Streetwise Professor

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.