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Posted by Beeker Promoted 101 days 13 hours ago 1349 views
Politics / US Politics
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Our American economy is shit right now. People and organizations are finding it harder and harder to operate under even reasonable conditions, our infrastructure is deteriorating rapidly, and growth is just not too feasible independently. While the problem is endemic to the entire economy, we can see most of the issue becoming apparent in the microcosm of the Petroleum Industry and higher than usual Petrol prices at the pump for everyday Americans. To note: This is partially a rebuttal to LifeRiot’s piece, however I intend for this work to explore a much greater scope than just end consumer petrol prices.
There are many aspects that are ongoing in this, none of them wholesome "Supply and Demand" economics (which is bullshit to begin with because Macroeconomics tries to overly simplify the most complex social structure known). There are a few misinterpretations that are going around as if they are fact and here they are:
1) The world's supply is past the tipping point that is causing prices to rise. The reality is that only the readily available in existing wells are the ones past the tipping point. Oil exploration has been largely fruitless in the past 20 years, sans a few situations and almost on purpose in fact. It simply is not cost-effective to spend the money to attempt to find more wells (which is extremely expensive) where high prices are being paid for available supply lines. Really, why would they?
Not to say that there is no tipping point, but with current oil supply that isn't for a few generations away (probably 4 or 5, a conservative 140 year threshold) even at current usage trends. Russia, Mexico, Central Asia, and hell even America have a fair amount of oil underground to last quite a bit. And perhaps possible supply could increase exponentially should proper limits be put on expanding efficiency of current methods of energy extraction (which haven’t been changed in over 25 years).
2) Ethanol from corn and other foodstuffs are the end-all-be-all of biofuel. Ethanol, especially from Maize, is inefficient and either championed by one of a few groups, namely: politicians from areas that are dependent of Maize production or Media outlets that haven't done their homework and only can discuss what the loudest proponents talk about. Algae has much more potential to become a viable candidate as a source of alternate fuel, as it can rapidly be grown and could be cold pressed manually to extract the crude material where it could then go to production.
Maize is a poor choice for petrol production because it simply doesn't have the sugar content per volume. But the hype around has stupid and scared investors to invest in Maize. Misrepresentation and narrowing of debate in the common media really controls which options are available in public discourse, not much unlike public debate over economic management overall is handled.
3) Taxes on American Petrol are low. They are not, just hidden unlike British or other European countries, in the form of unpaid taxes, omissions of payment to access resources and markets, lack of regulatory oversight, and sometimes outright payments by the Federal Government push the burden of operational costs onto the American consumer with reduced benefit to the public good besides relatively low numbers on the gas pump. Something to the tune of $31.6 Billion per annum for the last few years in aid would be given to the biggest companies, all that money coming out of the General Fund. If one was so inclined to add in the War efforts of Afghanistan and Iraq (both active largely for business interests) the price per capita that American’s are truly paying to control a substantial portion of oil production and availability. What essentially happens is that American taxpayers pay into a fund that is given to companies that essentially not only don’t pay back into the general fund that portion, but also absolve themselves of tax liability they already owe to the public fund for being an operational corporate business.
4) The biggest factor in the rising prices is basic supply and demand. While rising markets in Asia are rapidly expanding, supply is matching to compensate. Per annum global oil usage there has been 1% growth rate, while not substantial prove that price is not matching normal market factors. There is a supply and demand factor going on that is causing the immediate jump in prices: that of the Futures Market. There’s a lot that goes with saying this, for one the regulatory commissions that have been established to control the industries had been neutered during the 80’s, somewhat of the 90’s, and a good portion of the double oh’s. Jointly with the deregulations was the fact that almost every other investment opportunity crumbled under the weight of hyper-inflated values, margin credit, the focus on non-existent derivatives, and simply the inevitable contracting of the economy. Investors, knowing that holding money and assets is losing money or assets, scrambled to pour their monies into anything that seemed to have short term and long term potential. Two funds were chosen that had wide ranging ripples in the rest of the economy, Grains Futures and Oil Futures. What is a future you ask? Well Timmy, when speculators wish to lock a price on a good that hasn’t been produced to sell at a price that is, wishfully, higher later on they invest in that commodity’s “futures”. When the product become available, the speculator actually holds the right to the good and could sell it as they wish, usually at the going rate. But these futures can be traded just like stock, and in the case of oil the rise of demand of the limited shares of oil, the price for each has risen geometrically. With the last action a speculator would wish to engage in is to sell that oil at a price that was lower than their cost, so in effect what happens is that available to consumer markets becomes throttled by the middle men investors. They actions are largely a self-fulfilling prophecy, when they believe a shortage happens and they try to hop on the bandwagon, they actually cause such a shortage to occur.
5) CEOs are at fault. CEOs are surprisingly not as powerful as largely believed. Internal boardroom politics and legal liability really stunt the amount of progress that a single, or even successive, heads of companies can force. Pitting the investors against plans and subverting votes on major boards are some of the flak that CEOs have to deal with among their own crowd, many vying for the same positions as the people they are attacking are in. His or her job happens to be generally in danger to the high turnover rate, with someone that would tow line if the incumbent didn’t. Furthermore, while corporate crime against the environment, labour, persons, communities, and entire economies is largely met with a slap on the wrist there is one point of which the CEOs are heavily liable for personally. If investors believe that their companies are not doing everything they can t produce profits they can go after the CEOs in civil measures or even pressure for the state to investigate for criminal neglect. This bears repeating: CEOs generally maximize profits or face punitive actions by court order, law enforcement, or being removed from their position. The formula is easy to follow really; offset as many costs and maximize profits for shareholders.
While there are many more factors those affect prices to the end consumer, these are ones that often times get brushed over in the myriad of twenty-four hour new cycle channels. However, taken all together as well, one could extrapolate these points and describe the current business culture that exists in America today that is consistently expecting growth to occur while the upkeep of the very mechanisms that allowed for long term growth become ignored to a ridiculous ideology that believes wealth is absolutely infinite and that the “Free Market” cures all issues.
What do I recommend? Well, it seems like one of the major changes we, as a society, need to partake in is the restructuring the way we not only handle the economy, but also view it. No more should it remain in the veil of hazy ideologies or an intangible force that hands out our lives like the Fates wove their tapestries but as an actual national asset and property of the public trust. We invest into it everyday, and it’s health directly linked to our prosperity. Economic diversity and equitable conditions I believe are critical to cement a long-term economic policy. Politically we should change it by learning the complexities about it, and openly debate about the type of economy we would like to have function, and how we should try to steer it. But without a basis of facts this becomes impossible and gets lost to ideological queries based on abstract thought rather than demonstrated results. We know that maybe not today, maybe not tomorrow, but fossil fuels won’t be with us forever, and that they are generally destructive to health so we should start weaning ourselves off fossil fuels. Furthermore, I would love to see a continuing effort to reestablish important governmental regulatory apparatuses that hold account people who benefit greatly from the system we all work towards. Again, to reiterate, we have to view the entire economy as property to everyone, and change our conventional vocabulary to suit this reality we all face.
Fun Reading/Watching:
1) World Supply:
http://www.opec.org/home/multimedia/videos/2006/opec%20seminar/mrabdullahsjumah.htm (Haven’t watched all of it but seems interesting)
2) Ethanol
http://seattlepi.nwsource.com/dayart/20080503/biofuels_compare.gif
http://counterpunch.org/schulte05242008.html
3) Taxes and Government Help
http://www.kicktheoilhabit.org/aboutsubsidies.php
4) Futures Market
http://biz.yahoo.com/ap/080416/oil_prices.html
5) Corporate Structure
“The Corporation” on Google Video. Take notice of the CEOs’ speeches and commentary.
http://video.google.com/videoplay?docid=192012118972057552&q=the+corporation&ei=YJ44SJvXMp_I-wHW5pXnAw&hl=en
