Drill Baby, Drill?

It occurred to me recently that I ought to write a post about how Republican politicians ignore the facts and abuse economic common sense in order to score political points. But it didn't take long to figure out that one post wouldn't be enough to cover that gigantic topic. I need to do it in installments. So I'll start with gas prices.

Unless you have decided to stop paying attention - and who knows, that may be the best thing to do - you know that gas prices have been rising all across the country, getting close to, and in some places actually crossing, the $4/gallon line (there's really nothing magical about $4/gallon, but it gets people's attention.)  And you probably also know that according to a lot of Republican politicians, high gas prices are, naturally, all Barack Obama's fault! If only he would get rid of those quibbling regulations and stranglehold taxes and pipe dreams about renewable energy! If only he would unleash the oil companies to produce more, all would be well! As Mitt Romney put it recently, "The best thing we can do to get the price of gas to be more moderate and not have to be dependent upon the cartel is: drill in the gulf, drill in the outer continent shelf, drill in ANWR, drill in North Dakota, South Dakota, drill in Oklahoma and Texas."  Even Sarah Palin's got to like the Massachusetts Moderate when he delivers a line like that.


The President has pointed out, of course, that since he took office, US oil production has increased.  And it increased for the first time in 24 years. That's right: with the exception of a small (.8%) upward bump in 1991, US oil production fell every single year from 1985 up to 2008; over all those years together, it fell 45% - almost in half. (Here's a chart, and the numbers, showing US oil production, ever since 1860.). Since 2008, production has risen by 15%; that's an increase of about 725,000 barrels a day. According to Romney, that should have gotten "the price of gas to be more moderate," but of course that hasn't happened. And it doesn't take an economist to figure out why.


The price of gas is driven mainly by the price of oil, and the price of oil is determined in the global oil market. The United States produces about 10% of global supply, so when our production rises by 15%, the world supply, other things equal, rises by a paltry 1.5%. But still, shouldn't even that small increase in supply lower prices, rather than raise them? Well, yes, but only if demand stands still. But of course it doesn't.  From 2008 to 2011, while US production was rising by 725,000 barrels a day, Chinese and Indian consumption alone rose by more than 2 million barrels a day. We can drill like mad - and trash ANWR, pollute our coasts, contaminate our aquifers, and accelerate global warming - and we will never keep up with growing demand and rising prices.


It is particularly ironic for us here in Montana that what we do to increase local oil production will probably have the effect of actually increasing what we pay for gas. Right now, Montana has about the cheapest gas in the country, right behind Wyoming (here's a very cool interactive map that shows you gas prices for every county in the country). Gas is relatively cheap here because the refineries that serve us are buying oil produced in the region. This oil doesn't have a good way of getting to international markets, where it would sell for a lot more than it does locally. Montana oil producers and politicians (from both parties) would love to change all that by building the Keystone pipeline and moving Montana oil into the international market. Montana producers would get a much better price and probably produce more, but Montana consumers would pay more as well.

If we can't lower the world price of oil by producing more of  it, what can we do? The obvious solution is to use less. We do that by promoting energy efficiency and conservation, and by displacing oil and other fossil fuels with renewables.* It's the logical economic response: when the price of a good rises, buy less of it. It's surprising how clever people can be in doing that. And when some day we get serious about dealing with climate change (that's going to have to wait until some of us stop denying it exists), we'll be glad that oil is cheap not because we've drilled for every last gallon, but because we simply don't need it anymore.


*I have posted a comment on this point, below.

It’s Voodoo Economics Time

Yes, it’s once again that time in the election cycle when Republican presidential candidates tell the voters that they can cut taxes (usually on the rich), balance the budget, eliminate the deficit, and reduce the national debt, all in one fell swoop. 

Ronald Reagan was the first Republican president to embrace this curious notion, which according to legend was first introduced to a group of GOP savants by economist Art Laffer, scribbling on the back of a cocktail napkin in a Washington, D.C. watering hole.

 

Funny how those boozy ideas that seem so enchanting the night before can turn out to be such disasters the next morning.  

In the entire postwar period, under Truman, Ike, JFK, LBJ, Nixon, and Carter, the national debt fell consistently as a percentage of GDP, from 120% in 1945 to 30% in 1980, when Reagan took office. But under Reagan and then Bush senior, deficits mushroomed and the debt grew; by 1992 it stood at about 65% of GDP.  It fell under Clinton, and then popped back up again when Bush junior took charge.  When Barak Obama took office, it was up to about 85% and the economy, of course, was in free fall.

You might think GOP presidential hopefuls would have learned something from all this, but here we have Mitt Romney, the “presumptive frontrunner,” telling us he’s going to cut taxes, increase defense spending and put us on a path to a balanced budget during his first term. To his credit, he breaks with the voodoo tradition of assuming that tax cuts will stimulate enough growth to more than pay for themselves.  No; he knows that he can’t pull off a balanced budget unless he cuts spending somewhere.

And the size of these cuts is stunning. According to an analysis of Romney’s proposal by the Center for Budget and Policy Priorities, to balance the budget by 2016, non-defense spending would have to be cut by 17%. If Social Security were spared, all other programs would have to be cut by 24%. If Social Security and Medicare were spared, all other programs would have to be cut by 34%. So unless you believe we can get along without Federal support for roads and education and medical care for poor kids and other little items like that, you are again looking at voodoo: somebody, somewhere is going to have to pick up the tab, and it’s probably going to be taxpayers in the states.

And speaking of the states, we have a few witch doctors of our own running around Montana.  Last week, five of the GOP candidates for governor told the Montana Economic Developers Association  that if elected they would eliminate the property tax on business equipment and the corporate income tax. Some even said they would get rid of the 95 mills of statewide property taxes that go to pay for K-12 education.  And just so you know, large corporations that operate across the state are also agitating for a property tax break.

All together the cuts proposed by the GOP candidates mount up to about $400 million. And since the Montana Constitution requires the budget to be balanced right now and not in the sweet bye and bye, you’ve got to wonder how those cuts will be paid for.

Well, we can always shift some of those property taxes onto homeowners.

Or we can cut spending. No, wait!  Mitt’s going to be kicking more spending downstairs to the states.

What our would-be governors are apparently counting on is an oil and gas boom - and the taxes that come with it. But as Brian Schweitzer has pointed out, that simply doesn’t compute.  Right now oil and gas revenue is running about $100 million a year, so the value of production would have to quadruple to make up for $400 million of tax cuts elsewhere. And that’s not going to happen any time soon, if at all.

Right now you can just hear the beating of drums and the muttering of dark incantations. But just you wait: by November it's going to be deafening.

More Gerrymandering! (This Time It's the Legislature)

Apparently taking their lead from a Missoulian column by Will Deschamps,  Republicans at a hearing  of the Districting and Apportionment Commission  in Missoula last night went all out attacking the Community redistricting plan proposed by Commissioners Joe Lamson and Pat Smith. That plan, they said, was gerrymandered! Of dubious constitutionality!  Of all things, political! And, worst of all, Democrat!

Now it’s true that Joe and Pat are the Democratic members of the Commission, and they did prepare and submit the Community plan. And it’s also true that the Republican members didn’t submit a plan of their own.  All they did is ask the legislative staff to prepare plans based on particular basic principles, such as, for example, making districts either urban or rural, but not a mix of the two. So now they are congratulating themselves on their apolitical objectivity and the purity of their intentions, and casting Joe and Pat as devious political operators.

Don’t be fooled.  Republicans aren’t stupid. They certainly were able to anticipate that when they asked the staff to prepare a plan that would cram voters into a few dense city districts, those voters would be most of the Democrats, leaving the non-urban districts theirs for the taking.  

As long as it breaks their way, Republicans have no objection to gerrymandering; they just don’t want you to know it.  But in an ironic moment last night, Deschamps, who is chairman of  the Montana Republican Party, let the cat out of the bag. Noting that 40 percent of Missoula County voters are Republican, he concluded that the county should be districted in such a way that 40 percent of our legislative delegation should be Republican as well.   Let’s set aside the vexing problem of how that dubious principle could be applied in small counties with a single legislator.  What Deschamps was asking for was to draw district lines in the county so that 4 (out of 10) districts have solid Republican majorities. And what do you call it when you draw district lines to assure that you have solid majorities? Gerrymandering!

Redistricting is an inherently political process. That’s why the Legislature made sure that Republicans and Democrats were equally represented on the Commission. They are there to protect political interests – their own and ultimately those of their constituents. There’s nothing wrong with that.

But it’s true that we don’t want gerrymandering. On the contrary: we want as many districts as possible to be competitive.  Competition fosters better, more informative campaigns, with stronger candidates. It means a more engaged and enfranchised electorate. And it makes legislators more responsive to voters. But let’s not judge which plan most avoids gerrymandering and most promotes competition with a lot a finger pointing about how the plans were prepared or who asked for them. The proof is in the pudding. The Commission should look closely at how each plan will actually affect the competitiveness of Montana elections, and that, along with all the other criteria it has to juggle, should help it decide which plan to endorse.