Tag: energy prices

Obama on Energy

Today Politico Arena asks:

What will the president’s reelection mean for gasoline and electricity prices over the next four years?

My response:

Unless Obama takes some extraordinary measure like imposing price controls, which is possible but not likely, his reelection will probably have little effect on energy prices over the next four years. Oil prices are determined largely by international markets, over which an American president has little if any control. If anything, the domestic shale oil boom that leads the news in the Wall Street Journal this morning is likely to result in lower energy prices.

But there’s a caveat, and that’s the global warming agenda of the environmental zealots. Al Gore, Governor Cuomo, and Mayor Bloomberg are only the latest to promote as conventional wisdom the idea that global warming causes more and more severe hurricanes, despite the lack of credible evidence supporting the claim. Thus, as less expensive fossil fuels promise to help our sluggish economy out of recession, environmentalists will be urging the president to wean the nation away from those fuels and toward far more expensive renewable energy.

We shouldn’t be surprised, therefore, if cap and trade and other such measures are again before us—perhaps through lawless executive order. Reaching vast areas of life, like Obamacare, the president’s energy agenda could, as he promised four years ago, “fundamentally transform e United States of America.”

Mainstream Media’s Trade Gap

In a post at the Enterprise Blog two days ago, economist Mark Perry deftly parodies a typical mainstream media account of trade protectionism by editing the story in redline to contrast its original presentation with its true significance. I recommend reading the whole thing, but here’s the first paragraph:

WASHINGTON POST (Reuters) - A U.S. trade panel gave final approval on Wednesday to duties taxes ranging from 10 to 16 percent on cost-conscious firms in the U.S. who purchase low-priced Chinese-made steel pipe rather than high-price domestic pipe, in the biggest U.S. trade case to date against China American companies (and their shareholders, employees, and customers) who shop globally for their inputs and find the best value in China.

Perry’s point—and I share his frustration—is that the mainstream media typically fail to convey even a sense of the costs of U.S. protectionism to U.S. interests even though Americans (and non-Americans living in the U.S.) bear the greatest burden of that protectionism. When the U.S. government imposes duties on Chinese steel, it is imposing taxes on U.S. consuming industries, their employees, their shareholders, and their customers.

Considering that more than half of the value of all U.S. imports in a typical year is raw materials and intermediate goods (i.e., inputs for producers operating in the United States, who employ people, transact with other businesses, and pay taxes in the United States), the number of U.S. victims of U.S. import taxes is much larger than one can ever glean from a typical media account. Taxes on Chinese-made ”Oil Country Tubular Goods” or OCTG (the subject in the article Perry edits), which are used for oil exploration and transport, will raise costs in the energy industry, which are likely to be passed onto consumers in the form of higher energy prices.

As described in this paper, trade is no longer a competition between “Us and Them.” There is competition between entities that—because of the proliferation of cross-border investment and transnational production and supply chains—often defy any meaningful national identification. But that competition is preceded by collaboration and cooperation between entities in different countries. The factory floor has broken through its walls and now spans borders and oceans—a fact that renders U.S. workers and workers in other countries complementary in more and more cases, and a fact that amplifies the cost of trade barriers.

But media—chained to the false “Us versus Them” paradigm—describe protectionist policies as actions taken by one national monolith against another, and convey the impression that American readers should be cheering for Team America. It is a worldview that conflates the well-being of “our producers” with some homogenized conception of “the national interest.” It is the same misguided scoreboard mentality that colors reporting of the trade account, where exports are deemed “good” and imports “bad.”  And, it is this simplistic, misleading characterization that, in my opinion, is most responsible for withering public opinion about trade and globalization over the past decade.

I look forward to more of Dr. Perry’s editing projects.

Bernanke Still Doesn’t Get It

Yesterday, at the annual meetings of the American Economic Association, Fed Chairman Ben Bernanke offered a continued defense of the Fed’s monetary policies earlier this decade. Essentially he believes that monetary policy did not contribute to the housing bubble.  He also makes clear that he believes that the excessively loose policy stance of the Fed after the dot-com bubble burst was appropriate given the level of unemployment at that time.   Given that today’s unemployment level is even worse, Bernanke has offered us a clear indication that monetary policy will remain excessively loose for the foreseeable future, regardless of the Fed’s inability to actually create jobs.

Bernanke’s remarks also illustrate the contradictions in his own thinking.  At one point he comments that it would have been inappropriate for the Fed to response to increases in energy prices, because such prices were viewed as temporary; yet elsewhere he indicates that most market participants viewed house price increases as permanent, yet the Fed felt it was appropriate to ignore those, for what reason we do not know.  No where in his remarks does he address the impact of ignoring the single largest item behind consumer spending:  housing.

Perhaps the weakest link in Bernanke’s arguments is presenting the false choice of either monetary policy or mortgage underwriting standards.  How about accepting that both played a role.  Sadly when discussing underwriting standards, Bernanke continues to miss the most essential element: downpayment requirements.  Nowhere in his discussion of mortgage defaults does he seem to recognize the role of equity.