Tag Archives: oil subsidies

Obama’s Energy Solution: More Government

President Obama took his weekly radio address to speak towards the growing gas prices across the country and offered a variety of solutions. The common denominator of most of his solutions however, was the direction of, funding from, and oversight by the federal government.

At the onset, President Obama announced the creation of a task force to search and destroy “manipulations in the market that might affect gas prices” with particular focus on speculators. Speculators have been the go-to escape goat on oil prices by both the left and right. Unfortunately, the President’s efforts are misguided. Speculators are those trained individuals who — with advanced knowledge of supply, demand, and the effects on each by current events — buy and sell oil at risk to themselves. If they speculate that in light of a new fervent uprising in Iraq or Nigeria will shake the production of oil, they will buy oil, increasing its price. If an oil company strikes a new bountiful oil well, they will sell, and prices will decrease. We rely on speculators’ insight and knowledge of the oil market to give us oil at its market price.

President Obama seems to view things differently. Such high gas prices shouldn’t be so, facts or market signals be damned. Instead, he seeks to root out, regulate, or annihilate the very components of the oil market that make it tick. Just as a contractor has the experience and know-how to complete a project on time and on budget, so too do speculators have the skill to buy and sell oil based on the facts of production. To assume the federal government could “resolve” anything related to speculation is an insulting irony.

Secondly, Obama seeks to expand domestic oil production, a step forward, but caveats such production with more regulation and misguided incentives, two steps backwards. The President wants to unleash new permits to oil companies for drilling off the coast of Alaska, but says in order to make the process streamlined, a new government organization is required. Such logic seems counterintuitive; how is it that more government bureaucrats and red tape will quicken leasing and not in fact slow it down? Moreover, the President wants to incentivize companies to drill in unused leases — leases that do not have production-worthy quantities of oil or gas. So while the president pushes for the end of oil subsidies, he’s more than willing to subsidize unproductive oil wells. Seems a little two-faced. The only thing different between “incentives” and “subsidies” is the name. The money still comes from you and me.

The President has taken a statist approach to solving the “problem” of high gas prices. Yes, gas prices are high, but oil is a limited resource subject to an infinite array of market conditions, current events, weather, and simple luck of the draw in drilling. To demand a set price based on nothing but wishes is anti-capitalist speak. Dictating prices didn’t work for Stalin, Lenin, or Brezhnev; it wont work for Obama.

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Time to End All Corporate Welfare

It’s of little surprise that House Speaker John Boehner rejected attempts to end oil subsidies, considering the entrenched ties the GOP and the oil industry share. Companies like Chevron, Exxon, and ConocoPhillips all donate large sums of money to overwhelmingly Republican candidates and PACs. Make no mistake, I believe campaign donations are a form of free speech, a right of which a company should not be excluded from. Further still, Republicans are not the only party tainted by special interests. Democrats themselves have invested interests in maintaining the favorable position of labor unions and green energy companies. My contention here is the perverse incentive that exists as a result of oil subsidies.

Consider this model: politicians use their political power to expropriate taxpayer money towards favored interests causing a cyclical phenomenon of continual handouts for continual electoral support. Not too hard to comprehend or deny, is it? But look further and find a inherently immoral and unconstitutional weave.

First of all, on what moral basis does the government have to donate our tax money to a specific industry or company? Aren’t businesses a competent of  the economy? Of a free market? Of capitalism? Shouldn’t those businesses succeed for fail based on the level of satisfaction they provide to their customers (as opposed to their preferred politician)?

Corporate welfare, then, undercuts you and I, the taxpayer and customer. For example, AT&T, the nations largest telecommunications provider, is in the process of eliminating its unlimited mobile data service plans. Call them indulgent, but many Americans (including myself) have become accustomed to not paying by the bite and will find little reason not to switch to one of AT&T’s competitors that does offer unlimited plans. In large enough quantities, customer drops in turn might persuade AT&T to upgrade or expand its infrastructure to compensate for larger bandwidths. But introduce federal subsidies into the equation and AT&T can compensate for this hypothetical precipitous drop in customers.

Subsidies distort market signals and rest on the premise that the government can invest capital better than the private market could. Government, however, lacks the same market signals that private capital markets benefit from. Private investors are much more capable in determining what products and services have the greatest return on investment.

Take a quick glance over the Constitution and you might have a hard time finding Congress’ ability to fund businesses or form public-private ventures with financial behemoths or automakers. Such moral hazards are a gift from the Supreme Court’s generous and far-reaching interpretations of the General Welfare clause (to which we tip our hats) which has allowed Congress to expropriate money that is rightfully supposed to go to little things like protecting our rights as Americans.

It’s high time we end corporate welfare; not just for oil companies, but for all companies; not just because of times of austerity, tough choices, or constitutional reawakening, but because morally, the government has little sanction to spend our money on favors.

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