This weekend on on Fox News Sunday, Jon Kyl (rather inartfully) set up a classic struggle between political views of how government economics work:
What’s remarkable about Kyl’s position here is that it appears to be philosophical. “You should never have to offset cost of a deliberate decision to reduce tax rates on Americans,” he said. Never! This is much crazier than anything you hear from Democrats. Imagine if some Democrat — and a member of the Senate Democratic leadership, no less — said that as a matter of principle, spending should never be offset. He’d be laughed out of the room.
Back in the real world, tax cuts and spending increases have the exact same affect on the budget deficit. This sort of comment is how you tell people who care about the deficit apart from people who are interested in exploiting fears of the deficit to shrink the size of government.
While Kyl’s phrasing lends to this sort of demagogic mockery, it’s hard to blame Klein, et al., after the spending binge that followed the Bush tax cuts of 2001. Kyl’s immediate point — that paying for some tax cuts by raising other taxes — is spot on. Shuffling around the types of taxes that one pays makes no sense if the idea is to let Americans hold onto more of their money. Indeed, he made exactly that point after his Fox News Sunday appearance (via Daniel Foster):
“Who does the money belong to?” Kyl asked rhetorically. “The money belongs to the taxpayer, to the people. The money does not belong to the government, and yet that’s what this kind of a rigid paygo rule would assume: that the money belongs to the government, and therefore if you’re going to deny the government some of that revenue through a tax cut, you have to make the government whole, because the government can never lose any money. That would mean that you could never reduce the size of government. Each year, when it gets bigger, it stays at that level or it gets bigger yet, but you can never reduce it.”
As Foster notes, “Kyl is openly advocating some ‘starve the beast’ unfunded tax cuts.” Klein counters this with a reasonable budgetary point: deficits are deficits, whether from reduced income or increased spending. Yet, this misses the real issue:
He who has the money expands; he who does not shrinks.
According to the “starve the beast” strategy, if government takes in less revenue than it spends, eventually it will have to cut spending in order to match revenues, and thus the government will shrink. At the same time, if the private sector has more money in its pocket, the economy will expand. While the efficacy of this strategy leaves much to be desired in practice, at least one part of the equation can’t be denied, i.e. the more money that the government takes in, the more it expands.
The same holds true for the private sector. The fewer taxes it is forced to pay (that is, the more money it is allowed to keep), the greater it expands.
So, the real question is, which do we want to expand: the private sector or the government?
Kyl is dead-on in his describing the pervasive attitude of statists of all stripes. They really think the money belongs to the government and should be dispersed as it sees fit (provided, of course, that government is run by officials suitably attuned to the “common good”). That is where the struggle lies. Statists believe that government is the best source of economic expansion while
history individualists commend the opposite.
If the statists are correct, then we should want the government to expand, and deficits should be run up without commensurate spending cuts or, alternatively, with tax increases. If, instead, the private sector holds the key to economic expansion, then deficits (if any) should be met by spending cuts. Period.
To be sure, in order to live under a rule of law, some minimal level of government spending is required. Ideally, taxes, user fees, etc. pay for that minimal level, but there will always come a time when unfortunate events necessitate dipping into the red. It is in those times when raising taxes may be the best solution on a temporary basis (which hasn’t always worked out very well). Once those events subside, however, continuing to expand government spending can only be done to the detriment of the private sector, which will then shrink.
In the end, whether the electorate chooses an expansion of the state or the private sector will be the real deciding factor in whether the economy expands or not. All deficit spending may be equal in budgetary terms, but only one course will actually serve to expand the economy. On that score, Kyl has the better of the argument.
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Ben White at Politico tells us:
Obama has been happy to be seen by voters as cracking down on Wall Street but those efforts have had an unintended result: feeding a sense that the president and his party are indifferent or even actively hostile toward big business, whether those businesses are Silicon Valley tech companies, Midwestern manufacturers or Main Street small businesses.
And it is more than just politics: Obama’s aides believe confidence in the general direction of White House policy has an effect on the willingness of corporations to hire, invest and push the economy toward a more solid recovery.
We’ve all heard about the $1.8 trillion that companies and corporations have saved while they sit on the side-lines refusing to invest or hire. We’ve seen the likes of Mort Zuckerman declare that the policies and attitude of the administration are decidedly "anti-business". And we’ve seen little or no evidence that anything the government has done has, in fact, spurred economic recovery.
So – what’s the administration’s answer? A public relations campaign where they essentially tell us things have happened we know haven’t, take credit for things they had little to do with and essentially try to spin their way out of the "anti-business" label.
Or, “business as usual”:
So the White House has launched a campaign to help instill that confidence, highlighted by Obama’s remarks on Wednesday stressing his commitment to lifting trade barriers as a way to spur economic growth. That was followed by Treasury Secretary Timothy Geithner’s interview on CNBC’s “Kudlow Report” last night — following his spot on PBS’ “NewsHour” on Tuesday. Obama talked up the economy in Missouri Thursday as well.
In a Thursday interview, White House chief of staff Rahm Emanuel argued that rather than recoiling against Obama, business leaders should be grateful for his support on at least a half-dozen counts: his advocacy of greater international trade and education reform open markets despite union skepticism; his rejection of calls from some quarters to nationalize banks during the financial meltdown; the rescue of the automobile industry; the fact that the overhaul of health care preserved the private delivery system; the fact that billions in the stimulus package benefited business with lucrative new contracts, and that financial regulation reform will take away the uncertainty that existed with a broken, pre-crash regulatory apparatus.
But you see, businesses know all of that and they aren’t “grateful”, they’re alarmed. Not only that, they don’t see private banks and financial institutions as the sole problem in the financial meltdown – but they do see government trying to pretend it was all Wall Street and greedy corporations, while Freddie and Fannie have become half a trillion dollar financial sink holes that politicians don’t want to talk about.
They also understand that the Bush tax cuts are expiring, new health care laws and taxes are pending, new and onerous regulations are in the offing and the lame duck Congress will most likely try to push through some version of cap-and-trade. Add to that failing states like Illinois and California and the probability of higher taxes all the way around.
And then there’s the possibility of a double-dip recession.
Why wouldn’t business be sitting on their money given the “rest of the story” that the administration conveniently leaves out of their pitch?
This is a crew that has supreme confidence in their ability to propagandize anything and get away with it. And why shouldn’t they – look who is sitting in the White House. You’d have to believe if you can sell an empty suit to a majority of the nation, you can probably sell anything.
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If anyone has been out and about in this economy, they don’t find the numbers “unexpected" at all:
Claims increased 13,000, to 472,000, while forecasters expected a slight drop to about 455,000 from the previous week’s seasonally adjusted 457,000, according to Labor Department figures released Thursday.
Not good. The Hill tries to put lipstick on this pig:
The four-week moving average, which smoothes out the volatility of the weekly number and is a better look at the employment picture, increased 3,250, to 466,500, from the previous week’s revised average of 463,250, the highest in almost three months.
But the fact of the matter is 3,250 jobs in a month isn’t even a good statistical blip. In order to see real job creation numbers, we have to be in the neighborhood of creating 250,000 jobs over the same period. So essentially we have a job deficit of about 700,000 at the moment.
“Economists” cited by The Hill apparently have a much lower target in mind:
Economists argue that jobless claims need to drop into the low 400,000s or high 300,000s to reflect stronger job growth in the private sector.
Again, that’s not “job growth” – that’s just smaller decline in job losses. And that decline may have nothing to do with reflecting “job growth”. Job “growth” would be on the positive side of these numbers. Until they are positive, we’re essentially replacing a lost job with a new job or just seeing fewer losses. Job recovery, if you will, takes place between these numbers and about 120,000 to 140,000 jobs which is the maintenance level of the unemployment percentage. IOW, if we’re putting on 120,000 to 140,000, we’re essentially treading water in the jobs area. Only once we’re past those numbers on the positive side are jobs “growing” in number.
Anyway, these numbers aren’t unexpected and they certainly aren’t good news.
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If ever there was an indicator – an example – of the appalling level of economic ignorance to be found among our national legislators, this from Nancy Pelosi is perfect:
Talking to reporters, the House speaker was defending a jobless benefits extension against those who say it gives recipients little incentive to work. By her reasoning, those checks are helping give somebody a job. "It injects demand into the economy," Pelosi said, arguing that when families have money to spend it keeps the economy churning. "It creates jobs faster than almost any other initiative you can name."
Pelosi said the aid has the "double benefit" of helping those who lost their jobs and acting as a "job creator" on the side.
Demand is not created or "injected" by jobless benefits. At best may be, at some level, maintained. But it also could be argued that if the drop in income in an area is wide enough (former salary income v. jobless benefit income) it could cost jobs.
For instance the store clerk in a grocery store can be economically justified if the average grocery bill in the area is X. But if it falls to Y, which is likely with belt tightening by those receiving lesser unemployment benefits, then the clerk’s salary is no longer economically justifiable.
Jobless benefits rarely lend themselves to purchases outside the necessities because they’re usually not a great amount of money. The benefits are a maintenance income. What they mostly do is allow the recipient to pay for food, clothing, shelter and transportation, or some combination of those necessities.
Employers don’t create businesses and jobs in anticipation of receiving some of a person’s unemployment check. So unemployment checks are not out there creating jobs "faster than almost any other initiative you can name". In fact, their extension most likely inhibits job seeking (as the person and/or family adjust their lifestyle to the income until all necessities are covered).
This is an amazing example of the appalling economic ignorance that has gotten this country in the financial hole it is in and seems bound and determined to dig it deeper. And she’s 3 heartbeats away, folks.
[MICHAEL ADDS:] The left has been pushing this idea for awhile. I tackled it back in January:
If you look closely at the chart you will be unsurprised to find that government spending is calculated to provide substantially more “bang for the buck” in creating wealth and jobs. That’s unsurprising because this chart is intended to support a progressive prescription for the economy. Of course it will show government as the answer.
Without arguing the statistical or modeling specifics behind the chart, there is one glaring item that reveals how much magical thinking went into its creation. By far the most “stimulating” actions set forth are “Temporary Increase in Food Stamps”(calculated to create 9,803,333 jobs), “Extending Unemployment Insurance” (9,236,667 jobs), and “Increased infrastructure Spending” (9,010,000 jobs). The closest tax-cutting measure, according to this analysis, in job creation is a “Payroll Tax Holiday” which is estimated to create 7,253,333 jobs. Do you see the problem?
How, exactly, do food stamps and unemployment benefits create jobs? Arguably, spending on infrastructure could create construction jobs on a temporary basis, although that hasn’t proven to be the case with the stimulus bill that was passed. But there is simply no logic to the idea that providing government benefits to the poor and unemployed will serve to create jobs, much less 9 to 10 million of them. That’s just magical thinking.
And again in February. Based on whatever studies they’ve compiled to prove their point, the Democrats are going to simply go with this economic model sans examination.
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The follow-up Supreme Court decision to Heller that was handed down yesterday marked a significant point in Second Amendment history. And that has not just gun-rights advocates jumping for joy, but also Democrats:
For them, the court’s groundbreaking decision couldn’t have been more beneficial to the cause in November. Now, Democratic candidates across the map figure they have one less issue to worry about on the campaign trail. And they won’t have to defend against Republican attacks over gun rights and an angry, energized base of gun owners.
“It removes guns as a political issue because everyone now agrees that the Second Amendment is an individual right and everybody agrees that it’s subject to regulation,” said Lanae Erickson, deputy director of the culture program at the centrist think tank Third Way.
A House Democratic aide agreed that the court’s decision removed a potentially combustible element from the mix.
“The Supreme Court ruled here that you have a fundamental right to own and bear arms, and that means at the national level it’s harder – whether it’s Republicans or whether it’s the [National Rifle Association] – to throw that claim out: if Democrats are in charge they’re going to come get your guns,” said the aide. “It pretty much took that off the table.”
Despite the fact that there are a fair number of pro-gun Democrats in Congress, members of the Donkey Party are typically slammed as “gun-grabbers” in close elections. With the decision in McDonald, that issue is basically moot for Democrats running red or purple districts.
The likely removal—or at least neutralization—of the gun issue this fall is of no small matter in the battle for the House and Senate. The Democratic majorities in both chambers were built, in part, on victories in pro-gun states and districts that had until recently been difficult terrain for Democratic candidates as a result of the national party’s position on gun control.
For congressional Democrats—especially those in seats outside major metropolitan areas where support for gun rights runs high—the ruling offered a chance to assert their pro-gun bona fides.
John Anzalone, a prominent Alabama-based pollster with a roster of Southern Democratic clients, called it a “win, win, win, win” situation for everyone—and above all, “for conservative Democrats who will be able to use it as a credential that they’re conservative. This is a tough political environment; you’re going to see Southern, Western Democrats use it and stand up for gun rights.”
Unfortunately for the Democrats, gun rights issues weren’t likely to be very high on the list of grievances redressed at the ballot box this Fall. Mired in the middle of the Great Recession, economic issues will be paramount in November, especially on jobs and tax policy.
In fact, although Democrats are cheering the absence of Second Amendment posturing thanks to McDonald, to the extent such issue would have been raised, it would have served as a distraction from the core concerns of voters. Now, with that issue off the table, the Democratic spending policies are cast in stark relief. While out on the hustings, they will be forced to answer for their support of ObamaCare, Stimulus, Cap and Trade, Finreg and the rest of the Democratic agenda that’s done nothing to help the economy, and sure looks like it may have done much to hinder it.
In political time, November 2nd is an eternity away. There is really no telling what might happen between now and then that might influence various elections, whether on a national or local level. Even so, I wouldn’t be surprised if Democrats were wishing they had the distraction of gun-rights issues this Fall instead of being forced to face the economic policy music. It will be a baleful tune.
By that I mean the belief that massive public deficit spending is the cure for an economic recession/depression?
It should be. And that’s the argument going on in at the G20 meeting in Toronto. The US is urging Europe and the rest of the world to “pump it up”. The rest of the world, rightly in my estimation, is resistant to the plea. The WSJ reviews why for us, using the US’s experience as the case study:
Like many bad ideas, the current Keynesian revival began under George W. Bush. Larry Summers, then a private economist, told Congress that a “timely, targeted and temporary” spending program of $150 billion was urgently needed to boost consumer “demand.” Democrats who had retaken Congress adopted the idea—they love an excuse to spend—and the politically tapped-out Mr. Bush went along with $168 billion in spending and one-time tax rebates.
The cash did produce a statistical blip in GDP growth in mid-2008, but it didn’t stop the financial panic and second phase of recession. So enter Stimulus II, with Mr. Summers again leading the intellectual charge, this time as President Obama’s adviser and this time suggesting upwards of $500 billion. When Congress was done two months later, in February 2009, the amount was $862 billion. A pair of White House economists famously promised that this spending would keep the unemployment rate below 8%.
Seventeen months later, and despite historically easy monetary policy for that entire period, the jobless rate is still 9.7%. Yesterday, the Bureau of Economic Analysis once again reduced the GDP estimate for first quarter growth, this time to 2.7%, while economic indicators in the second quarter have been mediocre. As the nearby table shows, this is a far cry from the snappy recovery that typically follows a steep recession, most recently in 1983-84 after the Reagan tax cuts.
The chart in question:
2.7% is not good, especially when most of the spending is government spending. Or said another way – this isn’t a great advertisement for over a trillion dollars spent to “stimulate” the economy.
And, as you see here – for the money, job creation has been absolutely abysmal, except for government jobs.
Now couple all of that with the awful news about house sales this past month (down 33%) and it would appear, economically, that the “stimulus” has essentially failed in its dual role of stimulating economic and job growth, wouldn’t you say?
Yet it seems the spin doctors in the administration want to pretend otherwise and, by the way, hook the rest of the world on their public spending addiciton. Thankfully, at least for their citizens, most of the rest of the world isn’t buying into the scheme. We, however, are stuck with the world’s most profligate spendthrifts in the guise of the Obama administration and the Democratic Congress.
We are told to let Congress continue to spend and borrow until the precise moment when Mr. Summers and Mark Zandi and the other architects of our current policy say it is time to raise taxes to reduce the huge deficits and debt that their spending has produced. Meanwhile, individuals and businesses are supposed to be unaffected by the prospect of future tax increases, higher interest rates, and more government control over nearly every area of the economy. Even the CEOs of the Business Roundtable now see the damage this is doing.
That’s a long way of saying the anticipation of raised taxes to pay off this unprecedented and massive assumption of public debt is keeping businesses on the sidelines and the business atmosphere unsettled. They’re not about to expand their businesses until they have a much better handle on what it will cost them to do so. That’s why, for what little recovery is taking place, it is mostly a jobless one.
Most who understand at least rudimentary economics knows that some “stimulus” from government spending, coupled with other government actions, such as tax cuts for individuals and businesses, may have a beneficial effect in times of recession. The stimulus funds get money in circulation and the tax cuts encourage businesses to expand and hire.
What we’ve seen is nothing but “stimulus” – no tax cuts, no incentive for businesses to come off the side lines. Additionally we’ve seen attacks on the business community, calls for much more draconian regulation and new mandates imposed by legislation such as health care reform.
The result has been a seemingly perpetually unsettled business atmosphere that has provided absolutely no incentive for companies to expand or hire.
What we should have all taken from this is that government “stimulus” funded by massive public debt isn’t the answer we were led to believe it was and, when it is all that is done, is more of a problem than any sort of a solution. All the “stimulus” has managed to accomplish is the promise of large tax increases to pay down the debt it created.
The other service it hopefully has rendered is to prove defective the once cherished Keynesian belief that government can spend us out of recessions.
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Hungry enough to tax minimum wage employees for their “free” (or reduced cost) restaurant meals in Michigan:
Although it may be “free,” that’s not stopping some legislators from attempting to tax it. State Rep. Mark Meadows, D-East Lansing, has introduced House Bill 6214, which would tax free meals employees get while working at restaurants and food establishments.
Can anyone think of a better example of a tax which would hit those that can afford it least? One of the few benefits of working what is usually a minimum wage job is the server or worker is allowed one free or reduced cost meal a day. When working for the wages the restaurant industry usually pays – especially in fast food establishments, that helps a bit.
Making them pay the sales tax on the meal probably won’t break them, but it is a direct tax on what Democrats always call “the working poor”. The party that contends they’re the champions of this class are taking a run at squeezing a few more pennies out of their pocket – at least in Michigan.
It also places another collection and book keeping demand on the business. That isn’t “free” either.
Michigan, of course, is a state in which government has essentially failed, is significantly in debt and is looking for any sort of revenue it can scare up.
What’s next, taxing the dead for the privilege of being buried in the state?
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Not that I’m particularly upset by this (liberal certainly are), however, it again makes the case that this president should never be judged just by what he says (see below). He should always be judged by what he does and how it all turns out. For instance:
The White House is intervening at the last minute to come to the defense of multinational corporations in the unfolding conference committee negotiations over Wall Street reform.
A measure that had been generally agreed to by both the House and Senate, which would have affirmed the SEC’s authority to allow investors to have proxy access to the corporate decision-making process, was stripped by the Senate in conference committee votes on Wednesday and Thursday. Five sources with knowledge of the situation said the White House pushed for the measure to be stripped at the behest of the Business Roundtable. The sources — congressional aides as well as outside advocates — requested anonymity for fear of White House reprisal.
Tough talk, populist rhetoric (CEO’s get paid too much and we need to rein them in) and when it comes to actually doing so? Yeah, not so tough at all. Like I said, the outcome doesn’t bother me and, after publicly taking corporate CEOs to task, attempting to shame them and cut their pay, someone must have alerted Obama to the fact that they mostly paid the campaign freight during his run for the presidency.
Why do I say that? Well the “Business Roundtable”, which so vociferiously opposed this is a lobby of corporate CEOs. And the White House liason to that lobby is Valerie Jarrett.
The White House is now saying that the provision allowing investors proxy access which would allow them to have a say in CEO salaries was never something they explicitly backed.
“It was not part of our original financial reform proposals, and we have not taken a position explicitly. We have heard from and understand the various concerns on this critical corporate governance issue from multiple stakeholders including business, investors, labor and others. We are confident that the House and Senate conferees will come to a resolution and deliver a consensus view,” said the spokesperson.
Of course that, along with much of what they say, is not true. Huffington Post reminds us of two administration officials who took very explicit positions in support of the provison:
Deputy Secretary of the Treasury Neal Wolin addressed the provision. “The Senate bill will make clear that the SEC has unambiguous authority to issue rules permitting shareholder access to the proxy. We support that proposal. The SEC’s rulemaking process will define the precise parameters of proxy access,” he said. “But the principle is clear: long-term shareholders meeting reasonable ownership thresholds should have the ability to hold board members accountable by proposing alternatives and making their voices heard.”
Valerie Jarrett followed Wolin. “The Senate bill will make it clear that the SEC has unambiguous authority to issue rules permitting shareholders access to the proxy — essential, as I know you guys know,” she said. “We agree that corporate governance means more transparency, more responsibility, more accountability, and once again — I can’t say it too often — we stand firmly with you on that point.”
Any questions? Does this leave you with the impression that the administration never explicitly took a position on that provision? Are you still convinced Obama means what he says, or are you beginning to understand that he’s mostly show and not much “go”?
Oh, and yes, this would be called “crony capitalism” if you were wondering.
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I have no idea why, but I have little desire to write about politics today. Perhaps because it all seems so absurdly screwed up. Maybe because I think we may have crossed some imaginary line and I wasn’t aware of it and this is never going to find its way back to where our founders started it.
I mean, for goodness sake, you have book publishing companies putting warning labels on publications of the Constitution claiming it is a product of its time and doesn’t reflect present values. Really?
Maybe. I mean does anyone think the government we have today and its size, scope and depth of intrusion are anything like the “values” reflected by those who wrote the document? Does anyone think today’s “values” are better than those the publishing company thinks you should discuss with your kids?
There’s a certain level of frustration in tracking this, talking about it and seeing nothing change, and, in fact, watch everything go even further south.
And now we have this legislator for a president who just hasn’t the foggiest idea of what it means to be an executive and a leader. If you’ve been an observer of politics as long as I have, you can see the dark clouds forming on the horizon.
Internationally, it is the usual flash points, but you can see the trouble building and you get the idea that the troublemakers are sensing a weak horse here.
Domestically they’re already here I suppose. We just don’t know if it’s going to be a bad thunderstorm, a torrential rain storm or a freaking tornado. The other day I reported that well over half of all companies – and that’s the conservative number – will most likely be required by law to either change their insurance plans or drop them and pay a fine.
What kind of foolishness is that? Well it is exactly the kind of foolishness that poor legislation, rushed through to satisfy an agenda item instead of the people these politicians serve gets you. And now they’re catching flak and they don’t like it.
We had another melt down by a legislator last week. Bob Ethridge fires at a bunch of students asking him questions on the street. It is unseemly, ungentlemanly and frankly, unacceptable. These “public servants” display more of the arrogance of an aristocracy than they do the humbleness of someone serving the public interest.
And that’s across the board, local to federal, left and right.
There’s an anger festering the likes of which I’ve not seen in a long time. People are angry. Not just the activist right or even the activist left. Good old fly-over country middle America has had enough. Enough of being treated like they’re too dumb to understand. Enough of being characterized as racist or biggoted when they disagree about policy and politics. They are freaking tired of being ignored. The Tea Party movement is only one indicator of this deep resentment that is growing toward government in general and what it takes from them and what it delivers in return. I see the Tea Party as sort of like the statistic for talk radio. Only about 1% of those who listen call a talk radio show. My guess is only about 1% of those who feel like the Tea Partiers show up for their events.
I think this current administration is going to accomplish one thing, and that is bring this all to a head. The federal response to the oil spill has been pitiful. The President and Congress continually ignored the public and rammed this terrible mess of a health care bill through over their objections. The mismanagement of Fannie Mae and Freddie Mac may end up costing taxpayers as much as a trillion dollars and they’re focused on Wall Street. Congress won’t pass a budget until after the November election – even though it is their job – because it may adversely effect the chances of some members to win re-election.
Well, there’s a real easy way to solve that problem.
Politics has triumphed over good government. Agendas have replaced common sense. On both sides, party seems more important than “the people”. As Glenn Reynolds once described them, we’ve been inflicted with the worst political class in the history of this country. And it is painfully obvious.
Anyway, there’s about 700 words about why I’m not in the mood to write today. These thing come and go and I usually let them run their course. Heck, it may be over in a couple of hours as something jumps off the page at me. But until then, I think there’s plenty in this minor rant to talk about.
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The cluelessness continues in the White House about the impact of the 6 month moratorium on drilling in the Gulf in waters over 500 feet. Taking the BP disaster as 100% certain without out such a moratorium, the administration has effectively stopped work on 33 deepwater exploration rigs in the Gulf . Energy Tomorrow gives a good round up of what the experts are saying about this policy:
•Adam Sieminski of Deutsche Bank predicted that U.S. oil production could fall by 160,000 barrels of oil per day by next year. (Financial Times)
•Bernstein Research said delays from the moratorium and rising costs stemming from new safety regulations are likely to raise the marginal cost of deepwater production by about 10 percent. (Financial Times)
•Paul Cheng of Barclays Capital warned that the higher costs could eliminate small independent companies who compete for drilling projects against the majors. (Financial Times) He also predicted an 11 percent drop in deepwater oil production. (Houston Chronicle)
•The Houston Chronicle reports that two large oil-services companies are relocating workers from the Gulf of Mexico to onshore North America drill sites and Brazil.
•The National Ocean Industries Association (NOIA) predicts that relocation is just part of the pain to be suffered by energy workers. Burt Adams, NOIA’s chairman, said in a statement, “the [president’s] order will be felt by the families of tens of thousands of offshore workers who will be unemployed.”
The American Petroleum Institute (API) estimates that the moratorium will cost us 130,000 barrels of oil a day by 2011 and up to 500,000 a day by 2013. And it could put up to 46,200 jobs at risk short-term and as many as 120,000 over the long term.
So the blanket moratorium has some real down-side to it. And it is important that our leaders understand that and are sensitive to it, especially when we’re in the economic doldrums right how, the oil spill has all but devastated fishing in the area and the resort towns who normally thrive in the summer are feeling the impact of the spill. Risking that many jobs with a blanket moratorium is just not good policy.
So how sensitive to all of this is the White House? Louisiana governor Bobby Jindal found out recently:
Jindal said he had a conference call with President Barack Obama’s senior adviser, Valerie Jarrett, and appealed to her to shorten the six-month moratorium, arguing that a half-year pause would force oil companies to move drilling operations overseas for years and that the federal government could easily impose new safety standards and monitoring in a shorter time frame.
“She asked again why the rigs simply wouldn’t come back after six months,” Jindal said. “What worries me is I fear they think these rigs can just flip a switch on and off.”
Gross ignorance is all that can be called. These rigs cost about $500,000 a day for oil companies. You do the math. Those owning the rigs probably wouldn’t mind sitting around, doing nothing and getting paid 90 million for each rig. But the oil companies are going to move them, while they have them under contract, to foreign leases they own in order to seek oil.
Exploration rigs have always been at a premium (which is why their daily rate is so high), and they’re constantly working somewhere – as long as the price of oil supports such exploration. But since half a year is the apparent non-negotiable moratorium, those rigs are going to pull up stakes and move to foreign leases – leaving the oil untapped, and providing jobs elsewhere. We end up with higher unemployment and more dependent on foreign oil than ever.
And our leaders haven’t a clue.
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