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UPDATE [Bryan]: I decided to make a link-enhanced transcript for the podcast like I did on one of them last year. I'm considering making this a regular feature, depending on the reader response. It's below the fold.
DALE: This is Observations, the podcast of the QandO Online Magazine. Welcome back to the podcast; I’m Dale Franks. Good to talk to you again. It’s hard to believe, but it’s yet another Sunday, which means it’s time for another podcast with my partner and I. Bruce McQuain is here; hello, Bruce.
DALE: Well, this week I want to start off talking about both the controversy and sort of the policy responses to these high gas prices. And I want to pay particular attention to a speech that was made this week by Barack Obama in which he made some very weird claims. He said, you know, we’ve spent—by ‘we’, he means the American people as a whole—have spent about a trillion dollars over the last ten years for fuel costs, and if we’d only spent a quarter of that on some alternative technology, why, we’d have, y’know, warp drive and anti-matter as we speak. It’s very emblematic of something that goes on in Washington—and it’s not just Democrats, it just seems to be the egregious thing of the week that caught my mind—it’s this idea that they can simply by fiat reverse the rules of reality… that whatever’s happening in the real world has no effect on—well, I guess I have that backwards. What they’re saying is, what they decide in Washington will change the reality as it exists in the world. It’s just odd to me.
MCQ: Yeah, it’s a mentality, unfortunately, and I’m not sure… I guess it’s either the swamp gas from the swamp there, it’s vapors from the Potomac River, or it’s all the petroleum that comes up from the Beltway that goes around that place, I’m not sure. But all of them seem to fall into that particular problem every now and then. And I guess it’s spreading, because we both saw the young woman on Neil Cavuto’s show saying that all Congress has to do is set prices and well, prices are set.
DALE: [Both chuckling.] Yeah, you have to love that kind of optimism, anyway.
MCQ: I mean, I did get a kick out of Cavuto, though. He’s sitting there, he’s got this smile playing on his face like he wants to shout, “Are you insane?”, but he knows it’s much too good TV not to let go for a while.
DALE: And I kinda like the way he handled it in that he just looked at her and said, “Are you saying that Congress can set prices?” “Oh, absolutely, I’m saying that. Certainly they can.”
MCQ: And of course they can, not that they’ll have—as you’re making your point—anything to do with reality. They can put a number up there and call it whatever they want; it won’t have a thing to do with prices, though.
DALE: That’s—I don’t know whether that’s simply economic arrogance, or whether that is this sort of arrogance of power that they get when they get up to Washington, DC.
MCQ: Well I don’t know either. I mean, today we have Barack Obama talking about his top issue now is to, in response to the problems, is to close the loophole in federal law that exempts some energy traders from regulations. They call it the Enron loophole, which makes it a great ad, y’know, bad Big Business Bad Guy to go after. And he talks about how commodity futures, trading commissions should be after these speculators and that the regulatory group gap is very dangerous because of the absence of government oversight, etc, etc. And of course this isn’t the only country that has speculators. The market is not a US market; it is a global market. I mean, whatcha gonna do with the other speculators? Of course, what he claims he’s going to do is work with other countries to coordinate the regulation of oil futures markets. Well, great, now we have regulated oil futures markets. Then there are no longer oil futures markets; they’re regulated government markets. I mean, it’s a huge mess, and really, honestly, what I get out of this is, people really don’t know what to do about it.
DALE: Yeah, but the one thing that they do know that they could do, which is drill for oil, and however long it takes—six months to get an oil field operating, five years, ten years, however long it takes—at the end of that time there is more supply available than there is now. And they just blithely assume that increasing the supply won’t really have any effect.
MCQ: Well, the other thing, too, Dale, is as a number of people have said, just the announcement that we’re going to start drilling is going to have an effect on price. Or speculation, anyway.
DALE: Certainly futures prices.
MCQ: Yes, absolutely, and that’s the claim here, is that that’s what’s driving all this up. So I was talking to some folks from the American Petroleum Institute this week about, “hey look, if these leases were signed today, if they were signed today that we could go offshore, how long would it take?” And one fella says, it depends. He says, if, for instance, we went thirty miles south of Pensacola to the Destin Dome, where we’ve been prohibited from bringing any gas and oil up, he says, we’ve already—that’s already been done, it’s drilled, capped, and just sitting there. We could go out there and there’s infrastructure in the Gulf, and we could probably get something online fairly quickly. If, however, you’re talking the frontier—and I said, hey, what do you mean by ‘frontier’?—and he says, anything on the Atlantic Coast. He says, now we gotta go in and do seismological stuff, all that stuff that they have to do, they gotta build infrastructure on the coast to bring it in; he said, you’re talking a decade. But he said, from the Destin Dome to the frontier and everything in between, we can be bringing stuff online during that decade. So…
DALE: Yeah. It’s not as if we haven’t done a lot of oil exploration, [or] we don’t know where oil is in the Gulf of Mexico, [or] we don’t know where oil is off of Florida. We know where a lot of this stuff is, we just can’t drill for it. Out here in California, Arco knows where a lot of oil is, they just can’t drill for it.
MCQ: That’s correct. And that’s the point. The fact is that they have been prohibited by law from drilling there. Well, if you’re prohibited by law, you’re certainly not going to go out there and waste the hundreds of millions necessary to map that area. So consequently, we have some old information on what’s out there, but, as again was pointed out, when they went into Prudhoe Bay they had information that said there were, what, six billion barrels of oil there. When they finally mapped everything out and got everything going, it was 15 billion. So, the 89 that they say is out there on the shelf is old info; with the new ways that they can go out there and do their seismological studies, who knows what’s out there? But we know at least 89 billion is out there.
DALE: The other thing that struck me, though, wasn’t just—it’s not just the fact that they sort of deny that oil drilling will do any good, which is the stupidest thing—it’s gotta be one of the stupidest things I’ve ever heard. But the other idea, the alternative idea that had we only spent money on some fantastic new power source, had we only invested in that, we could have that operating right now. Well, that’s the kind of leap of faith that just defies credulity—well, I guess it doesn’t for Barack Obama. But for the rest of us, who see how the real world works, there’s no guarantee. You could throw a hundred billion dollars, five hundred billion dollars, a trillion dollars, into solar or whatever else; that’s no guarantee that you’re going to come up with a breakthrough of any kind.
MCQ: That’s correct. And we have been chasing the alternative fuel dragon since Jimmy Carter. I mean, my God, we’ve been talking about this and funding this and working on this for forty years. I mean, if we had started drilling back then in all these places, you can just imagine where we’d be. And I’m like you: they keep telling us, well it’s a decade before it’ll have any impact; well that’s what they said a decade ago when people were saying, let’s drill in ANWR. Has we started a decade ago, ANWR would be flowing right now. So no one is buying that particular argument anymore. And the other thing that came out of this interview that I was on was that there has been a seismic change in the attitude of people toward drilling off-shore now. And specifically in Florida. It was interesting, I talked to a guy who’s with the Florida Petroleum Institute [Council?], and he said, Boy, he said, the change in attitude within the last six months has been huge. He said, “people that wouldn’t even talk to us are now coming to us and saying, ‘Gee, what do you think? What do we need to do?’” And of course the state, even Charlie Crist now has come out now in favor of it. The state stands to make a lot of money on these leases, and especially the way John McCain is talking about it, letting them opt into some of this money, because in reality, Florida claims out to ten miles as their state waters. The United States claims out to 200 miles. And legally, the only thing that Florida has any say-so over is that ten miles. Well, heck, you go out that 11th mile and it’s federal money coming in. McCain’s making it in the state’s interest to think about saying, “Y’know, it wouldn’t be such a bad deal to be drilling out there.”
DALE: Well, when you talk about the sea change in attitude, though, that’s fairly easy to explain. It’s one thing to be against drilling whenever your energy costs are perhaps an appreciable, but nevertheless stable and well-known part of your budget. When all of a sudden, in the space of a year or two, that budget has to double, and you began to wonder whether or not you’ll be able to afford, say, heating oil to keep your family warm in the winter, all of a sudden drilling begins to seem like a good idea.
MCQ: That’s right. And then, all the associated downstream costs, where it impacts transportation, where it impacts harvesting for heaven’s sakes, I mean, anything on down the line that is going to add costs to commodities like food, you’re going to see people go, “Wait, we have got to do something about this.” And with the vaporware that we have been chasing in the alternative fuel area, the solid “we know it’s there and we can get it out of the ground” oil becomes very very attractive. And the fact is that ten years based on—ten years isn’t that long to get us in shape. And like I said, it isn’t going to be ten years everywhere. So, the people are a hell of a lot smarter than the politicians, and all of this rigmarole that they’re going through on the left about, “Gee, we’ll chase the speculators down and we’ll do this and that and we’re not going to drill” is not selling well. And this is going to be a big issue come November, big time issue, and if Barack Obama stands on this “we’re not drilling” bit, he’s going to get creamed.
DALE: Yeah, that’s a loser of an issue. I think one of the fundamental problems as far as the public goes, it kind of reminds me of the old saying by Samuel Johnson: “The prospect of being hanged in a fortnight concentrates the mind wonderfully.” And up until now, we really haven’t had that sense of being hanged in a fortnight. We have been content, I think, to let things sort of go along as they’ve been going along. Now all the sudden, there’s a real problem and people are starting to take a look at this issue. It would be nice if people would take a look at some other issues, like solar, which is one of my particular bugaboos. For all of this talk about solar and how magical it is—“if we could only change our materials technology to make it more efficient, we could have solar power running all over the place”—yeah, maybe, but the limiting factor with solar, of course, is the amount of sunlight that actually reaches the ground. That can’t be increased. So even if you have room-temperature superconductors to transmit that energy, you’re still limited by the amount of energy that you actually receive. And if you want to say California, if you want to make California a completely solar state, that’s fine; just be prepared to have a solar collector farm about twice the size of Los Angeles County.
MCQ: That’s right. And of course, everybody says, “But hey, how about the desert? There’s nothing out there.” Tell the environmentalists that, because they’ll fight you every step of the way for those fragile ecosystems out there that—where you could actually put a solar farm or something like that. And the same goes for wind power. Wind power is a very tricky thing. Yeah, there are some places the wind blows fairly well but what they found out is, they can only absorb—or only trust wind power with about 10 percent of a grid because if they go more than that, then the chances are that they’ll lose that power. So what wind power has to come up with is a battery of some sort, a storage battery that can store up this energy and put it into the grid, and they can’t come up with that battery at this point. They’re working on it, and there are some things out there, but again, we’re chasing technology that’s just not there yet. And consequently, the same stuff that we’ve been going after for forty years continues to elude us. Good old solid coal and oil are right there and ready to be taken until we figure this out.
DALE: Yeah but it does have to be figured out. The alternative energy guys do have a point…
DALE: … which is that we can’t continue to go along the way we’re going forever. We have to come up with something new and we have to make that conversion. What that “something new” is and what that conversion process is going to be is not known at this time. The one thing we do know is that it’ll be pretty danged expensive, whatever it turns out to be, to do the conversion, in terms of infrastructure or what-not. But there is, I think, at least some validity to the criticism that we really have let alternative forms of energy kind of languish on the vine. Although, how do you make it not languish unless you get the government involved? That’s always going to be the argument. The argument is always going to be, “the private sector will never invest in alternative energy as long as—until the technology is there. And so to get the technology there, you’re going to have to get the government involved and spend government money on research.” And that is an argument that, like it or not, is going to have some resonance with the electorate.
MCQ: Well, that’s true. But the other side of that is, the market will reward something that it sees is going to make money. And so there are a lot of people out there that make a living researching this stuff and presenting it to venture capitalists, for heaven’s sake. When there is something there, it is going to get the money it needs. Maybe on the research end of it, as you point out, there are some other ways we want to approach it. But the bottom line is, the market is going to reward what makes money. What you can count on, though, is it’s not going to waste its money where it doesn’t see progress or a future. And that’s kind of where we are right now. I think—and let me say this: I watched an interview the other day with the former CEO of Exxon Mobil, and he said exactly what you said; he said, “Everyone in the business knows that in the future, it’s not going to just be oil and coal. Oil and coal is not our future. It is all forms of energy in the right mix.” He says that determining what that mix is and then transitioning into the other things when they come online is the trick. That’s where policy has to come in. That’s where you gotta sit down, look at it and figure it out. And he made the point that one of the things we could have done to bridge this gap is nuclear energy, and we blew it off for thirty years. That could have been a transitional energy source as we worked toward these alternative ends that would have taken some of the pressure off the coal and oil end of it. So to me, it’s an absolute and total policy failure in Congress for thirty years. Not just Democrats; obviously Republicans as well. They, just like they’ve done with Social Security and Medicare, have ignored the problem.
DALE: Well, it’s always easier to kick the can down the road, and I think we’re about the reach the end of the can-kicking stage.
MCQ: Yeah. I agree. And that’s the point. They are now to where—and politicians are by nature short-sighted beasts. The thing they’re focused on next is the next re-election campaign. Consequently they’re going to go with what’s easiest to get them there. And it is not easy to confront very tough problems like this. So yeah, we’re now to the point where they don’t have any choice. The people are going to make them confront this one way or the other.
DALE: But the interesting thing has been that the nature of the confrontation so far has been, “Okay, we won’t drill for oil, we’ll go after the speculators” – as if the speculators—as a brief aside, it’s not as if the speculators have no risk. Theoretically, if everything comes tumbling down, the speculators lose their shirts; that’s how the market corrects itself. They don’t need to be regulated; the market regulates them rather viciously over the course of a futures contract. That having been said, the other thing that Congress has talked about, or at least Maxine Waters and Maurice Hinchey: nationalizing petroleum refining—they are the—we have a problem of the present and the future, and the only response they have are solutions—failed solutions—of the past.
MCQ: Yeah, exactly. It is phenomenal, there’s a story out today that just struck my fancy when I saw it, it’s about Hugo Chavez, and the fact that they are now seizing the mines down there. And the statement by the—who was it, I think it was the Interior Minister or whatever it was, that we are taking what it ours, the People… that is exactly what the gal said on Cavuto, that’s exactly what Hinchey and Maxine Waters were intimating. That is pure Marx.
DALE: Yeah, once you can’t point to a person who owns a thing, and once all things belong to quote-on-quote “The People”, then no one can own anything.
MCQ: Yep, that’s right. And you have the tragedy of the commons. It’s a spiraling death that we’ve seen in the USSR, we saw in Eastern Europe... the Chinese actually were smart enough to figure it out and start moving away from it by liberalizing their economy… but we’ve seen socialist country after socialist country go down the rat hole, economic rat hole, because they simply could not compete.
DALE: And you know the environmentalists are the people that really get me when they talk about the massive government intervention in this particular market. It is as if they don’t realize—and I’m sure that they don’t. They live in this airy-fairy world I suppose where if the government owns it, all the environmental regulations will be taken care of and everything will just be hunky-dory. And the universal example of history has been, if the government gets involved in something and they begin to make money off of it, environmental regulations and any other limiting factor be damned; they’ll do whatever they can to get their money. Governments are not, quite frankly, very good stewards of the environment whenever it becomes their dime, when you talk about all the revenues. The government just throws everything aside and goes straight for the revenues.
MCQ: Well, it’s one thing to go after a company and appeal to the government, but when it’s the government, who do you appeal to?
DALE: That’s right. And if the government finds environmental regulation to be a limiting factor, then you can ensure that that limiting factor will be eliminated.
MCQ: Exactly. Yeah, and it’s just common sense. It was a bit like the story of the Oregon health care system where the woman was shocked that they wouldn’t give her cancer drugs that would prolong her life but they would give her the drugs that were necessary to kill her, and she said, “Who do they think they are?” My reaction was, man, they’re your one and only source for health care and you have no appeal. This is it, baby, you’re stuck. Well it’s the same thing with the environmental regulations, when and if the government—and let’s be clear here, the people wouldn’t own it, the government would, and the government would run it any damn way it wanted to, to maximize the output of oil. I mean, that’s just the bottom line. And if that meant we gotta build a few more refineries, more permits, who needs permits? Build it over here. That’s what would happen.
DALE: Well, that’s the other intellectual jump that you have to make. “The people” don’t own anything; if “the people” own it, that is shorthand for “the government owns it”, and the government will do whatever is in the government’s best interest, and the people will have basically no say whatsoever.
MCQ: When Maxine Waters was talking about the people, she was talking about herself.
MCQ: Period, end of statement. Yeah, that’s the thing that always gets me. That was what was jaw-droppingly f—it just dropped my jaw when I watched this young lady talking to Cavuto this week, just blithely saying, well, Congress just sets prices and there they are, y’know, hey, if we want gas at two dollars, all Congress has to say is, “Gas is two dollars” and there we are. This is wonderful.
DALE: And she’s totally oblivious to the fact, as if she hadn’t a brain in her pretty little head, that the cost of producing a good must always be met or you can’t produce the good. There is a price, and that price is real; it is not some arbitrary value set, it actually reflects real world conditions. And if you’re not going to pay it at the pump, you’re going to pay it somewhere else. It’s the same thing that these people have when they talk about “free” health care. “Well, if the government could supply health care, it’d be free.” No, it wouldn’t, you’d be taxed just like the British or the Canadians are.
MCQ: That’s right. And, there would be rationing just like the British and the Canadians do. The bottom line is, it still is all based in supply and demand, and when you have unlimited need met by limited supply, guess what, you’re going to have to ration somewhere. Well that’s kind of the same thing that would happen here. If we wanted two dollar gas, you bet, we could have it. You know what? And then demand would go up, and they’re going to have make that other two bucks a gallon up somewhere else and we’d find out soon enough where that was.
DALE: Exactly. And we’d see it every two weeks as the amount of money coming out of our paychecks continually increased every two weeks.
MCQ: That’s correct. So yeah, it’s a pipe dream, but it’s a pipe dream unfortunately that a lot of people believe. I mean, it’s kinda scary stuff.
DALE: You have to wonder how much common sense, with this kind of debate going on—it really is a case of, how much common sense will the American people show in November.
MCQ: Well I think a lot of that depends on the information they get. Because you can buy—I read comments on some of these things about drilling that just floor me. I read one comment to a story about drilling that says, “Yeah well, the oil companies are going out there, they’ve found the stuff and they’ve capped it and they’re waiting for the price to go up.” And I’m thinking to myself, my God, these are publicly owned companies who, when money is invested, expect a return. If you think they’re going to go out there and sit on this stuff, you’re nuts. And as the guy in the API interview said, 80 percent of the stuff that’s done out the West is done by independents who are financed by venture capitalists. You think a venture capitalist is going to sit there and go, “Yeah, cap it off and let’s wait for it to higher”? You know? But that’s the level of ignorance that’s out there; they want to believe these big stories about Big Oil. And it floors me. So I think it depends on how much information has gotten out there and frankly, how much they believe of it. And that’s one of the reasons I’ve been on this drilling and oil thing for a while now.
MCQ: Well that of course, yeah. I mean, getting together in Billings, Montana, hey! I’d just write all day.
DALE: Woo-hoo! That’s just as good as Club Med, baby!
MCQ: I’m telling you baby! They told me it was near Las Vegas, if I went about a thousand miles south.
DALE: Well, I think one of the other disappointing things about this, when you talk about the speculators, it’s not just Democrats who are saying that—well John McCain said it, so maybe it is—but John McCain made kind of a similar point. It is as if all of the leadership in this country, pretty much, the political leadership—and I use the term “leadership” advisedly in light of what we’ve said in the past 26 minutes—but all of the leadership in this country is drinking the same, from the same jug of Kool-Aid.
MCQ: Yeah, in fact, you know what the McCain campaign’s response to Obama’s announcement that he would go after the speculators and close the Enron loophole was? “Oh, well, Obama has decided to follow John McCain’s lead.”
DALE: Yeah. [Both laughing] “Not only is it a good idea, but we were for it first.”
MCQ: That’s right. Holy… “not only have we drunk the Kool-Aid, we stirred it up, we made it!” So yeah, and these are all “sound tough” things that are not gonna do anything. Other than John McCain’s “Drill Here, Drill Now”, the rest of it’s all a bunch of garbage that will not do a thing in terms of giving us more supply and thereby driving down demand and price.
DALE: But until the American people actually vote in an informed manner and have the right information at their disposal to make rational decisions, I don’t think this is going to stop any time soon. I think that like most democracies, we tend to push things off until there is a real live, honest-to-God crisis. And I don’t think we’re at the honest-to-God crisis point yet.
MCQ: Well, I think we’re real close. And I think most Americans look out there and see drilling—when they know that there are known reserves out there—see drilling as a common sense answer in the short term, understanding that in the big scheme of things, a decade is short term. And they also understand that yeah, we gotta do alternative fuel stuff, but it’s not there yet, so we gotta do something in the meantime. And I don’t think that anyone who says we’re not gonna drill is gonna get away with that; it just doesn’t make sense. So I think Obama’s playing with fire if he sticks by that.
DALE: Well, I don’t know how far off the reservation, in terms of the environmental lobby that the Democrats are fairly beholden to, I’m not sure how far off the reservation he can actually go. There was that one guy at MyDD that actually made this statement, “Look, if the numbers are 71 percent want drilling and 18 percent don’t, and you side with the 18 percent, that ain’t a winning combination.” I’m not sure that that kind of clear-eyed estimate of reality is generally held among Democrats.
MCQ: It’s not. And if you read the comments, he was reacting to comments with that. No, he was getting shot at heavily. That was Jerome Armstrong at MyDD; he had it figured out, he got it. His cohorts in the comments section didn’t get it at all. And you’re right. That is the mindset, at least among what I would term the more extreme end of the Progressive movement.
DALE: Well, when ideological purity is your primary concern, the real world doesn’t seem all that important.
MCQ: Well, it apparently isn’t here. That’s for sure. I mean, they were going after him hammer and tong for making the point that hey, I just don’t see any reason that we can’t back off this “no drilling” bit a little bit.
DALE: Yeah, well, they may learn to their discomfiture that there is in fact a reason. [both chuckling]
MCQ: I certainly hope so.
DALE: Well Bruce, we’re out of time. It’s always a pleasure; we’ll talk to you again next week.
MCQ: You bet.
DALE: You’ve been listening to Observations, the podcast of the QandO Online Magazine. Observations is produced and co-hosted by Bruce McQuain. Co-hosting and sound engineering done by me, Dale Franks. […] Anyway, we hope you enjoyed this podcast, hope you’ll be back next week for yet another one. We will talk to you again next Sunday at 5 o’clock p.m. That’s 5 p.m. Eastern time. Until then, have a great week everybody. So long.
Heh, fair question. I actually have plenty of things to do with my free time, but I’m trying to add some value to QandO; if I can’t think of an original and interesting blog post at the moment, I can at least add this.
Our Observations podcasts, by and large, do not receive a lot of comments, which is a shame because they’re pretty entertaining. It may be that people don’t have the time to listen to a half-hour show — well, now they can read it. It may also be that they miss some of the references in the podcast, particularly if they’re not regular readers of the blog — well, now they can click through the links. And it may be that commenting is more difficult or unwieldy when you don’t have the ability to cut-paste direct quotes — well, now they can quote with ease.
And in addition to that, the transcript is nice and clean. I minimize the little halts in speech like "ums" and "y’knows".
I’m thinking of doing this for a few weeks as a trial run. If our listeners/readers get to like it, I could make it a regular feature, appearing a few hours after the audio file is put up on Sunday night. -=-=-=-=- Michael - Thanks, I’m glad to hear it.
I always listen to the podcast, and I listen live on the rare occation I remember to do so (I can’t tell you the number of times I’ve looked at the clock and said something to the effect of "7:40? Son of a...")
Did you use a program to do this, or are you just a REALLY fast typer?
I’ve been using speech software for some time now with some varied luck. I forget whatI’m using at the moment...(I’ve been hunting around a bit) but the most recent one I’ve tried does fairly well with turning MP3 audio files containing speech, into text. Obviously, there would be some editing involved, I’d think, but it may be a time-saver for you to look at such a thing. I can follow on with some details to your email, if it’d help.