Playing bad poker with the gas money.

Posted on May 8, 2008 - Filed Under Energy, Gasoline Prices

“If, after the first twenty minutes, you don’t know who the sucker at the table is, it’s you. ”
~Author Unknown

I have played a little bit of poker in my life. I’m not a great card player but I do understand the fundamentals of the game. The game is not about what cards you draw. The game is about how you play your cards against your opponent.

Imagine yourself in a high stakes card game. A game in which your financial security and that of your family is on the line. Imagine being at the table with ruthless players, the kind of players that will exploit the smallest weakness.

Imagine opponents who wish to take all of your money and then have you killed when you leave the saloon.

Now imagine someone standing right behind you telling these adversaries exactly what cards you are holding and exactly how you intend to play them. Imagine also that that same someone is prohibiting you from drawing even a single card to improve your hand.

If you can picture all of that, you are seeing one of the fundamental reasons that gasoline prices have gone up by more than 60 percent since the November election of 2006.

In this poker game, you are the U.S. energy industry. Your opponents are Middle East oil producers, together with energy traders and speculators. And the idiot behind you tying your hands when you try to draw, while telegraphing your cards to your adversaries, is the U.S. Congress.

Oil prices are sky high for a number of reasons, most of them beyond our control. One of the biggest is that world demand keeps rising because of the economic expansions in China and India. Another is that the U.S. dollar, the currency in which oil is denominated, is at a cyclical low.

But a big reason that oil prices are high is because oil is being bid up by speculators. And that is a reason over which we have a great deal of control.

Those that produce oil and those that trade in oil are now convinced that we will not draw to our hand. By that, I mean that despite the fact that we know that there is oil in the Alaska National Wildlife Refuge (ANWR), that there is oil and gas in the Outer Continental Shelf and that there is oil locked up on federal lands in the Midwest, our government steadfastly refuses to allow the American oil industry to go produce it.

Oil speculators, knowing that demand will continue to rise while the biggest oil user, the U.S., will do nothing about supply, continue to bet on higher prices. So far, that has been a good bet.

In Congressional testimony this week, representatives of the oil industry testified that because a pipeline head is only 74 miles from ANWR, we could begin producing a million to a million and a half barrels a day from ANWR within a year.

In other hearings, Schlumberger estimated that federal lands in the Midwest hold shale reserves equal to over a trillion barrels of oil, yet the process for leasing and exploring that land is so cumbersome as to be impossible.

But Paul, drilling for oil in all of those places will cause severe environmental damage.

Really?

Will someone please show me the ecological catastrophes in Kilgore and Longview? You know, all that environmental damage that has been done in the 81 years that we’ve been producing oil in East Texas.

We’re playing poker with ruthless players who know that we don’t have the stones to draw to a pair of tens.

Energy economists estimate that speculation is adding 20 to 25 percent to the cost of gasoline. Want to end the speculation? It can be done literally tomorrow - before even the first well is drilled.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid just need to hold a joint press conference. They announce that in light of the high prices working Americans are paying for gasoline; and in light of America’s ability to make a significant impact on world oil supplies through production of its own resources; they are reversing their position on ANWR and the Outer Continental Shelf and other federal lands and will immediately propose legislation to enable the U.S. energy industry to begin exploration in those areas.

The price of gasoline at the pump would drop by as much as a dollar almost overnight.

In poker it’s called “calling your opponents’ hand.” In government, it’s called sound policy.

You Tell Me (Comment)

The more they “do something” the worse it gets.

Posted on May 1, 2008 - Filed Under Energy, Food, Gasoline Prices

Click here to listen to the broadcast of You Tell Me on Newstalk 600 KTBB, Friday, May 5, 2008.

It’s costing a fortune to fill up my car. I hate it. I’m sure you hate it. I also hate that we remain, 35 years after the Arab oil embargo, more dependent on oil from foreign sources than we were when we first experienced gasoline lines.

I appreciate the urge on the part of the government to “do something.” How can today’s politicians not have that urge? We are a nation of people who expect government to “do something” whenever there is a problem, no matter how personal the problem (like borrowing too much money for a house) and no matter how frequently we see that the “something” that is done is usually much worse than the problem itself.

Oil prices were on the rise in 2005. The Bush administration’s efforts to increase American production of oil by drilling in the Alaska National Wildlife Refuge (AKA: ANWR) and the Outer Continental Shelf died in Congress.

What didn’t die was the Energy Policy Act of 2005. The original bill contained a provision permitting the drilling of ANWR. By the time the bill became law, that provision was gone. What survived was the provision mandating that ethanol be mixed with gasoline such that an ever-increasing percentage of total gasoline sold in America contains ethanol.

George Bush, I love you. I’ve defended you in the midst of withering criticism. But you continue to stand behind the ethanol farce and that is indefensible. It’s bad policy and it’s causing bad problems.

Whenever you pass laws that serve to intervene in free markets, you almost always confront an additional law: the law of unintended consequences.

Ethanol is so costly that it can’t make it in the free market. That’s why it was necessary to pass a law mandating its use. That’s why it has been necessary to subsidize its production by paying farmers (with your tax money) to grow corn instead of other commodity crops.

It takes 400 pounds of corn, the average direct and indirect corn consumption of an adult for an entire year, to produce enough fuel to fill up your tank once.

Corn has to be grown, fertilized, harvested and trucked to processing plants. All of that burns fuel. It takes more than a gallon of fossil fuel to produce a gallon of ethanol. You heard that right. Ethanol uses more energy than it yields.

And it takes an astonishing 1,700 gallons of water to produce a single gallon of ethanol.

Ethanol is a bad deal. Ethanol is doing nothing to reduce our oil dependence. And that would be bad enough. But it doesn’t stop there. The ill-advised government ethanol mandate is causing serious problems elsewhere.

Have you looked at your grocery bill? How could you not? Yes, there are lots of factors contributing to rising food prices. But one of the biggest is ethanol production.

The Energy Policy Act of 2005 mandates 7.5 billion gallons of ethanol production this year. This has required the diversion of over a third of the American corn harvest out of food production and into producing fuel.

Everything down the line that relies on corn has been clobbered. This includes the obvious like breakfast cereal but also the less obvious, like animal feed and corn sweetener for a whole list of packaged foods. The sudden demand for corn affected all other grain crops, as fields that once produced wheat and soybeans were diverted to growing corn. All at once, the price for bread, meat, eggs, milk - pretty much everything in your fridge - jumped way up.

Domestic food prices have risen by over 46 percent this year. Around the world, there have been food riots in Egypt, Cameroon, Indonesia, Asia and as close to home as Mexico. People who can’t afford to buy food can get pretty nasty. I wonder how that fence on the Mexican border is coming.

Fuel prices are a problem. The mortgage meltdown is a problem. Tight credit is a problem. The very real chance of recession is a problem.

We have enough problems. So we shouldn’t voluntarily make more problems. It’s time to admit that the ethanol mandates were a bad idea and stop this lunacy before things get much worse.

7 Comments

A Nation at Risk: Our schools 25 years later.

Posted on April 24, 2008 - Filed Under Education, Society

Click here to listen to the broadcast of You Tell Me on Newstalk 600 KTBB, Friday, April 25, 2008.

Let me share with you a quote.

“If an unfriendly power had attempted to impose on America the mediocre educational performance that exists today, we might well have viewed it as an act of war.”

That line came from a report issued 25 years ago this week by the National Commission on Excellence in Education titled, “A Nation at Risk.”

By 1983, the fact that America had taken the wrong path on public education was becoming clear. By that year, seeds sewn in the racially charged 1960s had fully blossomed. Much of what had been enacted through legislation and imposed by court order was coming home to roost.

Here’s some history.

The first collective bargaining contract between teachers and school district was signed in 1962 in New York City. That agreement, and the ones in other cities that soon followed, transformed teachers from members of a respected profession into yet another militant labor group — fighting for pay, benefits and government money.

SAT scores for college-bound students peaked in 1964.

In 1965, the Elementary and Secondary Education Act was passed. This was the first large-scale federal involvement in school funding and it was a part of the sweeping legislative initiatives of Lyndon Johnson’s “Great Society.” The intent was to provide federal funding to schools with a predominance of low-income students. The effect was to permanently implant the idea of a direct correlation between school funding and academic achievement. Many, if not most, Americans cling to that idea still, despite four decades of experience to the contrary.

Between 1975 and 1980 there were more than a thousand strikes and job actions involving more than a million teachers. As a result of this labor unrest, teachers’ salaries rose even as student test scores declined.

But most damaging by far, in my opinion, was the 1966 report titled “Equality of Educational Opportunity” produced by a group of scholars headed by James Coleman and which came to be called simply, “The Coleman Report.” The Coleman Report advanced the idea that minority students, meaning mostly blacks, could not prosper academically without being integrated into racially mixed classrooms.

This was the catalyst for school desegregation court orders. Most of us called it “forced busing.”

Busing did enormous damage. It removed children from their neighborhoods and made it nearly impossible for parents to be involved in school activities. It led school districts to reshuffle the attendance deck every year to obtain a court ordered racial balance on campuses, often making it impossible for high school classes to remain together through graduation.

The time spent riding buses cut into extracurricular activities and reduced the time available for study and after-school jobs.

Parents saw control of their neighborhood schools slipping from the grasp of the teachers and principals. Those that had the means moved to suburbs that weren’t subject to a desegregation order. Or they placed their children in private and parochial schools. This ultimately led to the farce of thousands of children being bused across town to schools that had become de facto segregated schools. So much for the benefits of a racially mixed classroom.

But the most insidious damage was sociological. Prior to the 1960s, schools were central to neighborhoods. Neighborhoods fostered community. Community supported families and the application of social norms, including those attendant to marriage and child bearing. When children were ripped from neighborhood schools and taken across town, far from neighborhood and parental involvement, it sent a clear signal that parents mattered less in education and that government mattered more.

And families began to disintegrate.

Today, 25 years after the publication of “A Nation at Risk” things are much worse. The sorry state of many of our public schools makes it clear that no program, no legislation, no increase in funding, none of the shopworn panaceas, can compensate for the breakdown of families and thus communities — the principal transmitters of the culture. As George Will said in an article in yesterday’s Washington Post,

“No reform can enable schools to cope with the 36.9 percent of all children and 69.9 percent of black children today born out of wedlock, which means, among many other things, a continually renewed cohort of unruly adolescent males.”

Since the 1960s, we have allowed our schools to be laboratories of social engineering and experiment. The results have been disastrous.

Today, we are beyond being a “Nation at Risk.” We’re a nation in deep trouble.

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