Fossil Fuels Phobia

Democrats always wind up hurting those they ostensibly care about.

The Democrat Party’s Green New Deal is nothing but a pipe dream. Its only value is to serve as a reminder of the party’s fossil fuels’ lunacy.

Fossil fuels are an issue that sharply distinguishes Democrats from Republicans. Republicans consider fossil fuels a blessing, Democrats consider them a curse. Democrats openly advocate leaving our fossil fuels in the ground beyond the reach of humans. The radical environmentalist group Greenpeace is waging a “keep it in the ground” campaign.

The Democrats protest every attempt to increase the supply and reduce the prices of oil and gas. They fight fracking, pipelines, offshore drilling, and development of ANWR (Arctic National Wildlife Reserve). They have advocated special taxes on fossil fuels (the “carbon tax”), and arbitrary mileage requirements for cars and trucks. Fracking is banned in the entire state of New York. They guilt-trip everyone for their so-called “carbon footprints.”

Fossil fuels provide a wide array of benefits to humans. Those benefits are nothing short of profound — warmth, mobility, illumination, cooking, air-conditioning, just to name a few of the more obvious ones. Fossil fuels are not a minor blessing, they are a gigantic blessing. Without them our living standards would be a fraction of what they are now.

Fossil fuels are the raw materials for a mind-boggling array of products. Natural gas, surprisingly, is the primary ingredient in the production of nitrogen fertilizer, a major factor in “the green revolution.”

When oil and gas prices are low the benefits reverberate throughout the economy. Oil and gas prices can be thought of as “super prices,” prices that affect thousands of other prices. (Other examples of super prices are exchange rates and interest rates.)

Energy is a major cost for businesses and industries. For individuals low oil and gas prices are the equivalents of a pay raise or tax reduction. Democrats claim to be champions of low and middle income groups. Their disdain for the enormous benefits of low prices shows them for the frauds they actually are. Judging by their policies Democrat politicians are economic sadists.

California is an example of what happens when Democrat policies are pursued without opposition. Gasoline prices in the state are typically a dollar per gallon higher than those prevailing in the rest of the U.S.

Another way fossil fuels are a blessing is their sheer abundance. Humans have been enjoying the benefits of fossil fuels for over 200 years and yet the known recoverable reserves are greater than ever before.

Although the physical quantity is no greater than it was at the beginning of that period, our ability to identify and recover what’s there has increased exponentially, basically because human knowledge and technology have increased exponentially. As R.W. Emerson put it, “invention breeds invention.” Amazingly, known reserves are increasing faster than they’re being depleted. The once common concern known as “peak oil” looks silly in hindsight.

The two main factors contributing to the abundance of oil and gas are fracking and horizontal drilling. Fracking makes possible the recovery of oil and gas from shale formations which are common across the globe under both land and sea.

For example, the Permian Basin in southwest Texas is now responsible for a third of all the oil and gas produced in the U.S. Although once a major source of production, it had reached a peak in the early 1970s. With the advent of fracking it is now the world’s most productive oil field, recently surpassing Saudi Arabia’s Ghawar field. A bonus is that oil from the Permian is “sweet” (meaning low sulphur), making it less costly to refine.

Three new pipelines connecting the Permian Basin to the Gulf are scheduled for completion next year. Their combined capacity will be more than 2 million barrels a day.

The abundance of oil within our borders provides us foreign policy flexibility. We can get along just fine without Iranian and Venezuelan oil.

An often underappreciated advantage of fossil fuels is that they are “energy dense.” Solar and wind energy are anything but energy dense because sunlight and wind are not energy dense.

Relying on solar panels to power a thousand homes requires 32 acres of land. Additionally, that land will be taken up for as long as the power is generated. The grotesque solar panels and windmills will be visible for who knows how long. Windmills kill more birds every year than oil spills ever have or ever will.

A major challenge with so-called renewables is storability. The electricity generated by solar and windmills often does not match when it’s needed. Oil, gas, and coal are relatively easy to store and match availability with need. For automobiles, gas tanks are cheaper and last longer than batteries. Filling a gas tank is more time efficient than charging a battery. Time is the scarcest resource.

An oil or gas well requires an opening in the ground approximately one foot in diameter. After the well is completed the drilling rig can be taken away and used again elsewhere. Horizontal drilling reduces the necessary footprint even further by increasing the area reachable from a single well.

Fossil fuels are relatively easy to transport. Oil is a liquid, natural gas is, of course, a gas. Because of those characteristics both can be transported to ports and refineries via pipelines. Pipelines are much cheaper and safer than the alternatives, e.g. trains, ships, and trucks.

Unfortunately, protesters and lawsuit filers do everything in their power to obstruct pipeline construction. Completion of the famous Keystone Pipeline that goes from Canada to the Mississippi River is currently on hold because of one judge’s order. Fortunately, the Trump administration recently submitted a new permit application for the pipeline so it may once again be back on track for completion. Democrats love talking about the need for more investments in “infrastructure,” but anytime it goes from talking to doing they’re missing in action.

So why do Democrats think that fossil fuels are a curse and that we should even cease using them altogether? There is only one reason they offer — the possibility of man-made climate change.

The choice we face is between enormous current benefits that are 100 percent certain compared to the possibility of climate disaster decades in the future. Keep in mind the disaster is a prediction, not a certainty. It is not even a probability, at least not one that has been quantified. Something in the future cannot be certain, especially not decades in the future.

At this point the possible connection between CO2 and climate change is a theory, not a proven fact. The predictions are based entirely on computer models which have been dismal failures in predicting past climate changes. Climate alarmists don’t even offer a clear definition of “climate change.”

Democrats believe that all the benefits we derive from fossil fuels can be derived by developing “alternatives,” the so-called “renewable resources.” Renewable and non-renewable are how they define good and bad. It’s not that simple. In the real world every choice has advantages and disadvantages.

The Democrats’ hostility toward fossil fuels leads them to all kinds of counterproductive policies. Their ethanol mandates result in forty percent of all the land used to grow corn being devoted to ethanol production. Currently that’s over 34 million acres in the U.S. alone. That has the secondary effect of reducing the supply and increasing the prices for food available for humans and other animals, once again exposing the Democrats willingness to punish those they profess to care about.

Ethanol does serious harm to small gasoline engines. (Do not put it in your lawnmower.) Gasoline is oil-based, ethanol is water-based. Mixing them and keeping them mixed is problematic.

Ethanol produces only about two thirds as much energy per gallon as does gasoline. That difference reduces mileage about one to two miles per gallon, ironically at the same time the government is increasing mileage requirements. In light of the abundance of fossil fuels, using farmland to produce energy is a terrible idea.

To deny humanity the enormous blessings of fossil fuels is ridiculous. The Green New Deal proves that the Democrat Party is not serious. The party that was once serious has detached itself from reality.

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◼ Fossil Fuels Phobia April 25, 2019

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

California Gasoline Prices: The Damage Done

Currently the average price of regular gasoline in California is $3.81 per gallon. That is $1.11 above the national average ($2.70). What are the reasons for this 40 percent higher price? There’s a witch’s brew of factors, but in a nutshell it boils down to the fact that California’s Democrat politicians have taken on the responsibility of saving the planet. That, of course, is a quixotic endeavor. Californians are wasting billions of dollars and getting nothing in return.

Individually California consumers spend about sixteen dollars more than necessary each time they fill their gas tanks or about $600 a year on average. Collectively California consumers purchase 14 billion gallons of gasoline each year. In other words, we’re spending $15 billion a year more than what we would if gasoline prices equaled the national average. The benefit-cost ratio of those expenditures is as close to zero as you can get.

Fuel costs are a major budget item for many California businesses. High gasoline and diesel prices have impacts beyond what can be seen at the pump.

One big contributor to the price difference is the “special formulation” for gasoline in California. Think of it as special gasoline for a special state. The formulation is the brainchild of the California Air Resources Board, possibly the most powerful and destructive bureaucracy ever created by a single state.

The special formulation supposedly creates less air pollution than gasoline sold in the other 49 states. Unfortunately, there are only a small number of refineries capable of producing the special formulation. That fact leads to other costly problems. The small number of refineries restricts supply and reduces competitive pressure resulting in higher prices. Whenever a refinery is out of commission prices spike. That happens on a fairly regular basis.

Another culprit in California’s elevated gasoline price is the “California Carbon Tax Law of 2014.” The tax took effect at the beginning of 2015. It mandates that petroleum suppliers buy “pollution permits” for the greenhouse gases generated by the fuel they deliver. At this point, how this complicated law is actually going to play out and how the revenue is to be used is anyone’s guess. At the present time a permit for producing a ton of CO2 is roughly $12.

The law “finds and declares” that “Global warming poses a serious threat to the economic well-being, public health, natural resources, and environment of California. The adverse impacts of global warming include the exacerbation of air quality problems, drought, fires, and an increase in the incidences of infectious diseases, asthma, and other human health problems.” We’re doomed!

The authors of the law could not resist the opportunity for patting themselves on the back: “California has long been a national and international leader on energy conservation efforts through energy efficiency requirements, renewable energy standards, natural resource conservation, and greenhouse gas emission standards for passenger vehicles.” Californians are so lucky to have such wonderful politicians watching out for their well-being.

Will not higher gasoline prices disproportionately impact low income earners? Not to worry. They thought about that already: “It is the intent of the Legislature that revenues collected under this part be rebated to taxpayers, particularly low- and medium-income taxpayers, of other taxes imposed under this code. In that regard, implementation of the carbon tax is intended to be revenue neutral.” Isn’t that clever? Devilish details yet to be determined.

Politicians and environmentalists do not consider high fuel prices to even be a problem. In fact, they applaud them. The state’s Carbon Tax Law is deliberately designed to increase the price of gasoline and diesel fuel for California consumers. The law states, “The prices of fossil fuels in California’s energy markets do not reflect the true cost to society of the combustion of hydrocarbon fuels and the release of carbon dioxide into the environment.” Once again politicians have declared that the price system isn’t working properly and it’s their job to put that right.

Although not unique to California, fuel prices are also made unnecessarily high because of the federal “Renewable Fuels Standard.” That’s the widely criticized law that mandates blending ethanol with gasoline. California’s enthusiasm for that law is above and beyond that of most other states.

The RFS adds insult to injury because ethanol has only about two-thirds as much energy per gallon as compared to gasoline. Consequently, E10 (ten percent ethanol) results in “3 to 4 percent fewer miles per gallon” than with pure gasoline according to Fueleconomy.gov.

Retailers in most states give consumers a choice between straight gasoline and E10. In California you are prohibited from using straight gasoline on streets and highways. Since ethanol does damage to small engines (lawnmowers and chain saws, for example) Californians have been graciously allowed to purchase straight gasoline. Relatively few dealers exist, however, and the price is significantly higher (currently $5.46 per gallon at one local dealer) than for E10. Dealers are heavily fined if they get caught putting pure gasoline into automobiles.

The Renewable Fuels Standard not only increases the price of fuel, it also does additional damage by raising food prices. Because of the ethanol mandates, 40 percent of the nation’s corn production goes to fuel not food. Everyone in the country, not just Californians, is paying more for food because of the RFS.

Still another contributor to the unusually high gasoline prices in the state is the above average gasoline tax. Nationally the average gasoline tax is $.49. The California tax is $.69 per gallon for gasoline and $.79 per gallon for diesel. Are streets and highways better in California than other states? Not noticeably.

Complaints about California’s high gasoline prices are surprisingly rare. Why more Californians don’t complain about how they’re getting soaked by the state’s politicians is a mystery. Maybe this summer as many of them drive through other states on their vacations, more of them will become aware of the totally unnecessary damage being done to their budgets. Maybe they will start screaming and hollering. They certainly have reason to.

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◼ California Gasoline Prices: The Damage Done May 21, 2015

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

Speculators and Manipulators

Other than killing Osama bin Laden, President Obama seems incapable of taking responsibility for anything. Blaming speculators is the latest iteration in his ongoing crusade to escape responsibility and to change the subject. He has added speculators to a long list that includes George Bush, insurance companies, greedy physicians, big oil companies, “fair share” fugitives, and Republicans in Congress. He should change his name to Barack Oblama.

Obama’s specific charge is that speculators are the reason for rising gasoline prices. Robert Reich, who for some unknown reason claims to be an economist, says that “speculation by U.S. index fund traders has been raising prices by up to $1 per gallon.”

Speculation can mean many things and take many forms. Basically, it is the attempt to profit from price changes.

Confusion about the role and impact of speculation has been common and recurring throughout history. Take, for example, the accusation that speculators artificially increase the price of the commodity in question.

It’s true, of course, that speculators can contribute to an increase in the market price of something by adding to the demand for it. What’s important to keep in mind, however, is that’s only half the picture. A speculator cannot make a profit by simply buying something. There’s no profit in hoarding. There has to be a round trip of both buying and selling. The main objective is to buy at one price, and then to sell at a higher price.

The impact of buying pushes prices up, the impact of selling pushes prices down. There is absolutely no reason to assume that speculators permanently increase the price of anything.

Speculation can benefit the economy in a number of ways, one of which is to allocate resources between time periods. An economy, like everything else, exists in time and space. The value and usefulness of something can be increased by changing the time and/or location it’s made available to users.

The supply of no commodity is constant over time. Prices tend to be low when supply is abundant and high when it’s not. The supply of corn is highest right after harvest time. If all of that corn were dumped on the market at the same time the price would be extremely low. The incentive to use it efficiently would be weak. Months later we could expect a shortage of corn and the price would spike. Speculators anticipate this dynamic. They buy when the supply is abundant and the price low, pushing up the price, and sell when the supply is low, pushing down the price. The net result is that both market prices and available supply are moderated.

Speculators, as such, are not philanthropists. They don’t wake up in the morning asking themselves, “How can I benefit humanity by stabilizing prices and supply over time?” Their actions are motivated by self-interest and profits. In the words of Adam Smith, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” The societal and economic value of speculators is not as obvious as for butchers, brewers, and bakers, but it can be every bit as real.

The information and incentives provided by the price system are crucial to the efficiency of how and when resources are employed. Speculation helps short-term prices conform to long-term realities. The economy functions best when we don’t allow temporary abundance to give false signals about what will be true in the long run.

Speculation is one of the factors that lead to what economists call “price efficiency,” meaning prices that reflect all available information. Such information includes expectations about future conditions. For example, if a stock’s price is expected to be higher tomorrow, it will be higher today.

Speculators assume the risk other economic players would rather avoid. A farmer can sell his crop even before he plants it. The farmer essentially transfers the risk (uncertainty) of price fluctuations to someone else. He can focus his efforts on farming and not worry about the vicissitudes of the market.

Speculators usually face intense competition with other speculators. The current price will be bid up until the anticipated profit is roughly equal to the average of other investment alternatives. At a minimum, the expected price change has to cover the costs of storage if they are to make a profit. Furthermore, speculators are not assured a profit. When their predictions are wrong, they lose.

Blaming speculation for high prices reflects the rawest kind of economic ignorance. I couldn’t begin to count the number of times I have been stunned by the utter lack of economic understanding demonstrated by Barack Obama.

Obama and his ilk are willingly and deliberately ignorant of economics and economic realities. Economics is an annoying impediment to their utopian belief system and their political objectives. Obama doesn’t understand how a market economy works, and doesn’t want to know. If he could he would criminalize the free market. He is as clueless as the worst economics student I ever taught, even at the beginning of the class. Obama never lets ignorance slow him down and we all suffer as a result.

Regulations against market “manipulation” already exist and are enforced by the Commodity Futures Trading Commission. President Obama has recommended increasing fines tenfold to a maximum of $10 million per violation, as well as more enforcement funding for the CFTC. According to the Wall Street Journal, “In the past 35 years, the CFTC has brought dozens of cases of manipulation in energy markets. It was successful in proving only one in court.” Besides prohibitions on manipulation, the regulations also prohibit “recklessness” and the creation of prices that are “artificial” (in contrast to being determined by supply and demand). The CFTC has the all but impossible task of proving that one firm has the ability to affect prices on the multi-billion-dollar commodities markets. No wonder the agency has such an atrocious track record.

More regulations and more bureaucracy will not stop imaginary problems that are impossible to define or enforce. They may help Barack Obama distract attention from his disastrous first term, but otherwise they are a counterproductive waste of time and resources.

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◼ Speculators and Manipulators May 3, 2012

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.