(Quite a first diary, here… – promoted by odum)

Look, I love Bernie Sanders.  I love being able to say that my home state of Vermont is represented by the only avowed Socialist in the US Senate.  (And what is socialism but basic common sense?  To me it means “social control of things that affect society”–like, say, controlling the power of capital to impose costs on communities, controlling corporate power’s ability to affect health and safety and landscapes.)  Mostly Sanders’ challenge-the-corporations, take-care-of-the-little-guy approach has my full backing.  But he goes a little astray with his latest proposals on gas prices.

In a column that appeared last Thursday in Vermont’s Bennington Banner, Senator Sanders offers his take on rising energy costs and what we have to do about them.  For the most part, his analysis is spot-on:

Clearly, we are facing a national crisis. The crisis not only affects consumers of gas and oil, it has an impact on food prices, small businesses, family farmers, tourism and, in fact, our entire economy.

Meanwhile, as energy prices soar and the middle-class continues to shrink, Exxon-Mobil has made more profits in the past two years than any other corporation in the history of the world. Last year alone, Exxon-Mobil made $40 billion in profits, and rewarded its CEO Rex Tillerson with $21 million in total compensation. (Several years ago they provided their outgoing CEO Lee Raymond with a $400 million retirement package). Chevron, ConocoPhillips, Shell and BP also have posted record profits.

In fact, the five largest oil companies in this country have made $595 billion in profits since George W. Bush has been president.

Sadly, as in so many other areas regarding the needs of ordinary Americans, the Bush-Cheney administration has had nothing relevant to say. In their previous lives, both Bush and Cheney were heavily involved in the oil industry. They are far more concerned about the needs of oil company executives than working families.

So with deafening silence from the White House, Congress must act and act now.

There is no single silver bullet that will lower oil prices. The solution rests with action on a number of fronts – both long term and short term.

This puts Senator Sanders in the 99th percentile among politicians for perceptive understanding of the multi-faceted crisis we face.  Sad to say, there aren’t too many other politicians willing to tell the American public that energy crisis isn’t about a single commodity, oil; it’s about how we live, how we work, how we play, how we’ve built our houses and cities, how we do everything.  The end of the era of cheap oil is here, and it’s going to be a rough transition to what comes next, thanks to several decades of misrule and inaction.  While Senator Sanders doesn’t quite say this, what he does say shows that he sees these connections.  And that leads him to come out in the right place:

Long term, we must significantly increase our efforts at breaking our dependency on foreign oil and fossil fuels in general and move toward energy efficiency and such sustainable energies as solar, wind, geo-thermal and bio-mass. In the process, we can create millions of good paying jobs as we reverse global warming, clean up our environment and lower energy costs.

As a general statement of what is needed, this can scarcely be improved upon–and again, good common sense like this is rare from elected officials.  There are some difficult questions to face when you get down to specifics:  “efforts at breaking our dependency on foreign oil and fossil fuels in general” have to be not only, well, effortful, but successful, and there are a lot of difficult decisions ahead if we are to succeed at this.  But Sanders nails it when he says that heading in this direction will save us money, create domestic jobs, and reduce Greenhouse Gas emissions.  Really–it’s about time more Senators and Congressmen understood that a renewable energy future is win-win-win.  

Where Sanders goes astray a bit is in his recommendations for the short term.  His column offers four particulars, which we’ll examine in turn:

* Impose an excise tax on oil companies. The $35 billion in new revenue would fund a six-month federal and state “gas tax holiday.” This approach would lower the price of gas by up to 36 cents a gallon without reducing the Highway Trust Fund at a time when repairs to our decaying roads and bridges are desperately needed.

Call it an excise tax, call it a windfall profits tax: either way it’s a good idea.  Oil companies have seen the value of their prime asset, oil in the ground, increase dramatically, through no praiseworthy action of their own.  All they did was own it.  (A farsighted legislative body could have seen this moment coming years ago, and set up a structure to moderate these obscene monopolistic profits.)  To those who say that a windfall profit tax on oil companies will discourage and “disincentivise” future production of oil, the planet-sensible answer is “So?”  We need to reduce our production and use of oil, if we’re ever going to get our Greenhouse Gas emissions down to a level that the planet can absorb.  So to my way of thinking, the largest conservative objection to such a tax is in fact an argument for it.  

But I was sorry to see Sanders joining the call for a “gas tax holiday” –the idea that Senator McCain, in a bold pandering move, threw out and that Senator Clinton rapidly parroted.  As a unanimous chorus of others (like Joe Romm at Climate Progess and Thomas Friedman in the New York Times) have pointed out, that’s a stupid and dysfunctional idea.  It won’t do much for individual consumers.  As Obama pointed out in a

campaign ad in North Carolina, it would put about $30–“a tank of gas”–into the hands of consumers.  It wouldn’t do anything to discourage oil use.  It wouldn’t do anything to disabuse the American public of the idea that energy could be cheaper if Washington would just do something about it.  Sorry, America:  the great long cheap ride is over, and gas is never going to cost again what it did ten or five or even two years ago.  Sanders could exercise some leadership by acknowledging this–if not explicitly, then at least through support for a differently designed program tha would acknowledge the pain of increasing fuel prices, and lessen that pain, while sending the right signals to the American public.

(How to do that?  Instead of a “gas tax holiday,” give every American household a prebate check to cover rising fuel costs.  If you use less gas, you’ve got money in your pocket.  If you use more, you pay.)

Sanders’ second point:

* End the “Enron Loophole.” Created in 2000, this loophole exempts electronic energy trading from federal commodities laws. Virtually overnight, it freed over-the-counter energy trading from meaningful oversight, opening the door to excessive speculation and energy price manipulation. We also must regulate the secretive hedge fund industry which has also driven up the price of oil. Some experts believe a “speculation premium” is driving up oil prices by as much as 50 percent.

Some of this is fair enough. Closing loopholes is good; bringing the financial industry under greater regulatory oversight is good.  But there’s more than a hint of conspiracy-theory populism in that idea that half of what we pay for gas is going to a “speculation premium.”  Remember when the “gnomes of Zurich,” rather than our own guns-and-butter deficit economy, were driving down the value of the dollar in the ’70’s?  (No; you don’t.  I’m dating myself.) It’s always easiest to blame malevolent others for our woes rather than face difficult economic and physical reality.  A basic knowledge of thermodynamics tells you that oil is valuable because it can do work (and it’s the best, most versatile, most compact fuel, carbon-based or otherwise, that humans have ever exploited.)  As it gets scarce–as production levels off and demand continues to grow exponentially–it’s going to get more expensive.  Half the cost is pure speculation?  Let’s say I’m skeptical.

But moving on:  It’s the third point that gives me the most trouble, for it falls squarely within the old “pump forever” paradigm:

* Demand that Saudi Arabia and other OPEC oil-producing countries increase their production and put more oil on the market. Incredibly, Saudi Arabia is producing less oil today than it did two years ago. Experts believe that Saudi Arabia alone has the capability to increase oil production by 1.8 million barrels a day. The U.S. also should work to end the OPEC cartel which, in my view, functions in violation of international trade rules by illegally colluding to limit oil production and drive up prices. The exploding price of oil is expected to increase OPEC’s crude oil export earnings by $300 billion this year to a record $980 billion.

Some things that are wrong here:

This approach seems to embody that arrogant attitude that is parodied in a bumper sticker, “What’s our oil doing under their land?”  Sure, we can try to persuade them to increase production, but ultimately, it’s their call.  Some experts may believe that Saudi Arabia could increase production.  But many others believe not; there are indications that the Saudi spigots are open about as wide as they ought to go.  Every reservoir has a Maximum Efficient Rate of extraction, or MER, and if that is exceeded, the total amount of extractable oil is diminished. And when a field hits peak production, the only direction from there is down:  less and less oil.

How close are the Saudis to their MER?  Depends on who you ask. If you ask Kevin Drum, writing for The Washington Monthly, he’ll tell you that

The best technology known to man has already been put to use all over Saudi Arabia in an increasingly desperate attempt merely to keep production steady at 10 million bpd. In the vernacular of the oil industry, Saudi oil fields have been in “secondary recovery” mode for years, and long experience elsewhere in the world has already taught us the limits of the advanced extraction technologies now being used in Saudi Arabia. They can mitigate production declines after a field peaks, but they can’t stave off the peak itself. More money and more technology won’t bail us out here. We’re up against geological limits, not financial ones.

And when Senator Sanders calls for breaking OPEC, he’s demonstrating a lack of understanding of how the international oil market works.  OPEC does today, in the international market, what the Texas Railway Commission used to do for us when our oil market was entirely domestic:  it sets a market demand proration for producers, ensuring that supply and demand balance at something like a stable price. Producers are given production quotas to stabilize the amount of oil coming to market.

But (I can hear those of you who’ve had Econ 101 saying), supply and demand always determine price; there’s always a price that will clear the market.  Why set up an organization to restrain the free operation of the market?  

Here’s why:  both the supply and demand for oil are inelastic–neither will change much in either the short or the medium run in response to a change in price. This means that price swings enormously in response to small changes in supply or demand.  Market-demand prorationing involves pegging production to anticipated demand–a demand that changes with the season, with temperature drops and rises, with the arrival of big holidays when people get in their cars and drive to grandma’s.  

Demand is price-inelastic because we depend on oil.  When the price doubles, you can scarcely use less of it, not until you’ve had time to make some major changes in your life:  a new, more fuel efficient car, a home that’s closer to where you work and shop, another foot of insulation in the attic.  Same story on the supply side:  a rise in prices (as we’ve seen in the quotation from Drum above) can’t call forth new production.  Even in the best of times–in the middle of the oil era, when there were still large fields to be found, when there were still refineries to be built–a price increase couldn’t bring more production online in the short or medium term; it takes time to find, drill, refine, ship.  And now that we’ve passed the peak of oil production, there just isn’t additional, “excess” capacity to be tapped by a price increase.  

Before the TRC took on the role of setting production quotas in Texas in order to stabilize oil prices, the price of oil had fallen to 2 cents a barrel (!) thanks to the discovery of the enormous East Texas fields.  The oil was worth less than the barrel that held it.  At those prices, producers go broke, fold up shop–and a year later the price zooms to a hundred or more times its bottom, because there’s no one in the business of producing it.   OPEC was formed and began exercising its market power only after US domestic production hit its peak and began declining in 1971; as long as we still had the potential to increase our production, OPEC was powerless.  Market demand prorationing demands that there be a producer who can open or shut the valves at will–a producer whose stocks are so large, and whose oil fields have such a high MER, that it can serve as a balancer for the system, accordioning its production up or down to help the market clear at a stable price.  From 1939 until 1971, in the US that producer was Texas; since 1971, that producer has been Saudi Arabia.  

Because both the supply and the demand for oil are inelastic, the “natural” or free-market price of oil is extremely, disturbingly, disruptively volatile.  OPEC and the TRC smoothed out that volatility–providing us with a (relatively) stable price.  If Drum is right, and the Saudi fields are at or just past their peak, then before too long OPEC will go the way of the TRC:  it will no longer be able to control the price of oil.  As we come down the backslope of the global Hubbert’s Peak, we can expect the price of oil to be extremely volatile–and to tend nowhere but up.  

That volatility is reason enough to impose further and significant taxes on oil. The tax would give us a cushion that would let us, through policy, moderate the bouncing-around prices that the free market will soon be giving us.  It hardly needs saying that instability of energy prices creates pyschic insecurity, social unrest, commercial insecurity, economic instability.  And it’s the effort to avoid that that leads Sanders to propose his fourth short term fix:

* Stop the flow of oil into the Strategic Petroleum Reserve and immediately release oil from this federal stockpile. With the Reserve at 97 percent of capacity, the release of oil into the market will send a strong signal to the industry that the U.S. government is serious about lowering oil and gas prices. This strategy pushed down oil prices during the administrations of George H.W. Bush and Bill Clinton. Goldman Sachs has estimated that continuing to fill the Strategic Petroleum Reserve has increased gas prices at the pump by as much as 25 cents a gallon.

You can moot this back and forth until the cows come home; there are pros and cons.  The release of strategic reserves does indeed moderate price increases (and it may become our replacement for the balancing function that neither Texas nor Saudi Arabia can effectively perform).  But ask this difficult question:  in an era of declining production, when, exactly, are the strategic reserves going to be replenished? Or will they be reduced–drained–without a thought for their purpose and value?

Let’s linger on that adjective “strategic.”  These oil reserves used to be called the Naval Reserves, until the rise of the air force and the increasing mechanization of ground warfare made it clear that it isn’t just the navy that is dependent on oil.  The idea behind the strategic reserves was to ensure that our war machinery wouldn’t ever suffer the fate that Hitler’s war machine suffered in WWII, when, in the waning days of the war, it stalled for want of fuel.  

Do we want to draw down the strategic reserves, compromising our military power, in order to fuel our addiction to SUVs?  (Does your answer depend on your opinion about the purposes for which our wars might be fought?)  

So, all in all, Senator Sanders goes astray.  He’s saying some of the things that America needs to hear from its political leadership, and he’s courageous for saying it.  But I wish he hadn’t tempered his truths about energy with the other stuff–the appeals to popular misconceptions about those stingy Arabs who are holding back on us, the appeal to popular ignorance about how oil markets actually work, and what seems to me the sorry pandering of a gas tax holiday.

I don’t know if anyone else noticed this, but did you see the McCain numbers from last night?

Indiana:

McCain     317,837   77%
Huckabee    41,018   10%
Paul        31,481    8%
Romney      19,480    5%

Yup. That’s right. He’s their nominee and yet still almost 1/4th of his party is opposing him. In North Carolina it’s even worse:

McCain     381,138   73%
Huckabee    62,917   12%
Paul        40,275    8%
No Pref     20,305    4%

No challenger, and yet he still loses a forth of his party, and Obama gets more than double the votes he receives. This is *good* for Democrats.

UPDATE: MSNBC just called Indiana for Clinton. The margin will likely be in the 18-20k range

Hillary Clinton has canceled her public appearances – including Morning Show TV spots – for Wednesday (she is saying she will still attend a Wednesday evening DC fundraiser, however). This in the midst of a resounding defeat in North Carolina which erases any gains she may have attained in Pennsylvania, as well as an Indiana vote which is still too close to call. With votes from the Obama stronghold of Lake County (containing Gary) still coming in, its at least a 50-50 likelihood that Obama closes the current 20,000 vote gap to take the state outright.

But regardless of the final Indiana winner, the damage to Clinton has been done. A brief tour around the news dial has the likes of Chris Matthews and Tim Russert declaring, without qualification, that Hillary Clinton is finished. That has become the narrative with blinding speed, based on the delegate and popular vote math, along with new rumors that the Clintons are lending more of their personal millions to shore up the newly-struggling effort.

Given that, the cancellation of tomorrow’s appearances could be very, very significant. Is she going to bow out, or will she hold on till the upcoming West Virginia primary where she will likely win by at least 20% (not that it will impact the math, especially with a likely big win for Obama in Oregon around the corner)?

We shall see. The news makes you wonder, but I still have a hard time imagining her accepting defeat. At this point, its just a question of how detached from reality she is (or isn’t).

Boy, does the time get away from you. Tomorrow Seven Days comes out, and I never had a chance to blog on what was in the last one (including some excellent stuff in the official launch of Shay Totten’s column). But I can’t let Picard’s latest get by completely without something (and I’ll say this for Ken Picard – I always look forward to whatever he’s gonna write for the week, whether I’m going to love it or not).

So his piece from last week, while a generally fascinating examination of the minefield of legally acceptable adverstising terminology around housing discrimination issues (and newspapers’ rather extreme degree of responsibility), eventually devolves back into standard media envy, with grousing (overtly and by implication) about how unfair it is that bulletin board web sites (in which content, generally speaking, gets posted independently of any editor or production staff – like a regular public bulletin board) get to be web sites, while the print media has all these pesky laws to worry about. I tend to feel some sympathy for those in the print media, until the whining begins… then it just gets frustrating. At least, in Picard’s piece, the whining isn’t what we were seeing in the coverage of the iBrattleboro lawsuit; denial about the provisions of the Communications Decency Act, in which Congress specifically protected online providers, treating them more as public bulletin boards than newspapers. Instead, its complaining about the CDA itself.

No, in this case, we’re all dealing with reality. I guess that’s an improvement:

In February 2006, Craigslist, the San Francisco-based online forum of classified ads, was sued by a consortium of Chicago attorneys for posting ads that allegedly discriminated based on race, ethnicity and religion. The site included postings with language such as “only Muslims apply” and “no minorities.” Earlier this month, the 7th Circuit Court of Appeals upheld a lower court ruling that Craigslist cannot be held liable for discriminatory language posted by its users.

Why? Because Craigslist doesn’t review or edit its users’ content; that means it’s a bulletin board, not a publication.

“If competing advertising media, such as Craigslist, are now deemed to be exempt from such requirements, it is patently unfair that print newspapers are not exempt,” argues M. Dickey Drysdale, editor and publisher of the Herald of Randolph.

Now I like Dickey Drysdale, but he would do well to consider the voice of reason that follows in the same piece… is it possible that there may be a reason (beyond simple ethics) that these frustrated traditional media usual suspects might reconsider their complaining over internet providers having too many First Amendment rights (emphasis added)?

Richard Karpel, executive director of the Association of Alternative Newsweeklies, of which Seven Days is a member, said the law clearly favors one kind of content provider (websites) over another (print publications). Nonetheless, the AAN joined a “friend of the court” brief on behalf of Roommates.com’s position in the case.

“It’s weird for us,” Karpel said. “But our position has been that Section 230 of the Communications Decency Act gives immunity to website publishers, and even though it puts the newspapers at a disadvantage, we’d rather keep it as it is, because we also have websites.”

Bingo. Folks, if you can’t simply find it within your better selves, as people whose bread and butter rise and fall on the protections granted under the First Amendment, to not insist that others’ First Amendment rights should be curtailed, maybe you could be objective enough to realize that you’re only working against your own interest with this rhetoric.

How about this for an idea: instead of working to drag all media down to the lowest common denominator, what say we all get together to try to reform the over-restrictive laws regarding print media, in order to pull us all up to the highest common denominator?