Thursday, December 30, 2010

Oil: A Short Review of Our Political-Economic History

20-10 is almost history, so today I would like to review a little economic history. Not all history is political history, but because there are taxes to be paid at so many levels, it is more accurate to refer to past events as a political-economic interpretation of our recent history. Many years ago, when I was an undergraduate studying American History at the University of Cincinnati, I wrote a paper titled "An Political-economic Interpretation of the Louisiana Purchase of 1803". I discovered after reading old newspapers in the basement of the Cincinnati Public Library that there were strong economic reasons for President Jefferson to make the Louisiana Purchase. The importance of the Mississippi River was no small part of the consideration as the farmers in the interior states needed the Mississippi River to get their produce to market. This all takes place before the internal combustion engine, and yet the movement of goods on the water was a life and death situation for the producers in the interior.

The American economy runs best on inexpensive oil. Oil and our dependence on foreign oil has brought us to where we are today. Back in 1973, (I know this is ancient history to some people, but please bare with me) when the first oil embargo took place, the United States was put on notice that oil was now a political-economic weapon. From 1973 to the Gulf War of the early 1990s, the United States continued to grow its dependency on foreign oil, and its dependency on oil to move goods and services around the country became greater not less.

When Saddam Hussein attacked Kuwait and took control of their oil fields and appeared to be headed to over run Saudi Arabia, the United States was forced to take action. The American Armed Forces pushed Saddam and the Iraq army out of Kuwait and then stationed troops in Saudi Arabia to protect their production of oil. Oil plays a key role in the political-economic life of nations in the 21st century, as it did in the later half of the 20th century. Without oil, nothing moves, and when nothing moves there is no commerce and when there is no commerce there is no life. Oil is pivotal, it is the blood of commerce.

The cost of a barrel of oil has been going back up. For each penny a gallon of gas goes up in the United States, over a years time one billion dollars is taken out of our domestic economy. Taxes are not just collected by governments, money that leaves our domestic economy is a form of a tax. The future does not look good for the price of oil or gas to come down. Many economies around the world are growing more dependent on oil to grow their economies. We need to do one of two things: We need to take someone else's oil over and own it ourselves, or, we need to reduce our dependency on oil and gasoline. We have spent billions of dollars on wars that are directly related to our need for oil, and yet for all our sacrifices, we have no inexpensive oil to show for our efforts. I am not going to continue to connect the dots. Those of you who understand where this line of thought takes you can connect the dots yourself. We all are paying a higher price at the gas pump, and that higher price is taking the life blood out of our domestic economy. Think about that for a moment.

Stay tuned.


LceeL said...

Just one thread to follow of the many threads there are that make up our socio-economic-political life.

Butch said...

To follow the issue of independence from foreign oil, have you heard of fracking for natural gas? There is a documentry film called "Gasland". If you haven't seen it I would suggest you try to find it. You can view it on the net, they have shown it in some cities, even here in Dayton. It was an HBO presentation I believe.

The point is that the economic impact of oil, of any kind from any place other than the USA is going to be very very costly. Not only because of the price of the commodity but in some cases it is the costs of the alternative energy.

Currently the big fans spinning in the fields as they capture the wind to produce energy are not being produced here like we had hoped. Thus, jobs are not being created as we hoped. Mind you some of this is changing but in today's climate....not fast enough. On the natural gas issue it is going to be much more costly than anything we have today and possibly the future, in my humble opinion.

Thank you George Bush and Dick Chaney for pushing through legislation that keeps the companies that are doing the drilling above the law. Not even the EPA or Congress can touch them. They are totally unregulated. If we think the Gulf of Mexico spill was costly, just wait until the medical bills start being paid for by the tax payers. People are not only getting sick they are dying from the contamination of the hundreds of chemicals used in fracking. Some states are looking into it but damage has been done. What will end up being the right thing to do (decision) will be of great impact on our nation and its people in the economic world of the future.

Oil and it's impact on the economic effects of our society are one thing. Fracking is a whole new ballgame. When you can turn on your tap water and light the "air bubbles" as it is airiated, something must be wrong. The sorry thing about it is our government knows about it and is doing nothing about it. Oh wait a minute. I'm wrong, they're holding fact finding sessions and meetings on it. Some of them are probably investors like Dick and George.

You went back to the early 70's for the oil embargo....well, go back to the Love Canal and mulitply that by possibly hundreds of thousands in cash outlays and thousands of deaths.

History is the past and the present. My wife always tells me to quit living in the past. I tell her I would rather live in the past today than think of what the future history holds for the kids of today.

Water will be the new liguid gold, not the black shiney stuff that sticks to everything.

moneythoughts said...

Butch, thanks for your comments. Yes, I have seen on 60 Minutes a man light the water coming out of his kitchen sink. Yes, oil is a world wide commodity and world prices will dictate what we pay for gas, but if the oil is produced here and the money stays here, it will be better for all of us. We are letting too many dollars leave our domestic economy as you know and that is acting like a tax on the growth of GDP.

Robert said...

Whenever our economy revs up, it hits the energy ceiling and energy prices rise. As you said, money pours out of the country. This seems to put a limit on how fast our economy can go.

Alternative energy, such as nuclear, solar and wind power have some promise. Now they are worried about bats being hit by windmill blades. Birds seem to do better than bats.

Consuming less, like I do with my bicycling lifestyle can be good, but one wonders how all this debt will be paid off without being able to generate lots of commerce to tax. If we don't rev up the economy into overdrive, can we pay the debts? That's a good question.

winslow said...

For the last several years, the government commision over our local utilities issued a requirement that over the next 7-10years, the utilities must get 15% of the energy from non-oil entities.
In the recent elections, the board was replaced by Republicans. They have just stated they will not mandate such onerous measures to the detriment of profitability. Long live oil!