President Obama says he’ll help GM and Chrysler but they’ll have to agree to some “pretty drastic changes.”

“We will provide them some help,” Obama said. “I know that it is not popular to provide help to auto workers — or to auto companies. But my job is to measure the costs of allowing these auto companies just to collapse versus us figuring out — can they come up with a viable plan?”  He added: “If they’re not willing to make the changes and the restructurings that are necessary, then I’m not willing to have taxpayer money chase after bad money.”

[...]

“Everybody is going to have to give a little bit — shareholders, workers, creditors, suppliers, dealers — everybody is going to have to recognize that the current model, economic model, of the U.S. auto industry is unsustainable,” Obama said.

The president said he agreed with a questioner at the town hall — a Maryland woman with family members who work for GM and Ford Motor Co. — that “there’s been a lot of mismanagement of the auto industry over the last several years.”

Obama stressed that the industry must be preserved, not only symbolically but because of the large number of jobs connected to the companies and suppliers. Obama said his job was to protect U.S. taxpayers and he wouldn’t spend federal dollars on “a model that doesn’t work.” “A lot of it’s going to depend on their willingness to make some pretty drastic changes. And some of those are still going to be painful,” he said.

[...]

The president said that even as the economy bounces back, Detroit can’t focus on “trying to build more and more SUVs and counting on gas prices being low.”  In that vein, the administration on Friday is expected to announce plans to raise fuel efficiency standards by 2 miles per gallon to 27.3 mpg for new cars and trucks in the 2011 model year, an administration official said Thursday. That would be the first increase in passenger car standards in more than two decades.

Under the changes, new passenger cars will need to meet 30.2 mpg for the 2011 model year and pickup trucks, sport utility vehicles, and minivans will need to reach 24.1 mpg, according to the official, who spoke on condition of anonymity because the person was not authorized to speak in advance of the announcement.

White House spokesman Robert Gibbs said Obama will announce his strategy for the auto industry before he leaves for Europe on Tuesday. The announcement is likely to come on Monday. Gibbs said Obama still thinks U.S. automakers build cars that Americans want to buy. Both he and the president own Ford Escape hybrids. “It’s a nice car,” Gibbs said. “It really is.”

After speech to the Atlantic Council last evening, EU Commissioner for Competition Neelie Kroes was asked how she would handle this very question were she in charge of the U.S. economy.  She noted that she didn’t have to put herself into any hypothetical situations, because they’re facing exactly these decisions in Europe, too.   And her answer is similar to Obama’s:  No help for industries that ran themselves into the ground with poor management decisions unless they come up with a radical restructuring plan that recasts the business to compete successfully for the long term.  And, yes, that includes being “green” for sustainability.

Obama’s absolutely right that, if the federal taxpayer is going to bail out these companies, then the government has a right to insist on major restructuring.    He’s wrong, though, and Kroes is right on how to get there.

While the government employs some really smart people with substantial knowledge of economic matters, it has no specialized expertise in how to run an automobile company.   To be sure, the people actually running GM and Chrysler haven’t exactly shown themselves as geniuses in that regard.   But, to be fair, they’ve been operating under the pressure of quarterly shareholder reports and hamstrung by a labor structure from a bygone era, which makes it difficult to make good strategic choices.

So, absolutely, Obama’s people (and/or Congress) should approve a restructuring plan before giving the auto companies another dime.  But the auto companies, not the government, should draw up the plan.

The latest campaign kerfuffle is the shocking fact that John McCain is receiving significant donations from the oil industry.  A new Obama ad says the amount is $2.1 million; FactCheck.org says it’s a mere $1.33 million.  Either way, it’s about triple what the industry is giving to Obama.

More damning, critics say, is that there has been an uptick in oil money flowing to McCain’s coffers since he started pushing for offshore drilling, a position he previously opposed.  Aha!  Many on the Left seem to think this is a big winner.

The problem with this analysis, however, is that it occurs in a vaccum.  Republicans always get more money from Big Oil than Democrats, just as Democrats always get more from unions and trial lawyers than Republicans.  Is it really all that shocking that industry groups donate to the candidates and parties that are most likely to advance their interests while in office?

As to McCain’s supposed flip-flop on this issue, it’s rather easy to explain by reasons other than the lure of Big Oil dollars. First, the situation “on the ground” has changed radically.  Gas prices have skyrocketed, changing dramatically the cost-benefit analysis of drilling.  Second, the politics have changed for the same reasons.  Hell, even Obama is now coming out for (limited) off-shore drilling.

Sure enough, if you look at the Top Industries lists compiled by the Center for Responsive Politics’ OpenSecrets websites for Obama and McCain, you’ll see the old familiar pattern:

I don’t worry about industries and interest groups donating to advance their candidates.  I do, however, have some concerns when I see industries giving almost equally to both sides.  One suspects, though, that much of that is a function of the limitation of large category lists like these.  Perhaps, for example, doctors donate to Republicans and nurses and orderlies donate to Democrats.

President Bush isn’t alone in being unpopular: Congress is down to 14 percent approval, the lowest in the history of the Gallup poll. While the approval numbers are the worst ever, there is a silver lining: “The 75% currently disapproving of Congress is just shy of the record-high 78% in March 1992″

Lydia Saad calls these numbers “extraordinary.”

Approval of Congress has fallen below 20% only six times in the 34 years Gallup has measured it. Including the latest reading, four of those have come in the past year: in July, June, and May 2008, and in August 2007. The two additional readings were from March 1992 (in the midst of the House bank check-kiting scandal) and June 1979 (during an energy crisis that resulted in surging gas prices and long gas lines), when either 18% or 19% of Americans approved of the job Congress was doing.

The most recent decline comes almost exclusively from Democrats, whose approval of Congress fell from 23% in June to 11% in July, while independents’ and Republicans’ views of Congress did not change much. As a result, Republicans are now slightly more likely than Democrats to approve of the job the Democratic-controlled Congress is doing (19% vs. 11%).

Emphasis mine.  That, more than the low overall approval ratings, is simply stunning.  It gets better!

The 11% of Democrats now approving of Congress is slightly lower than Gallup found in 2006, toward the end of the Republican-led 109th Congress. Democratic approval of Congress initially surged after the Democratic takeover of the U.S. House and Senate, from 16% in December 2006 to 44% in February 2007, but by August 2007 it had fallen to 21%. Democrats’ approval of Congress rebounded to 37% later that year, but has since been in a nearly continuous decline.

Yes, Democrats were happier with the Republican Congress that got thrown out on its ear in 2006 than they are with their own leaders in charge!   Presumably, this is an artifact of greater general dissatisfaction with the state of the country than with Reid, Pelosi, and company per se.  Still, an absolutely amazing finding.

Saad makes two other very interesting points:  President Bush’s numbers seem to have a floor of about 28 percent because of “a core group of Republicans nationally who continue to stick by him” and that “Congress may simply be less able to engender this kind of political loyalty.”  She ends with this depressing observation:

Finally, 2008 now looks an awful lot like 1979, and for some of the same reasons: mounting inflation, record-high gas prices, and a looming recession. Public approval of President Jimmy Carter in mid-July 1979 was 29%, very similar to Bush’s current 31%. And approval of Congress was also comparable: 19% in June 1979 vs. 14% today.

Frankly, it doesn’t feel like 1979 to me.  Inflation is higher than it’s been in years but it’s still low by 1970s standards and unemployment and interest rates are much, much lower.  Gas is ridiculously expensive but we don’t have long lines or rationing.  We’re sort of being held hostage by Iran again, albeit in a much less palpable way.

Another huge difference between now and then is that the incumbent president isn’t eligible for re-election. The question is whether Barack Obama will be able to make his “John McCain is a third Bush term” meme stick or, to keep a strained analogy going a bit, whether McCain can instead successfully push the “Obama would be a second term for Jimmy Carter” theme.

Some gas stations are secretly charging credit card users more, ABC News reports. (Video here.)

Many Americans have taken up a new hobby — hunting for the gas station with the lowest prices. But the hunt has gotten exponentially harder as the price of oil has skyrocketed and the posted price may not even be advertised, especially if the consumer wants to pay with a credit card.

To combat the hefty fees that card companies are charging gas stations, many owners have passed the costs on to the consumer by charging more per gallon if the payment is made with plastic instead of cash. The card giant Visa, for instance, typically charges a 2 percent fee for each credit card transaction to the station owner. If the price of a gallon of gas is $4.11, that translates to about 8 cents a gallon, which is then passed on to the consumer who pays with a credit card. But sometimes, as ABC’s New York affiliate found, some gas stations take the opportunity to charge even more exorbitant increases — as much as 50 cents per gallon.

But increased profit from credit card customers is not the only reason to raise prices for those who pay with plastic. As more people use cash to save at the pump, they are forced to come inside the store to pay, which creates another opportunity for the gas station owner. “Because while you’re in there, you’re going to also pick up a coffee, a soda, maybe even a sandwich,” Mount said.

Those of us who were buying gas twenty years ago recall this practice, although it was almost always posted in big signs by the pumps. It was also widely outlawed, prompting some station owners to offer a “cash discount” rather than the illegal “credit card surcharge.”

Indeed, many stations are doing that again. It’s a practice that makes sense, really, given the skyrocketing price of gas and the low margins at the station level. With most of us now swiping our cards and never entering the mini-mart to pay, station owners are getting squeezed.

But hidden fees? Let alone 50 cents a gallon?! That’s certainly criminal.

via l0ckergn0me

In a recent interview with the Orange County Register’s Martin Wisckol, John McCain said that, not only doesn’t he know how much gas costs, it doesn’t matter. (Tangentially related: “Nothin’ Matters and What If It Did” was an excellent album title. The album itself was so-so.)

When was the last time you pumped your own gas and how much did it cost?

Oh, I don’t remember. Now there’s Secret Service protection. But I’ve done it for many, many years. I don’t recall and frankly, I don’t see how it matters.

I’ve had hundreds and hundreds of town hall meetings, many as short a time ago as yesterday. I communicate with the people and they communicate with me very effectively.

Well, apparently not. The price of gas is the number one issue on the minds of just about every voter these days. It’s an issue that virtually transcends class. Most of us know, to the penny, what we’re paying for gas and where the cheapest gas is in our area. (Both my wife’s car and mine require high octane gasoline. The station where I generally buy has been stuck at $4.32 for quite some time now. Prices vary radically from block to block, with some charging as much as $4.65.)

I get that McCain is sheltered from many of the mundane details of everyday life because of his position. It wouldn’t bother me in the least if he didn’t know how to operate a modern gas pump. Nor would I expect him to know the price with the specificity that those of us who pump it regularly do. But, given the amazing amount of attention this issue has gotten in recent months — so much so that he’s pandering about “gas tax holidays” and the like — it’s not unreasonable to expect him to answer with something like, “It’s been so long since I pumped my own gas that I don’t remember what it cost. But I do know that it’s now over $4 a gallon and people are pissed.”

As an aside, this is one of those incidents that, absent the blogosphere, would probably have escaped people’s attention. Even apart from the interview being originally published on Wisckol’s blog, it didn’t get any notice until it got picked up elsewhere and started spreading.

UPDATE: Patrick Frey points out that John McCain knew the price of gas four days before the interview quoted above:

“The price of a gallon of gas in America stands at more than four dollars. Yesterday, a barrel of oil cost about 134 dollars” said McCain. “And various oil ministers and investment firms have confidently informed us that soon we can expect to pay 200 dollars for every barrel, and as much as seven dollars for every gallon of gas.”

It stands to reason, then, that McCain knew the price at the time of the interview. It would seem, then, that he’s guilty merely of giving an irritated and dismissive answer to what he perceived as a “gotcha” question rather than being out of touch. He’d have been far better off, however, giving the answer I suggested above.

John McCain has proposed offering a $300 million dollar prize to the developer of “breakthrough battery technology.”

Senator John McCain on Monday proposed the creation of a $300 million prize for anyone who developed breakthrough car-battery technology and he recommended greater tax incentives for buyers of nonpolluting autos, saying that only a combination of increased oil production, conservation measures and ingenuity could ease the fuel crisis and slow global warming.

[...]

Perhaps McCain’s most striking proposal was the $300 million prize “for the development of a battery package that has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars.”

That’s not a bad idea, assuming that the prize conditions are well defined. I’ve always preferred the incentive approach to research as opposed to direct subsidies. Plus, if the car battery principles can be applied to other energy storage, it might help boost the transition to fluctuating power sources such as solar and wind.

(link via Balloon Juice)

Ezra Klein jumps on a growing meme the home ownership isn’t all it’s cracked up to be and that the government should stop subsidizing it.

He points to Paul Krugman, who argues in today’s NYT that it’s time to rethink our decades-long bipartisan consensus that home ownership should be encouraged. While everyone stresses the advantages of owning your own home, like building equity and creating a stake in one’s community, not enough emphasis is placed on the disadvantages.

• If housing prices fall, you can lose money

• The cost and difficulty of selling a house makes it harder to move for a new job

• If gas prices suddenly double and you live a long way from work, it sucks

That’s really only two reasons, since the last merely restates the third: Owing ties you down.

Not mentioned in Krugman’s column, but more certain than the others:

• When you own your own home, you’re responsible for maintenance and will inevitably spend much more in “upgrades” than if you rent.

Anyway, I see from Ezra’s “link blog” that James Surowiecki wrote almost exactly the same article for the New Yorker back in March. Better yet, Andrew Oh-Willeke wrote all of this in a May 2006 blog post, before the subprime lending crisis hit, putting him way ahead of the curve.

Klein, Surowiecki, and Oh-Willeke all note that easy lending exacerbated these issues, since so many people are now mortgaged up to their eyeballs, buying ever-bigger homes, and now feeling the crunch as the economy has slowed down. Back in the days when one had to put 20 percent or more down to buy a home, people were much more insulated from these effects.

Ezra argues, “[T]oday, owning a home looks a whole lot more like renting. Fairly few homeowners actually ‘own’ anything. Rather, they have a sizable mortgage, and they pay money to a bank. That’s not all that different than paying money to a landlord.” But that’s not right. Having lived a somewhat nomadic existence, I’ve “owned” and rented numerous times. Every time I’ve done the latter, I’ve lost money. The landlord got X dollars a month and, at the end of our relationship, I left with nothing. Conversely, every time I’ve taken out a mortgage, I’ve built sizable amounts of equity which I was able to extract from the house upon selling it and then reinvest later. Indeed, there have been years when my house earned more money than I did.

Since moving into our current house nearly two years ago, my wife and I have “lost” money, in that the house would currently sell for perhaps 5 percent less than we paid for it. Then again, we’re still far ahead of where we would be had we rented all these years. And we went into the current mortgage with open eyes; the housing bubble was already bursting but we wanted to move to a nicer house and neighborhood and figured we’d rather be “stuck” in this house than the one we left.

Beyond the economics, there’s a huge psychic value to owning your own place. You don’t have to worry about your landlord selling the place out from under you or “going condo.” You can paint the walls any color you damn well please, rip out the carpets and put in hardwood floors, have all the pets you want, and just generally live your life with greater autonomy. And I’ve never once raised my rent!

But, yes, it’s more expensive and you’ve got less ability to chuck it all and move to Mexico. And, if you bought into more house than you could afford and suddenly need to move, you risk emerging in worse financial shape if prices plunge.

All told, though, I recommend home ownership highly.

That said, however, I agree with Ezra on the public policy question: “Does it make economic sense for home buyers to be subsidized by renters?” No, it doesn’t.

Now, one could argue the degree to which they are. Home owners pay more property taxes than their renting counterparts, which means we pay much more for the public schools, even if we have no kids going to the public schools. And, since high earners, who pay the lion’s share of income taxes, are also likely to be homeowners, we’re paying a disproportionate amount for public services, even those which subsidize ourselves like the added infrastructure costs of supplying roads, utilities, and whatnot to the suburbs.

Even so, the most obvious subsidy, the ability to write off home mortgage interest, has always struck me as silly. There’s not much doubt that it artificially tips the scales not only in the rent vs. buy calculation but even encourages people to buy larger homes than they could otherwise afford since a portion of one’s monthly mortgage payment is actually “paid for” by the taxpayers. There’s no good rationale for that.

A Newsweek poll of registered voters shows Barack Obama with a whopping 15-point lead over John McCain, 51 to 36. Newsweek’s Michael Hirsh is stoked.

Barack finally has his bounce. For weeks many political experts and pollsters have been wondering why the race between Democrat Barack Obama and Republican John McCain had stayed so tight, even after the Illinois senator wrested the nomination from Hillary Clinton. With numbers consistently showing rock-bottom approval ratings for President Bush and a large majority of Americans unhappy with the country’s direction, the opposing-party candidate should, in the normal course, have attracted more disaffected voters. Now it looks as if Obama is doing just that. A new NEWSWEEK Poll shows that he has a substantial double-digit lead, 51 percent to 36 percent, over McCain among registered voters nationwide.

[...]

The latest numbers on voter dissatisfaction suggest that Obama may enjoy more than one bounce. The new poll finds that only 14 percent of Americans say they are satisfied with the direction of the country. That matches the previous low point on this measure recorded in June 1992, when a brief recession contributed to Bill Clinton’s victory over Bush’s father, incumbent George H.W. Bush. Overall, voters see Obama as the preferred agent of “change” by a margin of 51 percent to 27 percent. Younger voters, in particular, are more likely to see Obama that way: those 18 to 39 favor the Illinois senator by 66 percent to 27 percent. The two candidates are statistically tied among older voters.

Um, Tim, this is one poll. It’s safe to presume, then that voter dissatisfaction is already being factored into the Obama numbers.

Andrew Sullivan notes that, “You need to go back to Dukakis to find a similarly big Democratic lead.” Then again, as Eric Kleefeld reminds us, Dukakis “went on to lose the election.”

Furthermore, the Newsweek numbers are ridiculous. As Nate Silver observes, “Newsweek’s data tends to be fairly volatile, and we have a whole bunch of polling on both the state and national level that implies that Obama’s real margin is closer to 5 points.” And that’s including the Newsweek numbers! Here’s the latest poll aggregation from RealClearPolitics:

The latest Gallup poll, also released yesterday, found, “Among likely voters, Obama led McCain by 50%-44%, an insignificant change from his earlier standing of 49%-44%.”

As the chart of polls at Pollster.com shows, Newsweek has huge swings from month-to-month that just aren’t showing up in the other polls. Simply put, there’s either something serious wrong with their methodology or that of all the other major polls. If I had to guess, I’d say it’s the former. I simply don’t believe, for example, that Obama has a 7 point lead among men. Or that only 16 percent of Independents are undecided.

This campaign has been going on a long time. And people are particularly engaged in politics this season because of the war, gas prices, and a general sense that we’re “headed in the wrong direction.” But the fact of the matter is that most Americans are barely paying attention at this point. Polls taken in June, before the conventions and before the general election campaign begins in earnest, are just incredibly poor predictors of the future outcome. Indeed, more often than not in recent elections, the person ahead at this stage goes on to lose.

Further, as if it needs to be pointed out after the last two presidential cycles, national head-to-heads mean precisely squat. It’s the state polls and the race to 270 Electoral Votes that matters.

That said, my dismissal of the Newsweek findings goes to magnitude, not direction. I think the following are true:

• Obama is ahead nationwide and in enough states to win the Electoral College

• President Bush is the most unpopular president since Richard Nixon and McCain’s association with him is toxic

• The public desperately wants “change” and Obama’s youth, energy, party ID, and color make him the more plausible vehicle for that

• Obama’s a better campaigner than McCain

• Obama will have a huge financial advantage which should help him expand on the other advantages

Were the election held today, I’m pretty sure Obama would win. The only reasons I’m not absolutely sure is that Obama’s appeal is particularly strong with demographics that historically don’t actually show up to vote (although I think they will this time) and, frankly, I have no way of gauging the “Bradley effect,” since we’ve never had a person of color as a major party presidential nominee. As to the latter, I think it’ll be a factor but a rather minor one, since most of the documented cases are from quite some time ago and there’s evidence that it’s no longer much of a problem.

Of course, the election is not being held today.

The gang at Foreign Policy wants you to know that, “Sure, it’s ruining the global economy and making everyone miserable, but there’s an underappreciated upside to the high price of oil.”

They’d have to be awfully good to offset ruining the economy and making everyone miserable, no? Well, here they are:

Slightly more people may be taking mass transit. Of course, since people obviously prefer to drive, the collective benefits this provides are offset by individual unhappiness.

People are getting more exercise because they’re being forced to walk or ride bikes more. And they’re losing weight! That’s undeniably a good thing, unless you’re in the health care or mortuary business. Then again, there’s a trade-off in time that otherwise would have been devoted to productivity or leisure. And, depending on the weather, you’re likely to show up for work soaked from rain or sweat if you live far enough away that you would be driving if only gas weren’t so expensive.

Fewer car crashes! If you’re not driving, you can’t get into a car crash, right? Of course, a car might hit you while you’re riding your bike.

Shorter commutes and less traffic. The combination of some people moving closer to work and others taking mass transit or biking means that people are spending less time on the road. (Anecdotally, this doesn’t seem to be the case in the DC area.) Of course, this means that people are either paying more for housing or living in less desirable housing. After all, there’s a reason they were living further from work — which almost nobody wants to do, all other things being equal — to begin with.

We’re switching to biofuels. And thereby raising food prices dramatically, which has been devastating for the world’s poor. But we’re working on some other types of biofuels that won’t do that. It’ll take a few decades, though. (Why is this listed as a reason to love $4 gas, again? Apparently, “Four Reasons to Love $4 Gas” weren’t enough.)

Via Matt Yglesias, who wishes the government rather than the oil companies were getting the extra money.

Photo: Cleveland Plain Dealer

In the comments to my latest post on domestic oil production, in which I continue my skepticism over the benefits to more domestic oil production, a number of claims were made in the comments that raised some interesting issues. So I thought it might be worthwhile if I went ahead and investigated some of these claims and presented the evidence. Some of these claims are going to require more research than others, so I’ll be spreading them out over several posts.

For today, the claim I thought would be the easiest to look up was the continuous repeat of John McCain’s recent claim that there were no significant spills from offshore oil platforms due to Hurricanes Katrina and Rita. Is this true?

Well, the U.S. Minerals Management Service commissioned a study of this very issue, which concluded that:

The impacts from Hurricanes Katrina and Rita were typical of this historical experience. While cleanup was required. The volume of oil spilled and impacts to shore from the offshore infrastructure were categorized as minor.

Case closed, right? Well, not exactly. Reading further into the study reveals the total extent of the damage:

As a result of both storms, 124 spills were reported with a total volume of roughly 17,700 barrels of total petroleum products, of which about 13,200 barrels were crude oil and condensate from platforms, rigs and pipelines, and 4,500 barrels were refined products from platforms and rigs. Pipelines were accountable for 72 spills totaling about 7,300 barrels of crude oil and condensate spilled into the [Gulf of Mexico]. Response and recovery efforts kept the impacts to a minimum with no onshore impacts from these spill events.

How can we evaluate whether this amount spilled was truly “minor”? The criteria I think it’s best to focus on are the guidelines are spelled out in the Code of Federal Regulations and used by the EPA and Coast Guard to evaluate oil spills:

(1) Minor discharge means a discharge to the inland waters of less than 1,000 gallons of oil or a discharge to the coastal waters of less than 10,000 gallons of oil.

(2) Medium discharge means a discharge of 1,000 to 10,000 gallons of oil to the inland waters or a discharge of 10,000 to 100,000 gallons of oil to the coastal waters.

(3) Major discharge means a discharge of more than 10,000 gallons of oil to the inland waters or more than 100,000 gallons of oil to the coastal waters.

17,700 barrels of oil corresponds to 743,400 gallons, which is more than sufficient to qualify as a “major discharge” under Federal guidelines. Now, that 743,400 gallons is certainly small potatoes compared to the over 8 million gallons of oil which spilled inland along the Mississippi River and other locations in Louisiana. Still, if it’s over seven times what the EPA considers a “major discharge”, I have to take issue with the MMS’s report characterization of the spill as “minor.” While it appears that no individual leak appears to have been a major discharge, the sum total of oil spilled from oil platforms after Katrina and Rita is more than enough to qualify as one.

Thankfully, the environmental impacts from these spills appear to be minor. But the idea that there were “no significant leaks” from offshore platforms after Katrina and Rita doesn’t appear to be justified by the evidence.

Photo credit: NOAA

Newt Gingrich’s American Solutions group has mounted an online petition designed to persuade Congress to open up domestic sites that are currently closed to oil and natural gas exploration. That’s certainly an understandable sentiment, given the skyrocketing increases in the price of oil over the past couple of years. But opening up for exploration is not going to do much for prices right now–oh sure, domestic exploration might drop the price of oil and provide some relief from any speculation driving up the price, but it’s not going to change the fundamentals on the ground for over a decade. In other words, oil might drop in the near term, but it won’t drop that much and it will start to go up again. Additionally, drilling for more oil won’t do anything for the price of gas without a concurrent expansion in refinery capacity.

So, even if we were to open up all of our offshore and onland sites for oil exploration today, it would be at least a decade, if not longer, before that oil started pumping. Meanwhile, over that decade, subsidized consumption in India and China would continue to rise, OPEC fields would continue to be maxed out, refineries would likely still be running at full capacity, and as a consequence, gas prices would still continue to increase at a decent clip. And the consequences of those gas prices rising–more mass transit, more fuel efficient vehicles, more investment in alternative energy sources–would also likely continue.

So after a decade of those trends, how much of a difference are new sources of oil going to make? If it turns out that alt-energy can’t keep the pace yet to make up for oil, then new supplies of oil might not be enough to cover ever-increasing demand. So at best we might just be looking at a slowdown in the pace of oil price increases. If it effects oil prices much at all. Granted, an increase of supply usually causes a decrease in prices, but given that offshore oil and shale oil cost more to extract than sources found in a lot of foreign fields, those costs have to be transmitted into the price. Not to mention the very real danger of demand exceeding supply a decade from now–even with the new oil sources. If that’s the case, our new sources of oil aren’t going to put a dent in the price. So is there really that much of a benefit, here?

On the other hand, if more alternative energy supplies become more feasible and help to decrease the overall demand for oil over the next decade, a sudden glut of new oil supply might threaten to take us one step backward by making oil cheap enough to slow down alt-energy development. Economically beneficial, sure. But even if you’re a global warming skeptic you have to admit that’s not good for the environment from other perspectives. Additionally, increased production from US oilfields would still not be enough to eliminate the necessity of the importation of foreign oil, so the problems associated with that would move back to the forefront.

On the other hand, if over the next decade alternative energy sources and ultra-fuel efficient vehicles become good enough, you might run into a situation where the higher costs of domestic oil extraction make it less profitable for oil companies to continue extraction–especially of shale oil sources. If that’s the case, then what’s the point of opening up the fields in the first place? (This is, admittedly, the least likely of these three scenarios, but it’s not that far out there.)

So what I’m left with here is a pretty high level of skepticism that, given the long time frame involved, opening up more domestic production of oil is going to have much of a benefit for the average American. So while I’m not necessarily opposed to more drilling in principle, in practice I just have to say that right now I’m not sure if there’s much point to it.

Drea at Business Pundit lists the 10 worst and 10 best states for buying gasoline, i.e., those in which gas is most and least expensive. King Banian finds, not surprisingly, a rather strong correlation between these lists and the rate of taxation imposed by states and localities.

I was rather surprised that Georgia didn’t make the least expensive lists and Alabama did, because people in Alabama and Tennessee who either lived very near Georgia or who traveled through the Peach State not long ago made a point of filling up there whenever possible because the savings were so substantial (25 to 30 cents a gallon back in the days when gas went for around a buck).

The BP post has a helpful link to an article pointing out that consumers in ten other countries in the world pay substantially more for gasoline than Americans do, with Bosnians paying a whopping $10.86 a gallon back in May. The Germans, ranked just above the USA on the list, were paying more than double what we were. My strong guess is that taxation rates are a major part of this disparity, too.

Prof. Hamilton has an interesting post that argues that we are now seeing another oil shock like we say in 1973-74 (oil embargo), 1978 (Iranian Revolution), 1980 (Iran-Iraq war), and 1990 (first Persian Gulf war). Prof. Hamilton notes that in all cases the run up in oil prices was followed by a recession. Now, using recent data we see that we are again facing a very similar run up in oil prices.

However, when oil prices started to rise again five years ago, many of us suggested that things would be different this time, in part because the price was rising much more gradually and so should be less disruptive of consumer spending patterns. Others emphasized that, despite the price increases, oil was still cheaper than it had been historically if you took into account inflation. However, once you include the most recent data, neither of those claims would still be true.

Another reason consumers had been largely shrugging off the oil price increases of the last few years is that they could afford to do so, since energy expenditures had fallen so significantly as a fraction of total income. However, as a result of rising oil prices, that, too, is no longer the case.

Prof. Hamilton compiles additional evidence that the price of oil is possibly coming to a turning point. The dollar value of U.S. crude oil consumed as a fraction of GDP, the number of vehicle miles traveled, the consumption of gasoline, and the sales of SUV. All of these time series point in the same direction: consumers are reacting to the run in the price of oil, and in a way that could be lead to a recession. He also notes that Continental, Delta, United and American Airlines are all cutting jobs in response to higher oil prices. Factor in the problems in the real estate/housing market and it doesn’t bode well for the economy.

George Will joins the Blame America crowd on the issue of high oil prices.

Responding to Chuck Schumer’s suggestion that we block arms sales to Saudi Arabia until it “increases its oil production by one million barrels per day,” which would cause the price of gasoline to fall “50 cents a gallon almost immediately,” Will notes that notes that, “One million barrels is what might today be flowing from ANWR if in 1995 President Bill Clinton had not vetoed legislation to permit drilling there.” Schumer opposes drilling there even today, as do both Barack Obama and John McCain.

Will doesn’t stop there:

Also disqualified from complaining are all voters who sent to Washington senators and representatives who have voted to keep ANWR’s oil in the ground and who voted to put 85 percent of America’s offshore territory off-limits to drilling. The U.S. Minerals Management Service says that restricted area contains perhaps 86 billion barrels of oil and 420 trillion cubic feet of natural gas — 10 times as much oil and 20 times as much natural gas as Americans use in a year.

Drilling is underway 60 miles off Florida. The drilling is being done by China, in cooperation with Cuba, which is drilling closer to South Florida than U.S. companies are. [emphasis mine]

ANWR is larger than the combined areas of five states (Massachusetts, Connecticut, Rhode Island, New Jersey, Delaware), and drilling along its coastal plain would be confined to a space one-sixth the size of Washington’s Dulles airport.

He closes with this zinger:

America says to foreign producers: We prefer not to pump our oil, so please pump more of yours, thereby lowering its value, for our benefit. Let it not be said that America has no energy policy.

Of course, changing our policy this minute wouldn’t effect prices at the pump for quite some time. But decisions made 10, 20, and 30 years ago have certainly hampered our long-stated goal of “energy independence.”

Robert Reich, who admits that he used to commute by car rather than public transit because “I’ve never been able to organize myself around their schedules,” is delighted that people are now being forced to do what he wouldn’t by high gas prices.

For years, policymakers have wondered just how high gas prices would have to go before drivers switch to public transportation. The answer has been assumed to be very high because Americans supposedly are in love with our cars. Yet now we know there’s a tipping point, and it’s not quite as high as policymakers have guessed. It’s around $4 a gallon. We know that’s the tipping piont because suddenly millions of Americans are switching to buses, trains and subways to go to work.

Rather than bemoaning this remarkable turnaround we should be celebrating it because public transit not only reduces congestion but also reduces the nation’s energy needs and cuts carbon emissions that bring on global warming.

No. This is in the category of “every cloud has a silver lining” rather than a pleasant surprise. Poorer Americans are being stripped of their freedom and leisure time by economic forces outside their control. That’s mostly a bad thing even though there are side benefits.

Reich is right, though, in the main thrust of his essay.

Even though it’s a hundred times more efficient for each of us to stop driving and use trains and buses, there’s not enough money in the public kitty for us to do so.

This is nuts. If officials need more money to cover the extra fuel costs of public transit, they can raise ticket prices a bit without reducing demand; most of us would still find public transit cheaper than driving our cars. But officials shouldn’t stop there. They should add services and expand whole systems — more buses, more trains, more light rail. If they can’t finance this by floating bonds, they should go to Congress and ensure that public transportation is a major part of the next stimulus package.

This is obviously right. Public transit is impractical in much of the country, simply because of population density. But it’s silly that it’s difficult even for many of us who live in major metropolitan areas to use the system.

Story via memeorandum. Photo: Cheat Seeking Missiles