Stupid Is As Stupid Does
By Harris R. Sherline
Harris Sherline is a
retired CPA/Executive, who relocated to Santa Ynez Valley in 1984,
after 7 years in Santa Barbara. His 50-year career included a 7-year
stint as Chairman/CEO of Santa Ynez Valley Hospital. He is a regular
contributor to these pages and represents the Right side of the political
spectrum in his columns.
Why is
the price of gasoline so high? Or
is it?
As prices
yo-yo up and down, the response from the Right usually has something to do with
“market conditions,” such as increased world-wide demand or the “free market,”
while from the Left, it’s caused by the oil companies manipulating the supply.
Is the
oil industry conspiring to raise the price of gas and increase their profits? Many people believe they already make
too much money. If that’s true, how
is it that their profitability, at around 9% net earnings after taxes, is not
as high as that of many other industries? For example, net earnings (as a
percentage of revenue) of the banking and pharmaceutical industries is roughly
double that of the oil companies.
Exxon-Mobil
and the oil industry in general have been aggressively castigated by the media,
Congress, and just about everyone else in America - for manipulating the price
of gas to increase their profits during the aftermath of the hurricanes in the
Gulf region, or because of the situation in the Middle East or because of
shortages during peak periods of demand, such as the summer months.
There
have been repeated Congressional investigations into this charge, none of which
has ever produced anything but publicity for the politicians involved. Yet, the oil companies continue to be guilty
as accused. Not as charged, but as
accused: Exxon-Mobil and the other oil companies are cheating the public by
making too much money.
But,
who’s to say if their profits or, for that matter, the profits of any business
or industry are too high? Generally, the answer is their
customers, who vote with their pocketbooks.
However,
the public has few alternatives to buying oil and gas to operate their cars. There are not many cost-effective
alternatives, so gasoline is pretty much it for vehicles, which leaves
consumers at the mercy of the oil companies.
But, if
what we are being told is true about ethanol, help may be on the way.
Those on
the Left seem to believe that it’s possible to conserve our way out of energy
shortages or that developing alternative sources, such as ethanol, is the
answer, while purists on the Right hold that if we would just get out of the
way of the free market, our energy problems would be automatically resolved.
So,
who’s right?
Long term,
50 to 100 years, that is, I believe the answer is to develop alternative sources
of energy. And, the high energy
prices everyone is currently complaining about are probably the best incentive
to do just that. The higher they
go, the greater the motivation to find alternatives.
I also believe
the short-term solution is to increase the supply of oil. To do that, however, it will be
necessary to overcome the forces of environmentalism, who don’t want any
drilling anywhere in or near the U.S., ever.
One
glaring example of their intransigence is the fact that we are not allowed to
drill for oil off the coast of Florida, where there are some large fields,
notwithstanding the fact that the Chinese have been negotiating to drill off
Cuba’s coast, just 90 miles from our shore. So, while America fiddles to the tune of political correctness,
the Chinese will drill just outside our coastal waters to provide for some of
their own growing energy needs.
Another
example is the environmental regulation that is so difficult and costly to
navigate that the oil companies stopped trying to build new refineries over
thirty years ago. The consequence
of this is to limit supply at the very times when demand is highest, such as
following the Katrina disaster. The obvious solution to this part of the puzzle
is to simplify, suspend and/or eliminate some of the most onerous of these laws
and get government out of the way.
But, you can be sure that’s not going to happen. At least not in the foreseeable
future.
At the
very time when everyone is screaming about freeing ourselves from the yoke of
imported oil, we continue to shoot ourselves in the foot: No drilling, nowhere,
no time, no how, not ever, in Alaska, off the coasts of California or Florida,
the Gulf coast, etc., etc., etc. And no large scale solar, wind or nuclear power because
of their impacts on the environment.
So, what
are we to do?
Growing
our energy in the fields by using corn to produce ethanol seems like a great
idea. After all, Brazil has done
it very successfully, so why not us?
Unfortunately,
it’s not that simple. So far, the
only way the U.S. has been able to produce ethanol at a reasonable price for
the consumer has been to subsidize the process. Although we may not be paying for it at the pump, it will
cost us anyway. Just how much that
may be isn’t yet clear, but it’s a popular idea.
Furthermore,
there are ancillary problems, the “unanticipated consequences” we so often hear
about. For example, in Mexico,
ethanol production is driving up the price of their most important dietary
staple, tortillas, because it appears there isn’t enough corn for both energy
and food. In Brazil, ethanol
hasn’t affected the price of food because it’s made from sugar crops, but it’s
causing other major environmental and social problems. Producing ethanol may ultimately prove
to be a far worse societal disaster for Brazil than anything environmental
activists ever envisioned being caused by drilling for oil.
Writing
in the Washington Post (January 26, 2007), Pulitzer prize-winning columnist Charles
Krauthammer made the following observations about Ethanol:
… bio-fuels
will barely keep up with the increase in gasoline demand over time. They are a huge government bet with
goals and mandates and subsidies that will not cure our oil dependence or even
make a significant dent in it.
We will
always need some oil. And the more
of it that is ours, the better.
As
Forrest Gump’s mother famously said, “Stupid is as stupid does.” If we’re so stupid as to continue
preventing any more oil and gas from ever being developed or refined in the
U.S., we will have no one but ourselves to blame when we are finally forced to
curtail our way of life. The
problem is that most of those who are responsible will not be around when the
consequences of their stupidity finally hit the fan. It will be up to our children and grandchildren to find the
answer, if they can.
© 2007 Harris R. Sherline, All
Rights Reserved