Economists' Letter on Offshore Drilling
See below for information about how to add your signature to this letter.Senate Majority Leader Harry Reid
Senate Minority Leader Mitch McConnell
House Speaker Nancy Pelosi
House Minority Leader John Boehner
Dear Senators Reid and McConnell and Representatives Pelosi and Boehner,
As economists, we write out of concern that you are being pressured to lift the Congressional ban on most oil drilling off our coasts, despite the fact that this would do nothing in the short term and almost nothing in the long term to reduce gas prices. Simpler measures that don't threaten our environment would do much more.
The federal government's Energy Information Administration projects that this would have no impact on gas prices in the near-term since it will be close to a decade before the first oil could be extracted. The EIA projects production would reach 200,000 barrels a day at peak production. It describes this amount as too small to have any significant effect on oil prices, even when production is at its peak. [1]
If the US had raised auto fuel efficiency standards between 1985-2005 by a quarter of the amount it raised them annually from 1980-1985, instead of leaving them virtually unchanged, the result would roughly have been the equivalent of 3.3 million barrels of oil per day in new production,16 times the projected impact of offshore drilling. [2] It is reasonable to assume that modest increases in fuel efficiency in the future would have a similar effect. If we negotiated an agreement with Iran that led to the lifting of US sanctions, oil production in Iran could increase 1-2 million barrels a day. That would be 5-10 times the projected impact of drilling off our coasts.
U.S. oil companies are not doing all they can do boost production. In May, the Washington Post reported that Exxon had spent $8 billion buying back shares in the first quarter as a way to boost the value of the stock for shareholders. That far exceeded the company's $5.5 billion capital spending budget.[3] In 2006, Exxon spent $25 billion buying back its stock, again more than its capital spending budget. [4] The industry spent $52.4 billion on stock buybacks in 2006, nearly double the amount in 2005. [5]
It would be far better to pursue modest conservation and negotiations with Iran, having the effect of bringing 20-25 times as much oil on the market, rather than endanger tourism, fishing, and beaches on our coasts for a long-term effect on gas prices that we won't even notice.
Thank you for your consideration of our concerns.
Michael Perelman, Economics Dept., California State University, Chico
James Devine, Economics Dept., Loyola Marymount University, Los Angeles
Hadi Salehi Esfahani, Economics Dept. University of Illinois, Urbana
Mark Weisbrot, Center for Economic and Policy Research, Washington
Rudy Fichtenbaum, Economics Dept., Wright State University, Dayton, Ohio
Michael Brun, Economics Dept., Illinois State University, Bloomington-Normal
Hank Leland, Research Analyst, SEIU, Washington
Edward S. Herman, Finance Department, Wharton School, University of Pennsylvania
Jeffrey Stewart, Economics Dept., University of Cincinnati
Laurence Shute, Economics Dept., California State Polytechnic University, Pomona
References:
[1] Annual Energy Outlook 2007 with Projections to 2030, Energy Information Administration, February 2007.
[2] Offshore Drilling and Energy Conservation: The Relative Impact on Gas Prices, Dean Baker and Nichole Szembrot, Center for Economic and Policy Research, June 2008.
[3] "Up $10.9 Billion, Exxon Worries About New Tax," Steven Mufson, Washington Post, May 2 2008.
[4] "Higher Oil Prices Help Exxon Again Set Record Profit, " Steven
Mufson, Washington Post, February 2, 2007.
[5] "Big Companies Put Record Sums Into Buybacks," Ian McDonald,. Wall Street Journal, June 12, 2006.
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Deadline: end of day Friday August 15.
Robert Naiman
Just Foreign Policy
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naiman--at--justforeignpolicy.org
Labels: offshore drilling, oil, oil prices
What free markets?
Our July/August issue is (finally) going to press; here is the Editors' Note for the issue:The government's response to the ongoing banking and credit crises is beginning to look like a massive redistribution of wealth from taxpayers and ordinary borrowers to the financial companies that got us into these crises in the first place—and to their executives, who profited handsomely along the way. It seems that policymakers and regulators are happy to take a hands-off approach to markets as long as stocks and other financial assets are appreciating—even if that appreciation walks, talks, and quacks like a bubble—but not when the stock market starts to go sour.
The bailout of Fannie Mae and Freddie Mac is a case in point. On the one hand, the government has to back the mortgage giants' bonds, given the enormous number of mortgages they hold or guarantee (over $5 trillion), and given that investors in those bonds—including foreign central banks—have assumed that the government would guarantee them. Failure to honor the bonds would throw the U.S. housing finance system into chaos, hurting millions of families.
But as Dean Baker of the Center for Economic and Policy Research has pointed out, the Treasury Department has also effectively promised a potentially huge bailout of holders of Fannie and Freddie's stock. That would be a bailout on an even larger scale than Bear-Stearns's earlier this year. Unlike the guarantee of the companies' bonds, this piece of the bailout is nothing more than a redistribution of wealth from taxpayers to shareholders who made risky investments.
While the government—the public—is bailing these companies out, how about some conditions? Maybe the public should get to own Fannie and Freddie, following the lead of the British government, which nationalized failing bank Northern Rock earlier this year. At the very least, caps on executive pay would be nice. David Mudd and Richard Syron, CEOs of Fannie and Freddie, made a combined $30 million in salary and other compensation last year.
The bailout of is part of the larger housing bill that also includes steps to address the foreclosure crisis. As Fred Moseley discusses in this issue, the bill's foreclosure provisions in fact amount to a partial taxpayer bailout of mortgage lenders, since refinancing is initiated by lenders rather than borrowers, and the federal government will guarantee the new mortgages. This, when lending companies were the ones who lured people into risky mortgages in the first place. Moseley reviews policies to cope with foreclosures and sorts out which ones will truly help homeowners at risk.
Other issues in the headlines—food, oil—also expose the myth of the "free market." The "fundamentals" of supply and demand have clearly played a central role in the precipitous rise in global food prices, but so has the rush of so-called index investors into new, unregulated "over-the-counter" markets for commodity futures. In the case of the oil industry, supply and demand have never been a free-market affair. In this issue we also examine two of the biggest winners in an economy rigged to redistribute wealth upwards: the managers of private equity firms and hedge funds. The regulatory and tax advantages lavished on our wealthiest citizens make clear that the government is active in the rigging.
Meanwhile, to read the editorial page of the Wall Street Journal, you'd think the big flow of money is from corporations into the public purse, as John Miller reveals in his critique of the Journal editors' stance on auctioning, rather than giving away, carbon credits. Our question is: what planet are they on?
Labels: Dean Baker, Fannie Mae, food crisis, Freddie Mac, hedge funds, Northern Rock, oil, private equity
Skyrocketing Commodity Prices
For months, skyrocketing prices of food, oil, and other commodities have bewildered investors and governments, and have also threatened to raise the price of a subsistence-level diet out of the reach of the world's poorest citizens.Pundits, investors, and government regulators have offered many explanations for the spike in food commodity prices, including the growing use of biofuels in wealthy countries, a loss of crop production after years of destructive agricultural trade policies, drought, and a recent rise in fertilizer and energy prices.
In addition to these factors, the current combination of a weakening dollar, stagnating financial markets, and roaring inflation rates in the U.S. and abroad has led to a renewed interest in commodities among retail and institutional investors. Although the impact of these new commodity "index" investors on commodity prices has been hotly debated, a number of market participants have argued that this new flood of investment dollars has amplified the recent increase in commodity prices.
In his remarkable testimony to the U.S. Senate last month, the hedge fund manager Mike Masters presented evidence that index funds and institutional investors were responsible for recent price spikes in oil, food, and other commodities, prompting a number of responses among financial bloggers, including Yves Smith.
The U.S.'s commodities regulatory agency, the Commodity Futures Trading Commission has been relatively quiet on the issue of commodity index investment until yesterday, when the CFTC's acting chair Walter Lukken announced plans to "improve oversight of the futures markets and bring greater transparency and scrutiny to the types of traders in the marketplace, including large index traders." Ironically, back when he was counsel to Senator Richard Lugar, Lukken helped draft the Commodity Futures Modernization Act of 2000, which opened up U.S. commodities markets to index and retail investment in the first place.
Labels: commodity prices, food crisis, Mike Masters, oil, oil prices, Yves Smith
Naomi Klein at Firedoglake
The discussion appears to be over, but earlier today Naomi Klein was fielding questions about her new book at the weekly Firedoglake book salon.What is the shock doctrine? Klein explains:
I started researching the free market's dependence on the power of shock four years ago, during the early days of the occupation of Iraq. I reported from Baghdad on Washington's failed attempts to follow "shock and awe" with shock therapy - mass privatisation, complete free trade, a 15% flat tax, a dramatically downsized government. Afterwards I travelled to Sri Lanka, several months after the devastating 2004 tsunami, and witnessed another version of the same manoeuvre: foreign investors and international lenders had teamed up to use the atmosphere of panic to hand the entire beautiful coastline over to entrepreneurs who quickly built large resorts, blocking hundreds of thousands of fishing people from rebuilding their villages. By the time Hurricane Katrina hit New Orleans, it was clear that this was now the preferred method of advancing corporate goals: using moments of collective trauma to engage in radical social and economic engineering.We haven't been using Klein's terminology, but disaster capitalism should be a familiar concept to readers of Dollars & Sense. In "Fisherfolk Out, Tourists In" (July/August 2005), for example, Vasuki Nesiah wrote:
Most people who survive a disaster want the opposite of a clean slate: they want to salvage whatever they can and begin repairing what was not destroyed. "When I rebuild the city I feel like I'm rebuilding myself," said Cassandra Andrews, a resident of New Orleans' heavily damaged Lower Ninth Ward, as she cleared away debris after the storm. But disaster capitalists have no interest in repairing what once was. In Iraq, Sri Lanka and New Orleans, the process deceptively called "reconstruction" began with finishing the job of the original disaster by erasing what was left of the public sphere.
From Thailand to Sri Lanka, the tourist industry saw the tsunami through dollar signs. The governments concerned were on board from the outset, quickly planning massive subsidies for the tourism industry in ways that suggest the most adverse distributive impact. Infrastructure development will be even further skewed to cater to the industry rather than to the needs of local communities. Within weeks of the tsunami, the Alliance for the Protection of National Resources and Human Rights, a Sri Lankan advocacy group, expressed concern that "the developing situation is disastrous, more disastrous than the tsunami itself, if it is possible for anything to be worse than that." ...And I heard similar analysis from local African American activists along the Gulf Coast of Mississippi, following Hurricane Katrina. When I interviewed Derrick Evans of Turkey Creek Community Initiatives (March/April 2006), he said:
Proposals announced by TAFREN [Task Force for Rebuilding the Nation] and by various government officials call for the building of multi-lane highways and the wholesale displacement of entire villages from the coast. Coastal lands are to be sliced up into designated buffer zones and tourism zones. The government is preventing those fishing families who wish to do so from rebuilding their homes on the coast, ostensibly because of the risk of future natural disasters; at the same time, it's encouraging the opening of both new and rebuilt beachfront tourist hotels.
The plans are essentially roadmaps for multinational hotel chains, telecom companies, and the like to cater to the tourism industry. Small-scale fishing operations by individual proprietors will become more difficult to sustain as access to the beach becomes increasingly privatized and fishing conglomerates move in. The environmental deregulation proposed in the PRSP will open the door to even more untrammeled exploitation of natural resources. None of the reconstruction planning is being channeled through decision-making processes that are accountable or participatory. Ultimately, it looks like reconstruction will be determined by the deadly combination of a rapacious private sector and government graft: human tragedy becomes a commercial opportunity, tsunami aid a business venture.
Not unpredictably, even the subsidies planned for the tourism industry in the wake of the tsunami are going to the hotel owners and big tour operators, not to the porters and cleaning women who were casual employees in hotels. Many of the local residents who were proprietors or workers in smaller tourism-related businesses, now unemployed, are not classified as tsunami-affected, so they are denied even the meager compensation they should be entitled to. The situation is much worse for the vast informal sector of sex workers, souvenir sellers, and others whose livelihood depended on the tourism industry. If the tsunami highlighted the acute vulnerability that accompanies financial dependence on the industry, the tsunami reconstruction plans look set to exacerbate this vulnerability even further.
[W]hat you'll find is that the unresolved problems pertaining to any one of those issues can be overlain on a map: that the lowest-lying land is typically where black folks, generations ago, would have acquired their land; where they would have settled and developed their communities, which would have been the least disturbed by 20th-century infrastructure; and that now, in the wake of a "Mississippi miracle"--the economic revitalization of the coast, for example, the advent of dockside casinos--would be the most ripe or prime for redevelopment.David Bacon, writing in this year's Annual Labor Issue, sees similar forces at play in Iraq.
Today, you've got casino- and tourism-driven feudalism, coupled with militarism, constituting much of the local economy. Katrina has probably raised the cachet of the casinos and the military bases even more as the two main mules that are gonna pull us out of this mud. Government contracts for shipbuilding; bigger, wider roads and highways for trucking. Deeper, wider, dredged out shipping lanes for shipping; free trade agreements. Bigger and better casinos with more bells and whistles. More of the same is the economic forecast, because they can't imagine anything else.
President Bush says he wants democracy, yet he will not accept the one political demand that unites Iraqis above all others. They want the country's oil (and its electrical power stations, ports, and other key facilities) to remain in public hands.Perhaps the quickest way to understand how shock plays into all of this is to watch the short film based on Klein's book.
The fact that Iraqi unions are the strongest voice demanding this makes them anathema. Selling the oil off to large corporations is far more important to the Bush administration than a paper commitment to the democratic process....
The occupation has always had an economic agenda. In 2003 and 2004 occupation czar Paul Bremer published lists in Baghdad newspapers of the public enterprises he intended to auction off. Arab labor leader Hacene Djemam bitterly observed, "War makes privatization easy: first you destroy society; then you let the corporations rebuild it."
The Bush administration won't leave Iraq in part because the economic agenda is still insecure.
One Firedoglake commenter asked Klein,
Isn’t shock a funciton of any visionary change, regardless of whether it is left or right? Mao & Pol Pot come to mind. Why, then, is it disaster capitalism rather than disaster transformationalism?Klein replied:
I wrote this book because the far left has been held accountable for the crimes and abuses required to impose its utopian, year-zero fantasies. The far right has not. And when criminals are not held accountable for their crimes, they re-offend. It’s worth remembering that Paul Bremer was Kissinger’s right hand man during the coup in Chile in 1973.In today's discussion, Klein emphasized nonetheless that market forces are not all powerful and that, in fact, we are at an important turning point.
The so-called “free market” is in crisis today - we see it with sub-prime, a s well as with the massive disillusionment with the Bush Administration. Even Greenspan warns in his book that people are losing faith in market fundamentalism.
This is a moment for the left/progressives to propose our vision with real confidence and without apologies. We shouldn’t be afraid to be angry at grotesque injustice, and we need to stop being apologetic about believing in universal human rights and universal health care.
Labels: Books, Disaster Capitalism, firedoglake, Gulf Coast, Iraq, katrina, mississippi, Naomi Klein, oil, sri lanka, tsunami, unions