trade deficits clearly indicate that imports are rising faster than exports. That is problematic but the bigger indicator in that morass is that we are producing much less of what we consume and importing more. The vast majority of this consumption, discounting oil, is not on goods and services that are uniquely foreign. The toys; the equipment; the chemicals, etc., that we import could be, and were at one time, produced here, employing our productive assets.
Lower costs abroad have caused our business community to seek increased profits by producing more outside this country or buying more of their cheaper products for resale. Certainly this has had a favorable impact on the prices we pay for these goods but the overall costs to our economy, in lost manufacturing jobs, forcing many to take lesser paying jobs with fewer benefits; jobs lost to outsourcing in IT and call centers; the outsourcing of various forms of design work and research and development in pharmaceuticals and other chemical endeavors, have created a severe impact on both skilled and unskilled workers in the US and have increased our dependency on imports. All of these detrimental impacts are primarily due to the decisions of our business community. When the business community seeks greater profits at the expense of the national welfare the only answer in our economic system is for the government to take greater control.
No doubt we have many problems and many are self-inflicted. The deficits that our government runs up, most especially the Iraq War spending, which has little potential for expanding our economy, clearly causes a decline in expectations from the rest of the world and impacts the value of the dollar. The decline is not based on "claims" against US assets, it is based on a loss of "faith" in the US's ability to put it's house in order. Even at that, one leading indicator of the long term value of the dollar is the sale of Treasury Notes, etc. Low yields on these investments are the result of high demand for them and current yields are very low. Since these vehicles are also nothing more than promises to pay, they are not securitized, investments in them are not predicated on some future "claim" against US assets, but rather "faith" in the ability of the US economy to remain stable over the long term. A further impetus would be our standing as still the largest economy in the world and the rest of the world depends heavily on our markets.
Most investments are predicated on "faith". When you buy shares in Exxon technically you have a claim on assets of Exxon. In the normal progression you will never be able to effect those "claims". You will seek your gains in price appreciation and dividends. Even in bankruptcy shareholders "claims" are down the line from the "claims" of creditors and those of the court appointed trustee.
The recent huge investments by foreigners in the investment banking industry don't represent a rush on US assets. If they truly had a "claim" on assets they would not have to offer investment dollars to effect that "claim". They are injecting that capital into an industry that they normally would not have access to in terms of huge chunks of ownership. They are taking advantage of a weakness, a weakness driven by an insane thirst for profits, to gain a foot hold in what has been, historically, a very profitable industry. If they had no "faith" in the US's ability to regain economic stability, why would they invest, or "claim" in your view, in any US industry?
Another imprtant factor is that buy investing US dollars in a US market they achieve some parity in the exchange medium. If they were to take their US dollars and attempt a similar investment in Europe they would have to convert the dollar value to Euros and they would get much less bang for the buck. Also, don't discount the fact that the billions being invested is giving them no real managerial control. They cannot take the helm and control the assets and incomes of those firms. They may get a voice but it is a muted one. They are betting on the come, just as all of us do when we invest.
Though we would likely never do it, and they place their "faith" in that, any foreign investment in another nation is always subject to nationalization which would negate any "claims" they might have.
Historically we, as a producer nation, have utilized our assets well and produced at a far greater rate than the rest of the world. A great deal of our economic growth in the last half of the 20th century was not due to our superior efficiency and wastelessness, it was due to the fact that we had no viable world competition in the manufacture of goods and the offering of services. As the rest of the world climbed back on the economic growth bandwagon they closed the gap. Overall this was a good thing. It improved the plights of many people worldwide and it provided more and cheaper alternatives for goods and services. It should be no surprise that as the rest of the world grew in productivity and the value of their currencies rose that the dollar would decline somewhat. The degree of that decline is the issue and it is significantly impacted by our move from a producer nation to a consumer one. This move was not directly caused by the government.
The markets, especially the foreign exchange markets, do not really measure the optimal employment of our productive assets. They rely on the GDP growth and a few other indicators
and if things are positive that portends growth and good news. Just like you, when you view Exxon's financial statements, you have very little information that assures you they are employing their assets optimally. In business you can make money even if you are inefficent and wasteful. There are limits and there is no doubt that you can make more money if your are less wasteful and more efficient but profitability alone provides proof of neither. Though there are laws and regulations and flexibility is limited, financial results can be, to some extent, what the accountants say they are.
Our spending versus saving habits, although in the long term a bad propensity, is what makes foreign countries and markets concerned for our economic health. We are the repository for a lot of foreign production and right now they would like to keep that stable. Consumption levels are important because it fuels economic growth and provides corporate profits which historically created more jobs and the cycle continued. Stagnant or declining wages over the last thirty years coupled with more and more goods being imported and not manufactured here, compounded by business interests cajoling us to spend more, has left little room for increased savings or investment.
There has been discussion taking place that the rapid fall of the dollar in recent times is actually due to purposeful actions taken by the Fed and the Treasury. The sharp reduction in production, manufacturing, over the last couple of decades, has stirreda belief that we must increase exports as a saving grace. The simplest way to increase exports is to cause the value of the dollar to fall. Most experts agree this approach is folly.
All in all we have a huge conundrum and theoretical definitions of the value of money nor allowing corporate profits to continue, unabated, into foreign investments is not the solution. From all appearances, Exxon, the world's largest energy company, is doing far less on R&D expenditures for energy alternatives than is BP which is not an American owned company.
We the people cannot revolt and take over our economic system. The government has tilted more and more to a laissez-faire approach over the last thirty years. As stated the business community has been investing more and more overseas. Of the three elements, actions by the government are the most feasible starting point to problem resolution. Of all the parties, government is the only one which is charged with the welfare of our whole society. If government takes many of the actions necessary and our economic growth turns around it will matter little to the markets whether we are maximizing the return on our assets.
http://www.freerepublic.com/focus/f-news/1053684/posts
The above is a link to an explanation by Warren Buffett about how productivity and consumption affect the dollar. This explanation goes to the basics, and is not "antiquated".
You wrote, “Most investments are predicated on "faith"??? Again I ask, faith in what? The truth is that all investments are predicated on an expected return.
RE "claims", you wrote,
"If they truly had a "claim" on assets they would not have to offer investment dollars to effect that "claim"."
The dollar is the proof of the claim. If I borrow a sack of potatoes from you, and in return gave you an iou, that iou becomes your proof of your claim that you are entitled to something of mine as repayment. Without the iou, you have no proof - that's the whole reason currency was created eons ago - to prove one's claim that he is entitled to repayment.
The dollar represents a claim to another’s assets. Read the Buffett explanation if you don't believe me.
The high price of oil is probably the kindest way to get our attention and guide us gently to the post-petroleum world. But it's probably just a commodities bubble. When it cheapens back up, we'll drive till we're on empty. Then we'll have to hitchhike
anon:
Have been busy. Will reply here soon, so should the post roll over just look it up in the archives.
anon:
The argument is not whether productivity and consumption affect the dollar. That is a given. The problem was that in your "antiquated" definition you were describing a scenario which, again, talks more to inflation and domestic production and consumption, a concept long outdated, even per Mr. Buffet's story.
He is pointing out the problem with importing more than we are exporting which is a serious problem. As I suggested in my previous post, there is speculation that the Fed and the administration is driving down the value of the dollar on purpose, likely to try and drive up exports and increase job growth. Most experts see that attempt as folly.
It was a cute parable, imbued with much wisdom, one would expect no less from Mr. Buffet. Your interpretation would appear much less wise.
First, the "faith" issue. As Mr. Buffet explains in his self-defaming way, we have historically been to the brink and innovatively managed to turn things around and be the better for it. It is the "faith" of the rest of the world in that history that drives them to continue to support us. There are limits, no doubt.
Most investments are predicated on anticipated return, not "expected" return. Some investments can be planned and pre-analyzed to determine "expected" returns. Those usually have to do with purchasing capital equipment or altering operations in a cost savings way. When investing in assets, the future value of which are indeterminable, subject to market fluctuations, you analyze variables to ascertain the viability of returns (anticipate) but you usually don't have the certainty to project "expected" returns. You might establish an "expected" return as a goal but success is always uncertain.
Now your little IOU analogy has some import; it is an oversimplification. The IOU certainly, prima facie, evidences my debt to you. Should the transfer of goods have been consumables, such as food, then your only "claim" against me is for the money value of that food at the time of transfer. Admittedly it depends on the specificity of the terms of the IOU. If the value of the dollar has depreciated significantly then when I pay off the IOU I am paying you a lesser value than what was in play at the time of the original transaction. Your "claim" has lost value due to timing. Usually in foreign exchange that is not the case. The dollars are converted to the current exchange rate at the time of payment and in times like these, increases the dollar cost to US companies for foreign purchases.
The IOU, very likely, will not be readily transferable for a variety of reasons. A potential buyer of the IOU may not know me and thus the IOU may not be desired or may have less value to him than to you. If there were quality stipulations on the goods you sold me, the buyer would have no knowledge of whether or not those quality stipulations were met. Thus, his interest, if any, in the IOU would be subject to discount. The solution would be an acceptable medium of exchange that represents a closure of any open questions. That my friend was why currencies were established. That you have currency in hand to transfer to me for some other transaction absolves me of any concern for claims against the currency resulting from your prior transaction.
The IOU represents a promise to pay, the currency represents that the promise has been fulfilled.
Now technically that currency represents a "claim" against the issuer, the Federal Government, in our case. It is a nefarious "claim" in that I cannot petition the government for any other form of property to replace the currency in my possession. Once we went off the gold standard we were left with purely "faith" that the government would support the value of the currency and guarantee that support to any party you used it in a transaction with.
If the value of the US dollar falls to zero what is the value of your "claim" and what commodity do you expect it to be fulfilled with. You have what is described in the vernacular; a worthless piece of paper. Your "claim" has no value.
In Mr. Buffet's piece he uses the word "claim" but only in a very generic sense. He does not suggest that the Thriftville owners can take possession of any property based on the "claim" inherent in the, bonds originally, and later the currency. He establishes a series of transactions where the bonds are converted to currency (Squanderbucks) and then that currency is used on the open market to purchase land in Squanderville. The Thriftville residents don't take the property via their "claim" but pay for it in a normal business transaction. If all the Squanderville residents refused to sell their land to Thriftville residents, the Thrift folks would have been left with worthless paper. If established, they might have legal action to pursue but their Squanderbucks would be used to pay for that and if the Squanderbucks were not guaranteed by any other commodity or asset, they might win, but what would they win, another promise?
Buffet was not arguing "claims" but rather foreign ownership, effected through the buying and selling of assets between two agreeing participants. The "claim" is against the Federal Gov't not against any assets or any particular business. Were the foreign holders of dollars to attempt to enforce their "claim" they would have to present the dollars to the Federal Gov't not invest them in a US business. Net foreign ownership of US assets is not considered a good thing, especially if they can exert some control over those assets and take actions that would be detrimental to US interests. Our laws are structured such that that possibility is slim. The larger problem, as Buffet points out, is the drain on our resources in cash exiting our economy and the debt service associated with any bonds we have issued going to foreign owners and thus out of our economy. There was a big brouhaha a few years ago when Japan was buying up a lot of US real estate. The end of that scenario? They sold it all later and divested themselves of US assets.
One could posit that a court would hand down a decision requiring the US gov't to honor the "claim" and that could lead to assets being distributed but the magnitude of the "claims" pending would be such as to render the final distribution as, at best, pennies on the dollar. Faced with even a semblance of that possibility the gov't would nationalize all property and devalue the dollar to the point that all judgments would be moot.
The value of a dollar is worth what it is worth today not what is was worth when you acquired it. That is one reason that US Treasuries are better to hold since you gain some interest to offset any devaluation of the dollar.
All in all, it appears you read the Buffet article with a previously established definition of terms and what he is saying. The Buffet article does nothing to substantiate your assertions other than we are in deep doo-doo and we better come up with a solution. I liked his IC solution. I see a few logistical problems with it but it's worth considering.
The horror has nothing to do with "claims" represented in the dollar or the Treasuries but that foreign entities will use the dollars to buy up US assets.
anon:
Should have closed with my previous message.
Since the US business community seems not interested in the welfare of our society, beyond their employees and stockholders, I see no alternative but for the government to start collecting more revenues and managing our economy itself.
A great many of our problems can be traced back to stagnant and declining wages, dating back thirty years. As costs rose and wages didn't move, spending propensities by the American public drove credit usage to alarming levels. Fed by the marketing aims of the US auto companies we began again buying gas guzzlers with no recollection of the 70s.
There has been no reason to build 8 cylinder engines for over 50 years. American auto makers were inept at producing 4 or 6 cylinder engines worth a damn for a number of years but the Europeans had excellent 4 cylinder engines back in the fifties.
After the oil troubles in the 70s, Jimmy Carter started a strong push for alternative oil sources and for alternative sources other than oil. He also began implementing environmental laws and regs to clean up our environment. Some research showed little fruit and others were cast off by Reagan. We were subjected, forcibly, to accept that the free market was the best vehicle to solve all our problems. Those preaching this sermon ignored or gave short shrift to the fact that the free market is driven by profits, not social welfare and economic benefit for all.
We saw a brief respite in the 90s but then along came GWB and a group of backers who wanted to resurrect Reagan, so the Kabuki Dance began again.
We are in some serious trouble and if we don't start something fairly quickly, we'll end up as a China/India subsidiary.
Actually, the whole point of my argument was in fact that productivity does affect the dollar – a point with which you disagreed in your earlier post. (I believe your words were, “The variables and the numerous players ("the market") who determine the value of the dollar versus other currencies have no idea of the total value of US productive assets. They have no idea whether those assets are being employed productively or not.”)
And since productivity does indeed affect the dollar, we should make sure that our resources are allocated to maximize productivity. The government is known as a wasteful entity (look at all the pork barrel spending), and is not an institution who makes good allocation choices.
Everyone blames the oil companies, and says they have left us in a mess. The fact is that oil has been the cheapest energy source for many, many years (otherwise, a cheaper alternative would have replaced it.) Consider how much more of our income would have been used up over all that time if we had not had oil.
It is really scary to hear our leaders talk about how terrible the oil companies are. Really scary. It is even scarier that so many citizens buy into this garbage. For leaders to attack American business at the same time that governmental ineptitude has done so much to diminish America’s purchasing power is irresponsible. For our leaders to claim that oil companies have the ability to set prices at the level they choose in the midst of a competitive industry is absolutely dumb; however, I actually believe they are simply pandering to an uninformed public. Wake up people! All these oil companies are owned by stockholders, most of which are American citizens. The profits therefore get distributed right back into our economy. And, there are so many hard working Americans employed by these companies. To say these companies are not contributing to the welfare of America is irresponsible & harmful. By promoting a “windfall tax”, our government is attacking the owner / citizens of America for owning and operating businesses that produce a product that contributes great benefit to everyone. Via increased taxation of American oil companies, the benefactors will be foreign companies, and capital will leave this country.
anon:
We may have a semantic problem with the term "productivity". Generally "productivity" is used to describe an improved efficiency in production. Producing more goods for the same or lesser costs. Since "productivity" in that sense adds to corporate profits it affects GDP which affects the value of the dollar.
It is not so much that the markets see the improvement in "productivity" nor necessarily depend much on it but that they see growth in GDP and in that sense improved "productivity" enhances the value of the dollar.
When you invest in the stock of a company you are concerned with their profits and their dividend payouts. As long as they exhibit a profitability that seems sufficient nad constant you would consider that a wise investment. Whatever "productivity" gains they may have achieved would be ancilliary to your analysis but not necessarily determinate.
An argument can be made that a company earning decent profits but to date had not exhibited significant "productivity" gains, might be the wiser investment since, prima facie, it would appear they have more profits to make once they improve "productivity".
All enterprises, including governments, attempt to employ assets productively, maximizing "productivity". Since maximum "productivity" is illusory, even undefinable in many instances, it usually becomes a factor only after it has been experienced. Frequently improvements in technology open up new windows for "productivity" enhancements that didn't exist prior.
The definition of maximum "productivity" at any given point in time is totally dependent on the state of knowledge at that point in time. When the lowly assembly line worker puts in a suggestion for improving throughput the state of knowledge is moved and the definition of maximum "productivity" is also moved. For these reasons "productivity" does not take on a high priority as a valuation tool.
Ecomomists, historically, have viewed improved "productivity" as a very important economic phenomenon. Their reasoning went beyond increased profits to a theorem that suggests increased wages. Between the increased profits and the increased wages, economic growth gets a double whammy.
I have never been able to grasp the increased wages piece of that theorem. Recent experience would appear to have disproven it.
The logical extention of your argument about maximizing use of our assets would be that the government, barring a miraculous turnaround, should never have any of our money or precious assets. All our assets should be vested in private corporations, though many are wasteful as well, but usually less so than the government (don't forget size), and our social welfare can be dependent on the good graces of private industry. Even you can realize the fallacy in that argument.
The oil companies, not totally bad guys, take advantage of the situation to maximize profits at the expense of the rest of us, it is time to transfer some of their excess profits back to the people. One can little dispute supply and demand theory but one also cannot dispute the misuse of the theory. When the price of oil goes up on the markets it is futures that the prices pertain to. Supplies in the pipeline are not directly affected by the price increase because they have already been bought and paid for. Nevertheless, the oil companies immediately, if not sooner, raise the price of gasoline at the pumps and secure all that extra profit right here and now. From a purely business perspective one can hardly argue with the move. From a societal perspective it is severely detrimental. That is one of the reasons for the talk of "windfall profits" taxes.
There are no price restrictions on oil and gasoline. There are on most other energy resources. Since the oil companies are given the freedom to act on prices as they see fit, it is not unfair to expect them to maintain some sort of social responsibility.
That fact that payrolls and dividends go back into the economy is little solace when I fill up my tank.
Your allusion to the history of oil and oil companies seems to forget that soon after oil arrived on the scene it was controlled by a monopoly, inflicting unfair pain on the populace. Exxon is a remnant of that monopoly and would appear to have picked up the gauntlet.
All the profits are already transferred back to the people, because the people are the public owners of these corporations.
I don't see how the oil companies take advantage of the situation when they have managed their cost structure optimally, resulting in an 11% profit margin. The price for their product is set by supply & demand. The supply side of this is the only aspect they can influence; and they are begging Congress to let them drill more in the USA so as to increase supply, which will have the affect of decreasing price. Again, government is more of the problem.
anon 12:55:
Using anonymous makes it difficult to know whether you are addressing the same person or not.
You seem to have a problem understanding public corporations and their earnings. Except for dividends the earnings of corporations do not go back to the owners. Corporations are legally distinct and separate operating entities from their shareholders - an echo would tell you that shareholders (owners) have "claims" against the corporations and if the operating officers bankrupt the corporation those "claims" might be worth little. Those profits retained after paying dividends are used by the corporate Boards of Directors and operating officers as they see fit without any input from the vast numbers of shareholders. Yea, they have annual meetings and shareholders get to vote on the issues that management deems votable. If you can afford to attend you might, just might, get to ask a question or two - don't count on it - but that's it. After the annual meetings it's back to business as usual and the shareholder voices are silenced once again.
You are treading closely to insanity. The resultant profits of 11% had nothing to do with their managing their costs optimally. Chances are, with some minor improvements here and there costs were not managed any differently in 2007 than they were in 1999 when their profit margins were less than half of 11%.
In all businesses as revenues increase in the short term, fixed costs remain constant and more of the revenues fall through to profits. When revenues increase solely on increased prices, not increased output, there is even savings in the direct cost of producing the increased revenues.
Management at the major oil companies did very little to achieve their greatly increased profits other than sit back and watch the price at the pump keep climbing.
I understand public corporations & profits very well. All profits, whether they are paid as dividends or reinvested back into the corporation, are owned by the shareholders. The shareholders are owners of 100% of the profit of a corporation & 100% of its net worth.
Does the owner of a single proprietorship, or owners of limited partnerships, who hire managers to run their business, not have full right of ownership of their business's income? Of course they do. A corporation is no different. It is just a different legal structure to provide for a larger number of partners (& protection from liability).
proprietorship, or owners of limited partnerships, who hire mangers to run their business, not have full right of ownership of their business's income? Of course they do. A corporation is no different. It is just a different legal structure to provide a larger number of partners (& protection from liabilty).
anon:
Am not a huge user of Wikipedia but sometimes it offers better explanations than I can come up with myself. Ergo:
Shareholder rights
Although ownership of 51% of shares does result in 51% ownership of a company, it does not give the shareholder the right to use a company's building, equipment, materials, or other property. This is because the company is considered a legal person, thus it owns all its assets itself. This is important in areas such as insurance, which must be in the name of the company and not the main shareholder.
In most countries, including the United States, boards of directors and company managers have a fiduciary responsibility to run the company in the interests of its stockholders. Nonetheless, as Martin Whitman writes:
...it can safely be stated that there does not exist any publicly traded company where management works exclusively in the best interests of OPMI [Outside Passive Minority Investor] stockholders. Instead, there are both "communities of interest" and "conflicts of interest" between stockholders (principal) and management (agent). This conflict is referred to as the principal/agent problem. It would be naive to think that any management would forgo management compensation, and management entrenchment, just because some of these management privileges might be perceived as giving rise to a conflict of interest with OPMIs.[8]
Even though the board of directors runs the company, the shareholder has some impact on the company's policy, as the shareholders elect the board of directors. Each shareholder typically has a percentage of votes equal to the percentage of shares he or she owns. So as long as the shareholders agree that the management (agent) are performing poorly they can elect a new board of directors which can then hire a new management team. In practice, however, genuinely contested board elections are rare. Board candidates are usually nominated by insiders or by the board of the directors themselves, and a considerable amount of stock is held and voted by insiders.
Owning shares does not mean responsibility for liabilities. If a company goes broke and has to default on loans, the shareholders are not liable in any way. However, all money obtained by converting assets into cash will be used to repay loans and other debts first, so that shareholders cannot receive any money unless and until creditors have been paid (most often the shareholders end up with nothing).
You contiually raise semantic questions. True in a legal and technical sense you "own" shares in a company. You have it within your power to do whatever your wish with those shares; you control them. Your shares are a partial, usually a minority, "ownership" of an entity which in turn owns some assets. You cannot nor do not have any control over the employment of those assets other than through voting rights; you have virtually no control. In the common sense definition of the term "ownership", control of that which is "owned" is implied.
The self proprietor owns his business. He may choose to turn management over to another but he still maintains control. He can fire the hired manager at any time. The same is true of a partnership although it gets more complicated depending on a number of variables but essentially they have the right to fire the manager at any time. In both those instances the "owners" do not give up ultimate control over their assets.
Public corporations are a wonderful vehicle for economic and to some extent social growth. Ventures offering worthwhile products and services might not survive if their growth had to be financed through debt. Selling shares to the public provides working capital unencumbered by repayments and interest. The real benefit to the purchasing shareholder is not vested in any "ownership" they possess but that they get to receive any profits the corporation deems to pay out as dividends and they share in the price appreciation, should there be any, and the opportunity to secure gains by selling their stock at higher prices than which they paid. Beyond those two benefits your "ownership" buys you little else than a warm fuzzy feeling for a few pieces of paper.
There is an element of sham to the process as well. By issuing shares of stock to the public the original "owners" of the company often secure great personal wealth. At the same time that they have converted their "ownership" to wealth they have injected a shot of B-12 into their operations without giving up much in the way of control. It is the essence of the American dream.
Few of today's major public corporations have individuals or families that "own" 50% or more of the shares outstanding. They seldom need more than 5% or 10% "ownership" to maintain control of the Board. It is the Board of Directors which really "owns" the assets of the company in all but dissolution.
You can wallow in the glory that you "own" a percentage of the assets and profits of a major corporation but beyond the euphoria, reality is that you "own" a couple of pieces of paper and nothing else. If you can't control what you "own" then your "ownership" is a semantic phenomenon and nothing else.
On a trip to Ireland I oaid about 6.40 for a coke whose falt is the sollar devaluation, whose fault is the dollar/oil crisis Bush, clinton, Boxer, Alkada, Come on someone put duty ahead of self interest. I have saved for 43 years am i to see my retirement dissolve because of ineptitude. who is eesponsible for the huge national debt George. I would love an answer
Art A Layman:
All profits are owned by shareholders & accrue to shareholders via stock appreciation & dividends, as you correctly pointed out. My only point was that, contrary to your previous proclamation, all profits do in fact “go back to” or benefit stockholders via stock appreciation and dividends. I do not dispute your explanation of stockholder rights, but I do dispute your claim that “except for dividends, earnings do not go back to the owners.” Recall that I originally noted this aspect of corporate profits in response to your call that “it is time to transfer some of their excess profits back to the people.” Again, the profits already go back to the people. You, along with many others, seem to forget that the big oil companies are the stockholders: pension holders, individual retirement account holders, and ordinary hard working people who have chosen to become direct stockholders. Those “windfall taxes” will come directly out of their profits, and thereby affect their future dividends & stock prices.
Furthermore, higher costs to industry, windfall profits taxes included, will effectively drive capital away from the U. S. oil industry, and result in lower supplies of oil produced and higher prices, ending with even greater pain for you at the pump, my friend. You will end up bearing the cost of this bad policy. It is very probably that just the talk of a windfall profits tax is driving up the futures price of oil, because its effect on supply will clearly be negative. Foreign companies will be handed a competitive advantage, U. S. companies will wither under the higher cost structure (see auto industry pension costs for parallel) & have to layoff workers (or at least not be able to hire & employ as many as they otherwise would), and prosperity & wealth will flow from US stockholders to those owning the foreign companies. Capital will flow to foreign nations, and America will fall behind. Be careful what you wish for.
PERHAPS 60% OF TODAY'S OIL
PRICE IS PURE SPECULATION
by F. William Engdahl
May 2, 2008
The price of crude oil today is not made according to any traditional relation of supply to demand. It’s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. How?
First, the crucial role of the international oil exchanges in London and New York is crucial to the game. Nymex in New York and the ICE Futures in London today control global benchmark oil prices which in turn set most of the freely traded oil cargo. They do so via oil futures contracts on two grades of crude oil—West Texas Intermediate and North Sea Brent.
A third rather new oil exchange, the Dubai Mercantile Exchange (DME), trading Dubai crude, is more or less a daughter of Nymex, with Nymex President, James Newsome, sitting on the board of DME and most key personnel British or American citizens.
Brent is used in spot and long-term contracts to value as much of crude oil produced in global oil markets each day. The Brent price is published by a private oil industry publication, Platt’s. Major oil producers including Russia and Nigeria use Brent as a benchmark for pricing the crude they produce. Brent is a key crude blend for the European market and, to some extent, for Asia.
WTI has historically been more of a US crude oil basket. Not only is it used as the basis for US-traded oil futures, but it's also a key benchmark for US production.
‘The tail that wags the dog’
All this is well and official. But how today’s oil prices are really determined is done by a process so opaque only a handful of major oil trading banks such as Goldman Sachs or Morgan Stanley have any idea who is buying and who selling oil futures or derivative contracts that set physical oil prices in this strange new world of “paper oil.”
With the development of unregulated international derivatives trading in oil futures over the past decade or more, the way has opened for the present speculative bubble in oil prices.
Since the advent of oil futures trading and the two major London and New York oil futures contracts, control of oil prices has left OPEC and gone to Wall Street. It is a classic case of the “tail that wags the dog.”
A June 2006 US Senate Permanent Subcommittee on Investigations report on “The Role of Market Speculation in rising oil and gas prices,” noted, “…there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices.”
What the Senate committee staff documented in the report was a gaping loophole in US Government regulation of oil derivatives trading so huge a herd of elephants could walk through it. That seems precisely what they have been doing in ramping oil prices through the roof in recent months.
The Senate report was ignored in the media and in the Congress.
The report pointed out that the Commodity Futures Trading Trading Commission, a financial futures regulator, had been mandated by Congress to ensure that prices on the futures market reflect the laws of supply and demand rather than manipulative practices or excessive speculation. The US Commodity Exchange Act (CEA) states, “Excessive speculation in any commodity under contracts of sale of such commodity for future delivery . . . causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity.”
Further, the CEA directs the CFTC to establish such trading limits “as the Commission finds are necessary to diminish, eliminate, or prevent such burden.” Where is the CFTC now that we need such limits?
they seem to have deliberately walked away from their mandated oversight responsibilities in the world’s most important traded commodity, oil.
Enron has the last laugh…
As that US Senate report noted:
“Until recently, US energy futures were traded exclusively on regulated exchanges within the United States, like the NYMEX, which are subject to extensive oversight by the CFTC,including ongoing monitoring to detect and prevent price manipulation or fraud. In recent years, however, there has been a tremendous growth in the trading of contracts that look and are structured just like futures contracts, but which are traded on unregulated OTC electronic markets. Because of their similarity to futures contracts they are often called “futures look-alikes.”
The only practical difference between futures look-alike contracts and futures contracts is that the look-alikes are traded in unregulated markets whereas futures are traded on regulated exchanges. The trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight by a provision inserted at the behest of Enron and other large energy traders into the Commodity Futures Modernization Act of 2000 in the waning hours of the 106th Congress.
The impact on market oversight has been substantial. NYMEX traders, for example, are required to keep records of all trades and report large trades to the CFTC. These Large Trader Reports, together with daily trading data providing price and volume information, are the CFTC’s primary tools to gauge the extent of speculation in the markets and to detect, prevent, and prosecute price manipulation. CFTC Chairman Reuben Jeffrey recently stated:
“The Commission’s Large Trader information system is one of the cornerstones of our surveillance program and enables detection of concentrated and coordinated positions that might be used by one or more traders to attempt manipulation.”
In contrast to trades conducted on the NYMEX, traders on unregulated OTC electronic exchanges are not required to keep records or file Large Trader Reports with the CFTC, and these trades are exempt from routine CFTC oversight. In contrast to trades conducted on regulated futures exchanges, there is no limit on the number of contracts a speculator may hold on an unregulated OTC electronic exchange, no monitoring of trading by the exchange itself, and no reporting of the amount of outstanding contracts (“open interest”) at the end of each day.”
Then, apparently to make sure the way was opened really wide to potential market oil price manipulation, in January 2006, the Bush Administration’s CFTC permitted the Intercontinental Exchange (ICE), the leading operator of electronic energy exchanges, to use its trading terminals in the United States for the trading of US crude oil futures on the ICE futures exchange in London – called “ICE Futures.”
Previously, the ICE Futures exchange in London had traded only in European energy commodities – Brent crude oil and United Kingdom natural gas. As a United Kingdom futures market, the ICE Futures exchange is regulated solely by the UK Financial Services Authority. In 1999, the London exchange obtained the CFTC’s permission to install computer terminals in the United States to permit traders in New York and other US cities to trade European energy commodities through the ICE exchange.
The CFTC opens the door
Then, in January 2006, ICE Futures in London began trading a futures contract for West Texas Intermediate (WTI) crude oil, a type of crude oil that is produced and delivered in the United States. ICE Futures also notified the CFTC that it would be permitting traders in the United States to use ICE terminals in the United States to trade its new WTI contract on the ICE Futures London exchange. ICE Futures as well allowed traders in the United States to trade US gasoline and heating oil futures on the ICE Futures exchange in London.
Despite the use by US traders of trading terminals within the United States to trade US oil, gasoline, and heating oil futures contracts, the CFTC has until today refused to assert any jurisdiction over the trading of these contracts.
Persons within the United States seeking to trade key US energy commodities – US crude oil, gasoline, and heating oil futures – are able to avoid all US market oversight or reporting requirements by routing their trades through the ICE Futures exchange in London instead of the NYMEX in New York.
Is that not elegant? The US Government energy futures regulator, CFTC opened the way to the present unregulated and highly opaque oil futures speculation. It may just be coincidence that the present CEO of NYMEX, James Newsome, who also sits on the Dubai Exchange, is a former chairman of the US CFTC. In Washington doors revolve quite smoothly between private and public posts.
A glance at the price for Brent and WTI futures prices since January 2006 indicates the remarkable correlation between skyrocketing oil prices and the unregulated trade in ICE oil futures in US markets. Keep in mind that ICE Futures in London is owned and controlled by a USA company based in Atlanta Georgia.
In January 2006 when the CFTC allowed the ICE Futures the gaping exception, oil prices were trading in the range of $59-60 a barrel. Today some two years later we see prices tapping $120 and trend upwards. This is not an OPEC problem, it is a US Government regulatory problem of malign neglect.
By not requiring the ICE to file daily reports of large trades of energy commodities, it is not able to detect and deter price manipulation. As the Senate report noted,
“The CFTC's ability to detect and deter energy price manipulation is suffering from critical information gaps, because traders on OTC electronic exchanges and the London ICE Futures are currently exempt from CFTC reporting requirements. Large trader reporting is also essential to analyzE the effect of speculation on energy prices.”
The report added,
“ICE's filings with the Securities and Exchange Commission and other evidence indicate that its over-the-counter electronic exchange performs a price discovery function -- and thereby affects US energy prices -- in the cash market for the energy commodities traded on that exchange.”
Hedge Funds and Banks driving oil prices
In the most recent sustained run-up in energy prices, large financial institutions, hedge funds, pension funds, and other investors have been pouring billions of dollars into the energy commodities markets to try to take advantage of price changes or hedge against them. Most of this additional investment has not come from producers or consumers of these commodities, but from speculators seeking to take advantage of these price changes. The CFTC defines a speculator as a person who “does not produce or use the commodity, but risks his or her own capital trading futures in that commodity in hopes of making a profit on price changes.”
The large purchases of crude oil futures contracts by speculators have, in effect, created an additional demand for oil, driving up the price of oil for future delivery in the same manner that additional demand for contracts for the delivery of a physical barrel today drives up the price for oil on the spot market. As far as the market is concerned, the demand for a barrel of oil that results from the purchase of a futures contract by a speculator is just as real as the demand for a barrel that results from the purchase of a futures contract by a refiner or other user of petroleum.
Perhaps 60% of oil prices today pure speculation
Goldman Sachs and Morgan Stanley today are the two leading energy trading firms in the United States. Citigroup and JP Morgan Chase are major players and fund numerous hedge funds as well who speculate.
In June 2006, oil traded in futures markets at some $60 a barrel and the Senate investigation estimated that some $25 of that was due to pure financial speculation. One analyst estimated in August 2005 that US oil inventory levels suggested WTI crude prices should be around $25 a barrel, and not $60.
That would mean today that at least $50 to $60 or more of today’s $115 a barrel price is due to pure hedge fund and financial institution speculation. However, given the unchanged equilibrium in global oil supply and demand over recent months amid the explosive rise in oil futures prices traded on Nymex and ICE exchanges in New York and London it is more likely that as much as 60% of the today oil price is pure speculation. No one knows officially except the tiny handful of energy trading banks in New York and London and they certainly aren’t talking.
By purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $115 per barrel, if the futures price is even higher.
As a result, over the past two years crude oil inventories have been steadily growing, resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices.
Compelling evidence also suggests that the oft-cited geopolitical, economic, and natural factors do not explain the recent rise in energy prices can be seen in the actual data on crude oil supply and demand. Although demand has significantly increased over the past few years, so have supplies.
Over the past couple of years global crude oil production has increased along with the increases in demand; in fact, during this period global supplies have exceeded demand, according to the US Department of Energy. The US Department of Energy’s Energy Information Administration (EIA) recently forecast that in the next few years global surplus production capacity will continue to grow to between 3 and 5 million barrels per day by 2010, thereby “substantially thickening the surplus capacity cushion.”
Dollar and oil link
A common speculation strategy amid a declining USA economy and a falling US dollar is for speculators and ordinary investment funds desperate for more profitable investments amid the US securitization disaster, to take futures positions selling the dollar “short” and oil “long.”
For huge US or EU pension funds or banks desperate to get profits following the collapse in earnings since August 2007 and the US real estate crisis, oil is one of the best ways to get huge speculative gains. The backdrop that supports the current oil price bubble is continued unrest in the Middle East, in Sudan, in Venezuela and Pakistan and firm oil demand in China and most of the world outside the US. Speculators trade on rumor, not fact.
In turn, once major oil companies and refiners in North America and EU countries begin to hoard oil, supplies appear even tighter lending background support to present prices.
Because the over-the-counter (OTC) and London ICE Futures energy markets are unregulated, there are no precise or reliable figures as to the total dollar value of recent spending on investments in energy commodities, but the estimates are consistently in the range of tens of billions of dollars.
The increased speculative interest in commodities is also seen in the increasing popularity
of commodity index funds, which are funds whose price is tied to the price of a basket of various commodity futures. Goldman Sachs estimates that pension funds and mutual funds have invested a total of approximately $85 billion in commodity index funds, and that investments in its own index, the Goldman Sachs Commodity Index (GSCI), has tripled over the past few years. Notable is the fact that the US Treasury Secretary, Henry Paulson, is former Chairman of Goldman Sachs.
Oil price has nothing to do with supply and demand. Demand has increased, yes - but not nearly as much as price. Oil has more than doubled in the last year - did demand double or was supply cut in half? Neither one happened of course.
In 2007, 50 of the most successful hedge fund managers made $29 Billion dollars as capital gains.
The wealthiest 1 % has more wealth than the poorest 95 %.
Where is all that money coming from? A lot of it is coming from the poorest 95 % paying higher gas prices and more inflation.
anon:
We have no dispute about dividends, they clearly are a distribution of profits back to the shareholders. Stock price appreciation is influenced by earnings but it is only one of many variables driving stock prices. Anticipated future earnings is likely much more of a factor of stock appreciation. In either case stock price appreciation can in no way be considered a distribution of current or previous earnings. Should the stock price return to 2003 levels, due to market conditions it will not affect the amount of retained earnings on the books. In fact price appreciation enables a corporation to pay out less in dividends to keep shareholders happy.
Looking at recent history: In 2003 Exxon paid out 30% of their after-tax profits in dividends; by 2007 that pay out was reduced to 19%, and that is based on a reduction in shares outstanding of 18% during that period. In 2003 they had 6.6 billion shares outstanding, they spent in the four year period since then $89.6 billion repurchasing stock, and in 2007 they had 5.4 billion shares outstanding. Notwithstanding improvement in some operating ratios, stock repurchases are not a great investment, even to shareholders, unless dividends rise in proportion.
In the period 2003 through 2007 Exxon had a rate of return on net assets of 15.7%, after-tax. Assuming the $89.6 billion spent on stock repurchases, from 2004 through 2007, had been invested in income producing assets at that same rate of return they would have earned on average another $3.4 billion in profits per year. That extra income could have allowed much greater dividends.
As it is their dividend performance when considered versus their after-tax incomes is pathetic. In 2004 they paid $1.06/share dividend and by the end of 2007, after $141.6 billion in earnings during that period they paid $1.37/share, a whopping 7.3% average increase. The current CEO, after a year on the job, received an 18% pay increase. The history of their dividend yield is less than 2% per year. You can earn more than that in a savings account.
Your "ownership" seems lacking in influence. Contrary to your constant declaration, you "own" stock in a company that happens to "own" some assets. Should they squander away all those assets you will still "own" the stock but the company will no longer "own" any assets. Your "ownership" has not changed but the value of what you "own" surely will have. Once again, if you don't have control over something then you have no "ownership" except in dissolution and even then it is merely a "claim" against anything remaining.
The corporate employees and stockholders represent a very small percentage of "the people". Oil companies exist in a market where a basic level of demand is constant. That basic demand represents a vital need for a product that drives our economic engine. There are millions of "people" who cannot afford even one share of Exxon stock, let alone 100 shares. During the period from 2003 through 2007 Exxon employment decreased 10% further reducing the fraternal population benefitting from Exxon excess profits. Since the only medium available to extract some of those excess profits and return them to "all of the people" is the government, a windfall tax is an appropriate method.
The vast majority of products and services operate in an economic system where market price is determined by producer/sellers and buyers via supply and demand. In commodities the prices are not set by producer/sellers and buyers but by third parties, often with no other interest in the goods and services beyond a financial (profit) one. When producer/sellers benefit from those price increases set by an outside source, excess profits are created. In the interest of economic fairness and control it follows that some of those excess profits should be paid back.
The world has forever been fraught with doomsdayers. Corporate responsibility should extend far beyond employees and stockholders. This is not a game of Monopoly where once it ends we can start all over again. Profits are necessary for the continued existence of any commercial enterprise. When excess profits begin to bleed "the people" of their resources and when companies decide to invest their capital offshore instead of improving their own cultures then it is time to rein in the free market. When greed and personal advantage drift too far away from bettering society it is time for taxes and regulations to become punitive rather than just stabilizing.
Corporations do not exist to run our country or our economic engine. They are permitted to earn decent profits in an established free market. When they begin to push the envelope in the definition of decent, changes are in order.
Your capital fleeing horror is already happening. Has been for a number of years. It's fleeing not because of taxes but because of lower costs which improve profits. In net, it is fleeing because of greed.
Your final paragraph enforces my argument. Higher costs do drive capital out of this country, yet you propose to raise taxes on our domestic businesses.
People, hard working people, are the engine for economic growth in this country. A corporation is simply a framework that allows people to come together & contribute labor & capital to produce goods & services. If the people are not going to be the economic engine of this country, who do you recommend?
Your proposal is simply a transfer of wealth. Penalize those who had the foresight to buy Exxon a few years ago when 100 shares were in fact affordable (just 5 years ago @ $30/share range) for those trying to save and invest. I am pretty sure that many welfare recipients easily smoke $30 of cigarettes every month. Your proposal says to struggling people today that if they save & invest for their future, and things work out well, they may be later penalized in the same way. Your government now has the right to take your profits just because you prosper from your saving & investing.
If we give our government the right to do this, it will be only a matter of time before it comes after other industries. This entire discussion would not be taking place if our government was not already spending so much more than it collects. So, now we are to give government more tax revenue to waste. Gee, that’s bright. Should we not be concentrating our efforts making sure our government does not waste the tax revenue it receives? The more taxes it collects, the more money it will waste. Giving the government more money will just encourage it to spend more, and then require it to collect greater and greater tax revenue.
The purpose of my constant declaration about ownership of the oil companies is so that you and others will understand who will actually be hurt by the proposed windfall profits tax. The owners to whom all profits accrue will be the ones who will be impacted. Most of these owners are Americans who work hard, save, and invest.
anon:
A wonderful solution you have. Let's ignore all those who cannot or do not know enough to invest in Exxon or any other company. Let those with the wisdom and foresight gain from the suffering of an entire nation, an entire economy.
The small universe of Exxon stockholders does not hold a candle to the universe of those who are suffering from the price of gasoline and many of those in that bigger universe are hard working savers and investors as well.
The oil industry has, historically, been the only major energy industry that has not been subject to pricing regulation. An industry which is so vital to our economic engine cannot be allowed a free ride on excess profits driven by prices set by outside influences. A windfall tax will most certainly affect the market value of the stock but much of that current market value is due to the windfall profits. Where is the inequity? Given their meager dividend policy the tax shouldn't affect that; likely it will unless the "owners" squeal like stuck pigs.
That the government is inefficient and spending is not as controlled as it should be is not an argument here. The fact that the bulk of the US budget is non-discretionary offers little room for meaningful decreased spending. Had we not had the ridiculous tax cuts during the Reagan and Bush II eras, coupled with their increased spending, the budget would be nearer to balanced.
Taxes aside, we have higher costs in this country because of the rise in wage rates occuring during the 40s through the 70s. those rising wages fueled rising costs for most all things. After the 70s prices for things continued increasing but wages stagnated.
This created a scenario where those with excess discretionary income could afford life as usual but those with less control over their earnings turned to credit to maintain their living standards. The means to afford the typical American standard of living is not like the stock market where today's losses can be weathered while awaiting tomorrow's gains. Credit card companies expect to be paid, Home equity loans are expected to be repaid. Mortgage payments most definitely must be made. Selling a home when your mortgage balance is greater than the value of your home offers no aid to those sorely in need of liquidity.
Between rising corporate profits, absurd executive salaries, lower wages for the working class, rising costs of, food and energy, housing and transportation, higher education and healthcare, we are quickly approaching the end of our democracy as we have known it. Those of you wiser folks can weather the storm longer than most others but you will suffer in the demise unless a decision is made to shoot all the wounded.
Many have prognosticated that democracy has a finite life. The same is true of capitalism. No economy can continue to exist if prices continue to rise, securing more profits, and wages continue to get lower, securing more profits.
Population growth can slow the decline as long as their are jobs available to more bodies, enabling spending more, in lower increments by the new births. The combination of production growth and population growth is what had Malthus's timing off. Since natural resources are finite, in the long run, overpopulation becomes another problem in its own right.
Of course expanding the markets globally is another solution. Not only can companies increase profits employing lower cost labor but they lift that labor to a point where they can afford "stuff" as well and even more profits can be made, until. Eventually all the options disappear and the only way to avoid worldwide catastrophy will be for profits to decline. Asian countries with huge populations offering a seeming infinite supply of cheap labor, will support the continual rise of profits for much more than your lifetime or mine. But even they will face limits. Already the annual wage rate increases in those countries are dwarfing the annual increase rates of the 40s - 70s period in the US.
The only solution, unless we are to devolve to an everyman for himself existence, is that the increased profits of all corporations/businesses need to benefit the existence of all folks in the cultural homes of those corporations. There is no validity to the slogan, "He who dies with the most stuff, wins!"
Unless or until we see some redistribution of the great wealth of our country among all our citizens, we are, in the words of a poster at another Reich blog, toast.
The selfish concerns for your little investment pool over the concerns for your society, your country, is, to a great extent, shameful. The same is true for executives making $21.7 million a year. I say making because nobody "earns" anywhere near that much money per year.
Should capital continue to move out of the country at ever alarming rates then further steps may be necessary to disallow those companies access to our markets or nationalizing all their domestic assets and turning them over to someone else. As profit seekers continue to seek more profits at our societal expense the options available to counteract those actions do not get prettier.
Art A Layman:
I propose that no economy can continue to exist if the government gains authority to limit profits of its people. Such a system diminishes the motivation of its people to excel. Such led to the downfall of the entire socialist system of U. S. S. R. Look at the history of socialism.
The wellbeing of this country is of utmost importance to me. You should know this by now after the great length of explanation I have offered about the importance of increasing the productivity of this country. Please reread my earlier (12:20 PM ) post again. And shame on you, because I know you are smarter than that.
My “selfish concern” as you described it, exemplified by the Exxon example, was meant as an example applicable to all who want to save and invest so they might improve their lives; and the danger posed by a confiscatory government to that desire. Again, if government is going to have the right to confiscate 11% margin profits, what is going to motivate anyone to save & invest in the first place. Trust me, there will be many, many “excess profit” targets once 11% qualifies. What is going to motivate the have-nots to save & invest under such a regime, when there is probability that the government will confiscate excess profits down the road. Do you not see this slippery slope?
Art A Layman:
Furthermore, you still seem to think,
“That the government is inefficient and spending is not as controlled as it should be is not an argument here. The fact that the bulk of the US budget is non-discretionary offers little room for meaningful decreased spending.”
Well, you may want to read the article contained at this link (http://www.sltrib.com/opinion/ci_9370207), and then tell me if you still thing those extra windfall profit revenues will be spent by the government in such a way as to reduce your energy bill.
we should work with the russians and bomb china and india into submission. this would put an end to their growing needs for energy. its only fair since they were the last big countries to catch up to everyone else. u know the old saying...snooze and lose. china doesn't sever shit anyway...fucken savages!!!
Again, a windfall profits tax will most likely do nothing to improve the well being of any of the citizens in America. This will be the case because the effect of such will be for the U. S. government to waste those revenues on unproductive things, thereby devaluing the dollar as it has been doing for some time. This will hurt the poor disproportionately more because their few dollars, which have been devalued, will buy less gasoline, heating oil, and everything else. The domestic oil companies will produce less, just like what happened after the last levy of “windfall profits” on oil companies (1980). The lowered supply will put further upward pressure on gasoline prices.
The only wealth redistribution resulting from a windfall profits tax will be a net decrease in wealth held by America vs. the rest of the world. Capital, along with its multiplying effect, will flow to countries with less onerous taxation policies. America, on the whole, will be worse off.
If we want more affordable energy, we have to produce more energy more efficiently. We can not afford policies that restrict supply or increase costs of production.
But don’t take my word for it. Following is what Ben Lieberman wrote in 2005. He is a Senior Policy Analyst of Energy and Environment from the Thomas A. Roe Institute for Economic Policy Studies. Here is an excerpt from his writing:
"WPT (Windfall Profits Tax) The Second Time Around
Of course, there is a considerable populist appeal to taking more in taxes from big oil at a time when they can most easily afford it and giving the proceeds to taxpayers when they are straining to pay high energy costs. But the last time it was tried, the WPT backfired badly. It discouraged expansion of domestic energy supplies and led to increased oil imports. According to a 1990 Congressional Research Service study, the WPT in place from 1980 to 1988 “reduced domestic oil production from between 3 and 6 percent, and increased oil imports from between 8 and 16 percent.”[3] In effect, putting domestic oil producers at a disadvantage had the unintended effect of strengthening OPEC’s hand. In the end, the WPT probably hurt consumers more through higher energy prices than the increased tax revenues helped them.
These unintended consequences were among the reasons why the WPT was repealed in 1988. In the time it was in effect, it probably served to stop some exploration and drilling projects that would still be producing today."
anon:
You continue to perpetuate myths. Economics has long held that profits and wealth acquisition are necessary to motivate and maintain a growing economy and to achieve excellence.
Poppycock! There are 50 million small businesses in this country in which the owners barely make wages. It is the dream of self-sufficiency that drives many of those folks to get out from under the corporate organization structure. Sure, many of them dream of Horatio Alger stories, but many of them never get started on that dream but they wouldn't go back to earning wages if their lives depended on it.
Those innovative souls who push technology to greater and greater heights only do it for riches? The CEO of Exxon would walk away and go back to bagging groceries if his earnings were capped at $1 or $2 million a year? Progress is achieved because men and women want to achieve, period. Most of them want to have an impact and leave a legacy. The monetary gain is a bonus. It is a way to exhibit success. It is perhaps the biggest failing of capitalism that there is no other way to keep score than wealth accumulation.
I won't argue that a fine line doesn't exist and creating the right mix is testy but the last 30 years should have taught us that increasing corporate profits, huge disparities between executive and entry level pay and limiting wage growth or reducing wages and employment does little to advance the fortunes of the average American.
Most countries where socialism fails, including the USSR, are those who institute it at the origins of an economic system. They are usually underdeveloped countries with know viable education system, no infrastructure helping to inform the masses of the benefits of innovation. Most are lead by dictators or oppressive governments who seek personal gain over populace gain. It is the oppression of those governments that stifles innovation and achievement, because the populace doesn't know any better.
If we look, on the other hand, to Europe, the countries of which, we Americans always accuse of being socialist. They seem to be ambling along fairly well. Yea, they don't have our exalted GDP growth, but when you consider that the base of our GDP growth is a product of the post WWII period and during that time Europe was starting over from scratch, they ain't done badly. Even the USSR, under their horrible system, advanced militarily and in science sufficiently to beat us into space and to reach a degree of parity with us in nuclear weaponry in less than 50 years.
In the last eight or ten years the Chinese economy has been leading the world in growth and you could hardly call them a bastion of democracy and capitalism. They do suffer from some of the problems of newly instituted capitalism and that is the cutting of corners to make a profit. Poor quality and shoddy workmanship rises quickly in an unleashed move to capitalism and wealth.
If you work at Walmart, part-time as do many of their employees, you are not likely to have much left over to invest. Even if you scrimp and save, the little you will have to invest ain't gonna make anybody rich or even self-sufficient. Today's large corporations have become so hellbent on profit growth that the welfare of their nonexecutive employees is of little concern. Enron, and all those others, should have been some kind of lesson in that regard.
I can never figure out whether you obscure on purpose or not. No one set the threshhold at 11%. No one proposed that 11% should automatically trigger additional taxes. There are many industries, as I pointed out before, who could never have "windfall" profits because of the nature of how prices are established and the elasticity of demand for their products. If you look at Exxon, specifically, and likely all the other oil companies, in general, their historic profit margins were nowhere near 11% after-tax. In 1999 Exxon's profit margin, after-tax, was 4.3% and 1999 was not exactly a down year for oil prices.
We are already on a slippery slope with the recent actions of the business world and someone keeps rubbing our skis with ice.
It is clear, or certainly should be, that we can't rely on capitalism to pull us out of this downward slide. I'm not talking about our current crisis but the trend that has been taking place for the past 30 years. If the government does not take control there is no way in hell corporate America will.
It is fallacy to argue that social welfare advancements, via the government, cannot exist with capitalism and have both benefit.
anon:
We all agree that our government needs to tighten up spending and eliminate some of the wasteful spending. We can attempt to walk and chew gum at the same time. You know that there are many influences that affect government spending and most of them are bad. That is an ongoing battle that needs fixing but starving the government in the meantime is not the answer. The problem is, if not the government then who?
The oil industry was given subsidies to invest in R&D to create alternative fuel options. BP seems to be taking that seriously. Exxon does not. If the oil industry is going to try and bleed the last bit of profits from oil before embarking on something else then the government has to take the lead. We're not talking profits here, we're talking survival.
We do have voting rights in this country and maybe if we voters were a little more informed we could elect lawmakers who will take the lobbyist's money but won't do him any favors.
anon:
Now that we are out of the mainstream you can say what you really think.
We could, of course, go back and forth referencing various authors and their discussion of "windfall" taxes and their successes or failures but that could keep us reading for hours. Actually there is fairly widespread agreement that the "windfall profits tax" of 1980 was, in net, a fiasco, that did indeed yield little in revenues and did suppress domestic oil production and discovery. The problem wasn't the tax per se it was the way it was applied. It was not applied to "windfall profits" but to, essentially, domestic oil production. The net effect was supposed to be the same but the methodology did in fact have unintended consequences. Being on tax on domestic production it caused a decrease in domestic production and discovery and a greater reliance on imported oil. The problem was not the idea of a "windfall profits" tax but rather how it was to be captured.
I had read a couple of articles earlier to that effect but in refreshing my memory I did learn something. We actually did have price controls on oil and gas for a short period of time. They started with Nixon's wage and price controls in the early 70s and were phased out with the advent of the "windfall profits tax". It always amazes me of the various things that took place during a period in my life when my focus was on Super Bowls, Wimbleton and my personal golf game.
The lesson from the "windfall" tax application of the 80s is not to repeat the same methodology. The lesson is not that we shouldn't try again. The rationale remains the same. Commodities, especially those with little or no viable options for substitution, can, from time to time, create "windfall profits". These are not profits gained from good management practices or better production methods but are simply due to price increases originating outside the control of the producers. When that phenomenon occurs and given that it is the people who bear the brunt of the increased prices, then ill-gotten gains should be returned to those people. The only effective way to do that is through the taxation mode with the excess profits going back to the people via their government.
Most of the proponents of a "windfall tax" suggest targeting the proceeds to alternative fuel research. Given government proclivities that may or may not happen. You and many others rail about the wasteful spending of the government and your arguments have merit but most government spending does go to someone's benefit and usually to some social or economic good. The problem is you offer no alternatives for solutions other than, let those who benefit from inequities continue to benefit from them and to hell with those less fortunate. That reasoning is the very foundation of capitalism; nothing trumps greater profits and greater wealth for those with capital.
Your wails about capital and business rushing away from our shores is especially specious with the oil industry. There is still a great deal of oil produced in this country. Oil companies are not going to walk away from that over taxes. The oil companies rely on the American market for their revenues. They are not going to walk away from that either. For the most part oil companies are foreign owned, the big ones. Exxon may be the only truly American oil company left.
I have suggested there are many punitive alternatives available should those companies living off the backs of the American public choose to somehow attempt to divorce themselves from the welfare of that public. Demand, worldwide, is increasing but there is not enough to offset the American market at this point; nowhere near.
You know one sign that excesses exist is when corporate execs use spin and smoke and mirrors to plead their case. Exxon officials, and probably the others, love to publish that they pay untold billions in total taxes. They don't bother to explain that a great deal of those billions are pass-through taxes imposed on the consumer and merely collected and paid by the producer/sellers. Those are not taxes imposed on Exxon but simply appear that way due to the bookkeeping involved.
Whether it's Exxon or GM or GE or whomever, America's corporations have to return to some semblance of social responsibility. They need to accept that the welfare of this nation is predicated on the fact that those with great wealth have to contribute in greater proportion to that welfare. We are well on our way to being a second or third tier economy in the next 25 or 30 years. Unless corporate America in conjunction with the government and the people focus on putting us on another track we will end up a second or third tier society as well.
Realize that corporate America employs a great many people in America. The incomes of these people are then multiplied throughout the economy. The health of corporate America is very, very important to the economic well being of all the people. The responsibility of corporate America is to produce products and services that are in demand employing the most economical cost structure attainable. By doing this, cash flows increase, businesses are able to expand and employ more people, and produce more products and services. As profits increase, so does tax revenue. This is the efficient way for American corporations to be "socially responsible".
This will be my last post. All products and services are produced by people. All taxes are born by the people, whether directly or indirectly. I have explained quite enough that, whether they are organized individually or in a corporation, people are the ones who produce the products and services in this country. You can transfer wealth all you like from the producers to the non producers, but this will logically lead only to less production than otherwise would occur. Our policies should be geared toward enabling the people to produce as efficiently as possible. Some, like you, want to insert the government as middleman, with all its layers of bureaucracy and waste. This makes no sense, especially in light of its track record. You clamor for social responsibility among corporations, and argue that more resources should be handed over to the government by corporate America. Yet it is your government that has wasted $ billions on just crazy stuff. This is $ billions of value that good hard working Americans created, and government has squandered. To believe that government is going to change its ways is just absolutely mind boggling, and is an irresponsible ignorance of its record.
anon:
I see you took my advice literally.
It is amazing that you cannot see the fallacies in your arguments.
The responsibility of corporate America is to produce products and services that are in demand employing the most economical cost structure attainable. By doing this, cash flows increase, businesses are able to expand and employ more people, and produce more products and services. As profits increase, so does tax revenue. This is the efficient way for American corporations to be "socially responsible".
Is it not incongruous with your premise that Exxon over the last five years has experienced exponential growth and has decreased their employment by 10%?
All products and services are produced by people. All taxes are born by the people, whether directly or indirectly. I have explained quite enough that, whether they are organized individually or in a corporation, people are the ones who produce the products and services in this country. You can transfer wealth all you like from the producers to the non producers, but this will logically lead only to less production than otherwise would occur.
If all products are produced by people, those making up corporations, why is it that those producing people are not seeing any vast improvement in their earnings from all that production? Why is it that even the shareholders are not enjoying much higher dividends from that exponential profit growth?
It is both shameful reality and perfectly logical reality that we will always have people, in our society, who are "non-productive", by your definition. Are we to establish a decision point at which final judgement is made and we eliminate those "non-productive" elements which corporations refuse to hire and turn them into "productive" worker bees?
Our policies should be geared toward enabling the people to produce as efficiently as possible. Some, like you, want to insert the government as middleman, with all its layers of bureaucracy and waste.
If we establish that there will always be "non-productive" people in our society and if we look at efficiency on a macro, as opposed to a micro, view, does it not follow that efficiency, for the macro view, is not better served by corporations employing more people, even if in their micro view it is less efficient? You may not believe in synergy but your vaunted corporate executives do. The problem lies in their acceptance of the concept only to the extent it provides bigger salaries and bonuses in their micro world.
Let's look at the history of our country. First came the people. The people formed governments. Governments then allowed the establishment of corporations. The government is not "inserted" as a middleman, they by virtue of the creation cycle, are the middlemen. The government, at its inception by the people, was charged with maintaining the "general welfare" of all the people. Not just the producers. Not just the most efficient. Certainly not just the corporations. Most certainly not just the shareholders of corporations. This fact, this responsibility, requires them to monitor and manage excesses which are detrimental to the "general welfare" of all the people and use the tools available to mitigate that detriment.
This makes no sense, especially in light of its track record. You clamor for social responsibility among corporations, and argue that more resources should be handed over to the government by corporate America. Yet it is your government that has wasted $ billions on just crazy stuff. This is $ billions of value that good hard working Americans created, and government has squandered. To believe that government is going to change its ways is just absolutely mind boggling, and is an irresponsible ignorance of its record.
Arguing that higher taxes should not be imposed because the government squanders those taxes, is, in logic, a fallacious argument. It attempts to shift the argument away from "the social responsibility of corporations" to the inefficiencies of government. It begs the original question. It is an argument borne of ignorance and greed. Worse, it shows a disdain and disregard for the lesser fortunate in our society. It reflects pomposity!
Your's is the age old view from the capitalist seats. Only those who are "productive" can benefit from national wealth accumulation. Of course, following true form, you, the capitalist, get to decide who is and is not "productive".
Your expressed concern for your country and its people is, pardon the expression, bullshit. You are only concerned with your own welfare and perhaps that of those who have followed or lead your example. You have no problem letting the devil take the hindmost.
Hopefully that was your last post since your arguments have become more and more peevish, boorish and fatuous.
Art A. Layman,
I am proud of you and your last post. I wish this blog had a spot to recommend or not recommend each comment.
bruce barnes:
Thank you. Throughout the dialogue I tried to keep it a decent, respectful debate. It became increasingly difficult.
His dismissive last sentence provided the last straw.
bruce barnes:
Pleasantries aside, I still don't think a "net worth tax" works.
Art A Layman,
From your comments, I think you are slowly coming around to a "net worth tax". A "net worth tax" or an income tax on income above $1 million may be easier to pass than a windfall profit tax.
Bruce Barnes:
Oh, I have no problem at all with a much more progressive income tax structure. I would tend to tax incomes very low up to about $100,000 for a family of four. I would increase the rate in reasonable steps to no less than 50% for those with $1 million in taxable income and moving to 70% as we near $5 million and those over $5 million would get a 20% surcharge in addition.
As I have argued before, the net worth tax is troublesome simply because of the point in time valuation problems. That, in addition to the fact, that much of net worth is the result of previously taxed income. Given the latter, I do have a problem with much of the vast wealth accumulation in the last 30 years having been taxed at ridiculously low rates.
Bruce Barnes:
Posted too soon.
I agree that a windfall tax would likely be a harder sell. The biggest problem is in defining what are windfall profits.
I read some of Mr. Engdahl's writings, thanks for the link, and it is clear that we need to have more control and oversight of the oil commodity markets. Don't understand all the legal complications, but it appears that if we clamp down on US brokers, ICE in London will just pick up the slack and I don't know that we can exert much control of overseas markets.
One of the huge problems with globalization is that a great deal of our economic activity is taking place outside the realms of US governmental control. This renders the US government and the Fed impotent in controlling much by regulatory fiat. The Fed is having to pull a Bush and ask for assistance and agreement with other world central banks in stemming the credit crisis. It is times like these where the chip gets knocked off our shoulder frequently. And the rest of the world in snickering at the impotent behemoth.
Art A. Layman,
This may be of interest. Foreign markets included.
May 29, 2008, 11:54PM
Feds six months deep into probe of oil speculators
In unusual move, panel goes public about its look at trading practices
By DAVID IVANOVICH
Copyright 2008 Houston Chronicle Washington Bureau
WASHINGTON — Federal regulators — in a highly unusual move — revealed Thursday they have been conducting a wide-reaching probe into oil trading practices for the last six months.
And in response to growing concerns about the role speculators may be playing in driving up oil prices, the Commodity Futures Trading Commission said it will require energy traders to begin providing more information so the government can better assess what effect they may be having on the markets.
"Perhaps the CFTC has gotten some religion," said Michael Masters, of Masters Capital Management LLC, who has called for tighter regulation. Although, he added, "it's just a start."
With oil futures diving more than $4 Thursday, the commission went public about its probe. It is examining the purchase, transportation, storage and trading of crude oil and futures contracts — agreements to buy or sell commodities at a later date that are central to the energy markets.
The agency provided no other details about the investigation.
"Although the commission ordinarily conducts enforcement investigations on a confidential basis, the commission is taking the extraordinary step of disclosing this investigation because of today's unprecedented market conditions," agency officials said in a prepared statement.
"Unprecedented" remained the theme Thursday on the New York Mercantile Exchange as futures contracts for light, sweet crude for July delivery shot up as high as $132.90 a barrel after the Energy Department announced a surprise drop in oil supplies, only to then plunge later to settle at $126.62, down $4.41 for the day.
"The daily ranges are mind-numbing," said Kyle Cooper, director of research for IAF Advisors in Houston.
Adding to volatility Thursday was a blunder by the Energy Information Administration, an arm of the Department of Energy, which posted petroleum data prematurely on its Web site.
"EIA is investigating this event and its causes," the agency said.
Answers in demand
The Commodity Futures Trading Commission has come under fire in recent weeks, with lawmakers demanding answers to why oil prices have more than doubled in the last year.
Before a Senate panel last week, Masters called on policymakers to focus on the pension funds, university endowments and other institutional investors — including the University of Texas and the state's teacher retirement system — that have poured billions into the commodities market in the past few years as a hedge against inflation and a weak dollar.
Through transactions with large investment banks, these institutional investors have been able to circumvent speculative limits when investing in commodity index funds, Masters and other experts argue.
Masters said these institutional investors have helped move oil prices higher because nearly all are betting the same way — that the price will keep rising.
But that argument is controversial.
Just last week the commission was attributing the oil price increase to market fundamentals of supply and demand — not speculative trading.
On Thursday, the commission said it would require energy traders to provide monthly reports on their index trading "to help the CFTC further identify the amount and impact of this type of trading."
House Energy and Commerce Committee Chairman John Dingell, D-Mich., said he was disappointed that the agency did not propose closing the loophole that allows some institutional investors to circumvent the speculative limits.
"The failure to corral this rampant speculation is not only ravaging consumers, but harming businesses such as airlines, trucking and auto manufacturers," Dingell said.
Slow to see impact
Critics have argued that regulators have been slow to see the real impact of the institutional investors' commodity trading activity because of the way the agency classifies these trades.
The commission said it will review its trade classifications, which the critics say understate the activities of institutional investors.
New York Mercantile Exchange officials have disputed the arguments about the role index traders may be playing, arguing Thursday that such "sweeping assertions" are based on "distorted and patently erroneous information."
Foreign markets included
The CFTC also announced Thursday it has reached an agreement with Britain's Financial Services Authority to beef up surveillance of U.S. oil contracts traded on a London exchange.
Sen. Carl Levin, D-Mich., said the commission has not had information as to whether "traders subject to U.S. speculation limits were circumventing them by trading in London."
Levin and Sen. Dianne Feinstein, D-Calif., recently introduced legislation designed to ensure that energy commodities traded on foreign exchanges using trading terminals located in the United States be subject to the same speculative trading limits and reporting requirements as those traded on U.S. exchanges.
"It appears that the CFTC is acting administratively to accomplish some of the goals of this bill," Feinstein said.
Congress recently passed legislation granting the commission authority to regulate electronic energy trading on the Atlanta-based Intercontinental Exchange.
david.ivanovich@chron.com
Art A. Layman,
I do not see a problem simply because of the point in time valuation that is the same time as our present tax system. Do you have a problem with the last minute of the year with our present system?
Given the fact, that much of net worth is the result of previously “untaxed” income and “untaxed” wealth accumulation. The net worth tax is the only fair way to tax people equally. The only reason a progressive tax might be considered fair is to even out all the tax deductions rich people get.
Bruce Barnes:
We have been through this before. The current income tax system has no point in time valuation problem because we have a variety of income information collection systems which cut off at the end of the year. Wages are captured throughout the year and the total is reported on W-2s or 1099s. W-2s also recap how much you paid in taxes and other withholdings. Capital gains from stock and bond sales are reported at the end of the year. Dividend pay outs are captured and reported at year end. Corporations and other businesses calculate their income and expense experience for the year at year end. All these activities are nothing more than an accumulation of actual transactions that took place during a period of time. What you were paid by your employer is not, generally, in dispute. the dividend checks and capital gains you received are, essentially, indisputable. Notwithstanding voluminous recordkeeping and mailing the system is relatively simple.
Valuing net worth is far more complicated because the values may be nebulous. Depending on what you classify as taxable net worth, the value could cover a wide range of possibilities. If you include artwork and jewelry and other personal property items of significant value, there is no ready market for much of that so an individual appraisal would be required. Apraisers will be sought out who are known to give very conservative estimates. Would we expect an appraiser to be expert in a wide variety of property? Most appraisers would tell you it ain't possible.
Even real estate values, at a given point in time, are extremely difficult to calculate. Look at the current housing price dilemma. Who the hell knows what my house is worth today or yesterday or tomorrow? When the housing market was booming you had a similar problem in the other direction. The only true way to know the value of your home or any other real property is to offer it for sale and after a period of time you can determine what the market will pay for it. All other attempts to establish point in time valuations for real estate are extremely arbitrary. They are based on comparables coupled with a huge set of assumptions. In NC state appraisers do not go into homes to evaluate state of the art appliances or sound systems or carpeting, etc. They view and measure the outside of the home and the land and then apply sales history of homes in the area for similarly sized homes, voila, a new value.
In the current income based system it is fairly easy to hide extraneous income earned from outside the normal reporting systems. Usually these are not large sums. Net worth, predicated on asset values minus liabilities, would encompass many assets which could easily be hidden and unreported.
If you limit taxable net worth to only liquid assets or those with a ready market which provides a market value then you have simplified the problem but you have left a lot of net worth options off the table.
Assuming you use a fairly large brush to define net worth then just securing valuations timely would be a horrendous task. How do you audit returns? IRS would have to require some sort of certification process for a variety of "experts" in order to accept the valuations. Certain property, a few years after the fact, which is when many audits occur, may have seen huge shifts in value from the time of the original taxation valuation. Short of the appraiser's integrity it could be especially difficult to argue a value a few years back if there was no ready market.
There are certain aspects of increased value which come from "untaxed" wealth. No doubt a diamond bracelet that you bought for $100 in 1960 has appreciated significantly in value by today and you never paid tax on anything other than on the original $100 you used to pay for the bracelet. Increases in home values would be similar. At the same time you would be paying a tax not on the increase in value every year but on the original basis as well which means that overtime you may have paid more in taxes for an asset than its original cost.
Purchasers of assets would have to consider the tax impact of a purchase, affecting true asset value. Would the value of all taxable assets be discounted for taxation? That would be their true value to a buyer.
What of an heirloom which has far more intrinsic value to you than its exchange value but has also increased in exchange value significantly? My wife was left a bracelet valued at $30,000 by her aunt. She would never consider selling it but in a net worth tax system we would have to pay, every year (that's every year), at 5%, a $1,500 tax just to hold onto an asset which is dear to her.
The paradigm has always been, and I agree with it, that you are taxed on income and if you use after-tax income to acquire assets, you are not taxed again until you exchange those assets and then you pay taxes on the income realized. This seems fair to me.
The inequities are in the income earned, in the case of most CEOs, paid, none of them "earn" their salaries and bonuses, and the access that those highly paid have to investments that are all but guaranteed a decent return. I am not opposed to wealth accumulation per se. I am vehemently opposed to excessive and totally incongruous earnings. I would include that I'm not a strong proponent of special tax rates for capital gains. I tend to believe that money made from money has less social value than money made from labor.
Gaming net worth is far easier than gaming income for tax purposes. I prefer to not replace reasonable certainty for unreasonable obscurity.
This is another fine mess those Republican voters have gotten us into. When are regulators going to start working for the American people instead of the Republican Party?
Column: Institutional money drives up commodities
May 31, 2008 1:20 AM EDT
NEW YORK - Next time you face sticker shock at the gas pump over a $4 gallon of gas, check out your pension fund's investments. They may explain much about the surge in oil prices.
Institutional investors such as pension funds, university endowments and sovereign wealth funds have ramped up investing in commodities as a hedge against inflation and to seek out higher returns versus stocks and bonds.
The strategy has worked - if you gauge success solely by the rising returns that come from a market where oil prices have doubled in the last year to levels above $130 a barrel and other commodities are also sharply higher.
But this story has an ironic twist: The money put into commodities is boosting the inflation investors have been trying to offset.
This isn't meant to lay blame for the rise in oil prices entirely on these investors' shoulders. They are part of the problem, along with soaring demand for oil in developing nations like China and India while global supply remains tight.
In recent weeks, however, more attention has been drawn to the big money these investors are putting into commodity-index funds. They don't actually own any of the commodities. Instead, they trade futures contracts, which are agreements that oblige the investor to buy or sell an asset at a predetermined price. Futures are considered a benchmark for prices in the market.
Critics allege that the continual inflow of institutional money is hijacking the market because the indices are permitted to bypass traditional speculative position limits imposed by the Commodity Futures Trading Commission.
"The rise in price of oil has weakened demand for the physical commodity, but it has boosted demand for the financial commodity since more investors are chasing returns," said Jeffrey Kleintop, chief market strategist at LPL Financial.
In the last five years, investment in index funds tied to commodities has grown from $13 billion to $260 billion, and the price of the 25 commodities that compose those indices have jumped 183 percent, according to congressional testimony from Michael Masters, managing member of the Virgin Islands-based hedge fund Masters Capital Management.
Masters dubs the pension and other investors as "index speculators." He estimates that in the first 52 trading days of this year, they flooded the market with $55 billion - in a self-fulfilling prophecy of sorts since the more money they put in, the more prices rise.
Research from Lehman Brothers supports that view. Performance of commodity indices can strongly predict inflows to those indices, which suggests there is a "significant amount of momentum chasing" going on, Lehman's chief energy economist Edward Morse said. Inflows are also higher when traditional asset classes like equities underperform or the dollar is weak.
Masters cites data showing annual Chinese demand for petroleum, based on government figures, has increased over the last five years by 920 million barrels; over the same time frame, the increase in demand for petroleum futures almost equals that at 848 million barrels.
"Individually, these participants are not acting with malicious intent," Masters said in his May 20 testimony. "Collectively, however, their impact reaches into the wallets of every American consumer."
Not everyone sees things Masters' way. Jeffrey Harris, chief economist at the CFTC, which regulates commodity markets, countered Masters' attack by telling lawmakers that "fundamental economic forces and the laws of supply and demand" are pushing prices higher, not fund positions.
Yet on Thursday, the CFTC announced it was six months into a wide-ranging investigation of U.S. oil markets, with a focus on possible price manipulation. It also announced a push to increase transparency of U.S. and international energy futures markets.
For instance, the CFTC said it will immediately require monthly reports from institutional investors who manage funds, which will help regulators identify the amount of such index trading and to "ensure that this type of trading activity is not adversely impacting the price discovery process."
The California Public Employees' Retirement System, the nation's largest public pension fund, is among those investors moving into commodities. It increased exposure to commodities beginning early last year as a way to diversify its portfolio. Such investments are now valued at $1.1 billion of its nearly $247 billion in total investments.
"In our book, it is not what we call speculation," said CalPERS spokesman Clark McKinley. "We took a long time to get into this market and we have a long time frame in our investment window left," which McKinley says runs 10 to 12 years.
There are, however, some unintended consequences from this investment strategy; it's driving prices up. That puts further strain on an already weak economy, as consumers and businesses face higher costs for gas and food.
The effect is already being felt by corporate America and that's bad for the stock market - where most of these investors put most of their money.
Drives up prices. Weakens the economy. Puts pressure on stocks. Not much of a hedge, is it?
---
Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck(at)ap.org
Bruce Barnes:
Interesting article, I've been reading and hearing a lot about speculative activity lately. Krugman has blogged about it a few times and tends to pooh-pooh the idea because he sees no increase in oil inventories which should be apparent if true speculation existed. He knows a helluva lot more about this than I do but I do wonder if he is factoring in this increased investing in index funds, which, I would think, might not directly affect actual oil supplies and/or inventories, yet would still affect prices.
I did hear an economist last night on NPR suggest that he expects, sometime in the next year or so, a correction dropping the price of oil by $25 to $50 a barrel. If that happens we will see a lot of pension funds, and other speculators, suffer huge losses. He also referenced the low margin requirements which allows these funds huge leverage opportunities, until.
I also get confused about inventory levels when you consider that these investments, be they actual buys or in index funds, are for future contracts which would seem to me to have little to do with the current supplies of oil, so inventory levels would not seem of immediate import.
If you look at the history of capitalism it makes sense that a segue has been taking place for years, away from production and jobs, to purely movements of money to provide gains. The commodity markets seem especially indicative of this. Years ago it appeared that the money to be made in commodities was in guessing the future price of a commodity and then buying or selling to that price target. The future price seemed to still be a supply and demand phenomenon and the markets were just a casino game in trying to make profits ahead of the supply and demand curve. I guess, like all else, big players, speculators, learned that sufficient investment could drive the current price and much money could be made with no regard to the eventual price of futures. Of course, somebody has to lose in that scenario, but what game does not have winners and losers. The big problem is that in commodities the non-investing public suffers along with the investment losers.
In oil there would appear to be less risk to producers since supply can be throttled on and off fairly quickly limiting losses should prices fall quickly. In food, you can see a scenario where a farmer might take actions, based on futures prices, to invest and plant products with very high futures prices and then come harvest time find that those prices never happened or significantly decreased so that the farmer is severely impacted.
Though there is much I don't understand about commodity exchange markets, I frequently fail to understand what purpose they serve other than as a legalized gambling casino. Regulatory changes are clearly called for, but one has to wonder whether a transaction tax, at a rate that is demotivating, might not be in order. I think I would apply it to stock markets as well, for after IPOs and/or subsequent stock issuances, it also becomes nothing more than a gambling game shifting pieces of paper from one to another. The impact of the big players renders the gamble by we little people to one akin to riding a roller coaster; hold onto the rail and pray.
If in capitalism there existed some kind of monitor, some kind of value structure, that served to minimize excesses, it clearly could be the savior of all mankind. Unfortunately, as we now see, it instead, unfettered or even minimally restricted, moves to a system where profits and wealth of the few become paramount to the welfare of all.
My take is that Adam Smith's "invisible hand" was less a suggestion of ultimate good for all, even in nefarious actions, but more an assuager to calm the masses and lead them to believe that, while not immediately apparent, nevertheless the welfare of all men will be served by any actions of the well to do. If the "invisible hand" ever existed, it died somewhere along the way.
I doubt Adam Smith could have envisioned the monolithic, global corporations of today. Nor do I think he could have fathomed a scenario where a small group would control over half the wealth of any nation, let alone the vast wealth a country like the US. There is no argument that capitalism has been responsible for much of the advancement of mankind, especially in free market economies. At the same time, absent any social/moral limits, it makes sense that it would eventually lead to operating less in a world of plant, equipment and labor and more to a universe of moving money to make profits and more money. Why get encumbered by the means when you can use the ends to produce more ends.
I'm sure that the oil companies are conflicted by the commodity markets ability to affect the prices of their products. So conflicted in fact that they worry about it all the way to the bank.
You must be aware of the fact that congress said NO to bill to mining the oil shale that lays on top of the ground, pretty much, in Colorado, Idaho and Utah. I'm told that we can "squeeze" out enough oil from that shale to free us from importing all, yep all, foreign oil for 30 YEARS. The technology is much the same as Canada has been using for about three years. My question to you is, Why did the vote in a democratic congress go this way? I don't understand. Do you?
adams and company:
It appears the amendment was defeated in committee not in the Congress. There seem to be legimate concerns over the environmental impact of processing the shale oil. It would seem to make sense that those impacts be looked at.
An argument can be made that rather than investing untold millions in creating more oil, resources are better directed at alternative options. A continuing reliance on oil, exacerbates the real problem and does nothing to overcome the global warming problem.
Suppose OPEC is running out of oil, would they ever admit it. Of course not! They are good businessmen and would never spook their customers.
DR REICH,
NO CAN TAKE A HOLIDAY FROM OIL, IT IS TOTALLY IMPOSSIBLE. I'M SURE YOU MUST KNOW THAT FACT. IT'S A CATCHY PHRASE AND THAT'S ALL. I THINK IT'S IRRESPONSIBLE OF YOU TO PRINT IT HERE OR ANYWHERE. YOU HAVE TOTALLY UNDER ESTIMATED THE RAW POWER OF OIL. DON'T FORGET REAGAN PUT THE SOVIET UNION OUT OF BUSINESS BY USING ITS POWER BY GETTING THE SAUDI'S TO LOWER THE PRICE OF OIL IN 1985. I AGREE THAT ALTERNATIVE SOURCES ARE THE ONLY ANSWER TO THE PROBLEM. WE STILL HAVE TIME TO DEVELOP SOMETHING. I ONLY QUESTION OUR WILL. NOTHING WE SEE NOW WILL DO IT. SOLAR, WIND, HYDROGEN OR COMBINATIONS THEREOF WON'T MAKE IT. OR HAVEN'T SO FAR. IS THERE RESEARCH NONE OF US OUTSIDE KNOW ABOU? I SURE AS HELL HOPE SO. OTHERWISE WE ARE DOOMED TO A WORLDWIDE DEPRESSION IN ABOUT THIRTY YEARS THAT WILL MAKE THE LAST ONE LOOK LIKE AN ITALIAN WEDDING. THANK GOD I WON'T BE HERE. BUT I FEAR FOR MY CHILDREN AND GRANDCHILDREN. THERE'S NOTHING I CAN DO TO HELP THEM!
Professor Reich - Bravo!! Your blog is right on target. I agree with everything you've said. With regard to Nuclear and the fear mongers, not that I've been the biggest Nuclear power proponent in the past, the Advanced Light Water Reactor that was developed by Westinghouse back in the day as a lithe Nuclear Plan Model was sold to France and they've implemented this very safe design and likely have the intellectual rights to the architecture. Therefore, we'll have to buy the plans and the plants from them. These recycling rod plants are nothing like "3-Mile Island" where nobody died and "Chernobyl" where amazingly only 58 people died. I just wanted to share this information for the people on this blog who compare Nuclear Power Plants with Nuclear Bombs. If we don't do something about power we will be at the mercy of someone who could hurt us. We don't want that, and I pray every day that we are safe. I'm an optimist. However, let's not be blind. Thank you so much for your commentary Dr. Reich. I admire you, and I've just found your blog, so I'm going to bookmark it and check it daily. Very best regards, Maria - Los Altos, CA
Professor Reich - Bravo!! Your blog is right on target. I agree with everything you've said. With regard to Nuclear and the fear mongers, not that I've been the biggest Nuclear power proponent in the past, the Advanced Light Water Reactor that was developed by Westinghouse back in the day as a lithe Nuclear Plan Model was sold to France and they've implemented this very safe design and likely have the intellectual rights to the architecture. Therefore, we'll have to buy the plans and the plants from them. These recycling rod plants are nothing like "3-Mile Island" where nobody died and "Chernobyl" where amazingly only 58 people died. I just wanted to share this information for the people on this blog who compare Nuclear Power Plants with Nuclear Bombs. If we don't do something about power we will be at the mercy of someone who could hurt us. We don't want that, and I pray every day that we are safe. I'm an optimist. However, let's not be blind. Thank you so much for your commentary Dr. Reich. I admire you, and I've just found your blog, so I'm going to bookmark it and check it daily. Very best regards, Maria - Los Altos, CA
You have a point and a good one. BUT, I think there may be a race going on here between your choice, which you must admit has it's dangers, and a completely safe alternative. That alternative is wave action. As we all know it is available 24/7 to every country with a coast line. The technology is ready, built and producing electricity which is now being sold to electric power companies who are sending it along there grid into American homes. It's still in its infancy and has a long way to go before it could be considered a commercial success. But it is possible. I will post the details on my blog, www.oilcrisis@blogspot.com/
Ted Adams
I’ve developed a proposal, called the Conversion Proposal (or the Once Cent Solution), the purpose of which is to initiate a national program to address fossil fuel dependence. Please go to http://conversionsite.blogspot.com/2007/04/conversion-proposal.html and post your ideas on the proposal and how we might build some momentum with our elected officials.
we need to be able to drill our own oil. is the drilling in countries where we buy oil "environmentally safe". they can drill wherever they want, but we cant. its messed up.
and global warming is a political scam. just ask the founder of the weather channel.
Thank you very much for this information.
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I think the best way to solve the oil crisis is to look for other alternative source of energy just like using bio-fuel. Bio-fuels have been a significant factor, it is said to be "the one of the cheapest form of energy we can get" and a great opportunity towards sustainability and environmental protection. Efficient and clean technology is many times available and needs to be leveraged. The objective of this project is to allow easy access to knowledge and to facilitate the development of new initiatives developing, delivering or promoting energy efficient technology. There are different sites that can help the people to be informed and to know more about it. Here’s a site: http://personalmoneystore.com/moneyblog/. Enjoy reading the information because it will really help you!
It's hard to imagine anything other than oil being used to fuel us for a while. Remember the electric car that came out in early 2001?? It actually works fairly well. That is, until GM buys them up and smashes them all. Then they don't work very well. The only way alternative fuels (please don't corn) is going to be prevalent in the U.S. is with a president that actually does something about it. Also, this week we are getting a large portion of a $7 billion liquified gas project from Angola. How long do you think that will last?
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