Streetwise Professor

February 26, 2012

Energy Is Scarce: Stupidity Is Abundant

Filed under: Climate Change,Economics,Energy,Politics,Regulation — The Professor @ 9:13 pm

It is difficult to figure out which commodity induces more mass stupidity-gold or oil. Upon reflection, it seems that the stupidity is price dependent, and given the rise in gasoline prices the oil-related stupidity is taking the lead.

Glibfinder wrote a comment and friend R told me about a particularly distilled example of oil induced insanity-the Bill O’Reilly-Lou Dobbs discussion last Friday.  I am well familiar with O’Reilly’s cluelessness on energy.  Whenever prices are high, he asserts that oil companies can charge whatever they want for oil, and are overcharging: which always raises the question of why they would let prices fall to around $30/bbl (2008-2009) or $10/bbl (1998).

Being a glutton for punishment, I watched.  Or tried to, anyways.  I could take it for only about 3 minutes. O’Reilly spewed his usual story, this time with a bit of a new spin: Prices are “subjective” so companies can charge whatever they want.  Believe me: he wasn’t making a subtle, Austrian-economics based point.  Then he and Dobbs went on crude Mercantilist rants that would have been an embarrassment in 1775.

O’Reilly, while denying he was a socialist, claimed that the government has a legitimate right to control oil prices because it is “our oil.”  I was waiting for him to channel Woody Guthrie, and break out singing “This oil is your oil, this oil is my oil.”

But O’Reilly and Dobbs are just talking (empty) heads. Barack Obama is president of the United States, but he is as idiotic about energy (and economics generally) as they are.  He’s just idiotic in a different way.

He has repeatedly ridiculed increased production of hydrocarbons, saying that it is impossible to drill our way out of dependence.  In Saturday’s radio address, he said that drilling isn’t a plan, “it’s a bumper sticker.”

Typical Obama false choices. Obama says we are already drilling.  The questions are, though, whether restrictions on drilling should be eased, whether more federal lands should be opened for exploration and production.  Obama, in his typical three card monte fashion, attempts to avoid answering those questions by suggesting that since drilling is not the entire solution, it is not worth discussing.

He then demonizes oil companies and their profits, playing on the class warfare theme.  Would he be willing to compare return on capital of oil companies to those of his biggest Silicon Valley donors?

Here’s a laugh:

I’ve directed my administration to look for every single area where we can make an impact and help consumers in the months ahead, from permitting to delivery bottlenecks to what’s going on in the oil markets.

Permitting? Delivery bottlenecks? Really? You mean like Keystone? Looked at the differences between Bakken prices and Cushing prices, or between Gulf prices and Cushing, lately? Plenty of evidence of a bottleneck, which Keystone II and other projects would alleviate.  The biggest bottleneck, arguably, in the world oil industry right now.  One that Obama could have alleviated-but consciously decided not to.  Now that’s chutzpah.

And speaking of bumper stickers, he drones on about a subject on many a bumper sticker plastered to Priuses and Volvos: renewable energy:

It’s time to end taxpayer giveaways to an industry that’s never been more profitable, and use that money to reduce our deficit and double-down on a clean energy industry that’s never been more promising. Because of the investments we’ve already made, the use of wind and solar energy in this country has nearly doubled – and thousands of Americans have jobs because of it.

Uhm, to the extent that the oil industry is profitable, it is because it provides a product that people are willing to pay more for than it costs to produce.  Looking past his risible claim that anything he proposes is to reduce deficits, he proposes to “double-down” on an industry that only survives because of subsidies, because it produces energy that is far less valuable than the cost of producing it. (Actually, “doubling down” is a very appropriate characterization, a phrase usually applied to desperate gamblers trying to dig themselves out of a deep, losing hole.)

Doubling of wind and solar-from nearly infinitesimal to twice infinitesimal.  BFD.  And at what cost?  Regarding jobs-Obama emphasizes the seen jobs supported by subsidies derived from distorting taxes, but what about the unseen lost jobs (and lost wealth) as resources are pushed into uneconomic uses?

Renewables are a colossal waste. Wind. Don’t make me laugh. There is a strong negative correlation between wind and temperature, meaning that wind doesn’t produce power when you need it, and produces power when you don’t-requiring the costly shutdown of conventional plants when the wind is blowing hard (costly, as indicated by negative prices for power). Its unreliability also requires the maintenance of backup thermal generators, and the fact that wind resources are often distant from loads necessitates additional investment in transmission.

Who couldn’t love it?

Insofar as solar is concerned, even the Germans, who went whole hog into dreams of replacing fossil fuels with the sun, have realized it is utter folly.   The Europeans generally, especially the Spaniards and the Germans, have realized that unicorn dreams will not keep the lights on.

But Obama refuses to heed the Ghost of Christmas Future, and insists on repeating the same follies.  One can excuse the Germans and the Spaniards for making the mistake in the first place.  It is inexcusable to repeat the mistake-and glory in it-with their example before his eyes.

Apparently the stupidity is the most renewable part of green energy.

Not to mention that wind or solar don’t address the most pressing energy problem-motor fuels-and the one that does-biofuels-is a disaster in its own special way (apologies to Tolstoy).

Obama also touts fuel economy standards, another fundamentally misguided policy, and one that has wreaked havoc with the US automobile industry for decades.

Milton Friedman said there is no problem government couldn’t make worse. Virtually everyone advancing government solutions to address high energy prices, from O’Reilly to Obama, seem hell bent on proving Friedman correct.

Update: Literally 3 clicks after modifying this post to add the dig at biofuels, via Climateer Investing I came across this post summarizing the views of a Nobel winning chemist: “The Nonsense of Biofuels.”  Hear, hear.

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  1. I honestly don’t know what subsidies the oil companies are supposedly getting. Is it the accelerated depreciation? What else? Meanwhile, everything you say is pathetically true.

    Comment by Howard Roark — February 27, 2012 @ 1:08 am

  2. Mr. Roark This subsidies talk goes back to the Oil depletion allowance which was cut then eliminated about the time I got interested in women. The only subsidies I know about are the ones they have received for their green (money) energy research. The evil energy company only intensified with the first oil shock in 1973 – just shows how hard it is for media types to let go.

    Prof – Stupidity is abundant because the marginal cost is 0 – in the case of news organizations with time to fill, somewhat negative. The problem we have is there is still a consumption function.

    Comment by sotos — February 27, 2012 @ 7:10 am

  3. My favorite part of that O’Reilly segment was his claim that gas stations all selling at the same price is proof of collusion. (And that posting those prices was further proof.) I started howling at that point.

    Comment by Highgamma — February 27, 2012 @ 7:55 am

  4. Sotos, In this case, I think the marginal cost of stupidity might actually be negative.

    Comment by Highgamma — February 27, 2012 @ 7:57 am

  5. His views on global warming and also the Second Amendment are equally clueless.

    Comment by pahoben — February 27, 2012 @ 8:24 am

  6. Well all, until so or x shows up, looks like we have a consensus!

    Comment by sotos — February 27, 2012 @ 8:42 am

  7. It is difficult to figure out which commodity induces more mass stupidity-gold or oil.

    As somebody who works for a major oil company, I can assure you it is oil. 🙂

    Comment by Tim Newman — February 27, 2012 @ 8:44 am

  8. The O’Reilly-Dobbs segment really is hilarious. Apparently, according to Dobbs, if the President would just jawbone oil company CEOs into respecting the national interest and then we taxed energy production to create a government managed American Trust, then oil companies would begin to respect the american consumer just a little more, and subjectively take a little of the speculative supply out of the demand, because it is our oil and gas and coal and we shouldn’t be exporting it to China and Mexico and Brazil just because demand in down a little in this country, we the people are paying too much, America.

    Comment by Mike Giberson — February 27, 2012 @ 8:45 am

  9. I honestly don’t know what subsidies the oil companies are supposedly getting.

    To the left, a reduced-rate tax is a subsidy. So provided oil companies are not taxed 100% on all their activities, the left will claim they enjoy a subsidy.

    Comment by Tim Newman — February 27, 2012 @ 8:49 am

  10. OMG! Just finished watching the clip you linked to, and I’ve got to say I’ve seldom witnessed two more self-satisfied people stroking each the other’s massively bloated ego. They are so far out of their range, so far beyond anything their brains are capable of comprehending. And yet, they natter on and on with something that glances off buzz words like light off asteroids. What hubris. What total incomprehension. Such is the result of having to fill a “news” hole … O’Reilly’s jowly jaws flappin’ in the breeze, followed by Dobbs’s jowly-jaw action accompanied by that smug self-importance. The atherosclerotic plaque’s slowing the flow of blood to both their brains.

    The far more disconcerting thing about all this is there are millions of people who do tune in to listen to what these dopes have to say, because they are looking for someone to help them make sense of a lot of confusing information. They’ve mastered the appearance of gravitas. Sadly, they’re incapable of conceiving, developing and articulating anything thoughtful enough to match the poses they strike. Maybe that is the genius of entertaining …

    Comment by markets.aurelius — February 27, 2012 @ 9:56 am

  11. @Mike-Glad you were able to follow that! I kept flashing to the image of the witch scene in Holy Grail. It fits on so many levels-the illogic, the witch hunting.

    @Mike, @Markets, @Tim, @Highgamma, @sotos, @Howard-real troupers for making it through. I guess you have to view it (as @Markets says) as a form of low entertainment, a kind of vaudeville.

    The ProfessorComment by The Professor — February 27, 2012 @ 11:33 am

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