Big Oil blather
What's excessive? A windfall profits tax, that's what
Rocky Mountain News
Published June 15, 2008 at 8 p.m.
As a general principle, the government should not decide when a company's or an industry's profits are "excessive."
Wealth, innovation and economic growth depend upon businesses earning profits, after all. And the more money a company makes, the more it can expand its operations, compensate employees, benefit shareholders - and pay taxes.
Unfortunately, Senate Democrats (and a few Republicans) are stuck in the mind-set of the 1970s, attempting last week to tack a windfall profits tax on Big Oil. Supporters of the tax got only 51 of the 60 votes they needed to proceed.
Colorado's senators split on the measure, with Democrat Ken Salazar backing the tax and Republican Wayne Allard opposing it.
This pernicious idea is hardly going away, however. Sen. Barack Obama promised to revisit it should he be elected president.
Rival Sen. John McCain has been mum about a windfall profits tax, though he has railed against "obscene profits being made anywhere." On NBC's Today show Wednesday, McCain suggested that Big Oil should be "sharing their profits in a variety of ways." Senator, they already share their profits, with employees and investors. Lots of pension and mutual funds own oil stocks. But we digress.
The windfall tax was purely punitive - a 25 percent tax on profits that are "unreasonable," whatever that is. We can't recall outraged lawmakers introducing windfall profits taxes targeting Google or Yahoo when tech stocks surged - or aimed at homebuilders during the housing boom.
Even so, the five biggest oil companies are hardly objects of public sympathy with gasoline at $4 a gallon, oil at over $130 a barrel and first-quarter profits of $36 billion.
That's a staggering figure. But it's actually lower in percentage terms than profits in other major industries. U.S. oil companies averaged 8.3 percent profit margins last year. That's less than manufacturing companies (8.9 percent), tobacco and beverage makers (19.1 percent) and pharmaceutical producers (18.4 percent).
Contrary to intimations from some of the lawmakers, the tax would have done nothing to reduce the price or increase the supply of gas.
And at worst, like an earlier windfall profits tax in effect from 1980 to 1988, a new version could prove a disincentive for increasing domestic output.
A Congressional Research Service study from 1990 concluded the earlier tax "reduced domestic oil production from between 3 and 6 percent, and increased oil imports from between 8 and 16 percent." As energy analyst Ben Lieberman of the conservative Heritage Foundation wrote, "In effect, putting domestic oil producers at a disadvantage had the unintended effect of strengthening OPEC's hand."
Critics of Big Oil had a fair point. The bill would have repealed $17 billion in industry tax breaks over 10 years. Government shouldn't use the tax code to hand out favors to specific industries.
But they undermined their case by backing a companion measure (one that also failed to get 60 votes) establishing or extending tax breaks for renewable energy projects like wind and solar.
Such favoritism by government is bad policy. While this wasn't the first time lawmakers have used threats and bluster instead of sound policy to confront a legitmate public concern - and it won't be the last - we still don't have to like it.
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June 16, 2008
5:14 a.m.
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mrfxx writes:
Fewer of us would be outraged by oil companies' profits if we didn't also know that they are receiving (despite these profits) massive tax breaks - so the taxpayers are not only contributing to their profits at the pump but also thru our taxes. So what if the percent of profit per unit that they make is lower than in some industries? Just as supermarkets (which - last I heard - averaged 3% on food - a much lower percent than big oil makes - and that doesn't shut them down) make their money on volume, so do oil companies.
June 16, 2008
5:57 a.m.
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vudumom writes:
What needs to be done is reign in the speculators. Deregulation of them in 1999 is what is causing the high prices today.If Congress had a brain they would see they are the problem not the oil companies.
If we are going to pull tax breaks for oil companies it should be done to all companies. If they want to limit profit on one company , it should be done on all companies.
I really don't think we as a nation want to start down that road. It's really scary if you think about it.
June 16, 2008
6:08 a.m.
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Shadow writes:
Government is going to always look to big buisness to go after. Why? Deeper pockets. When the oil companies make a dime the government makes 40 cents. Roll back any tax breaks, raise tax on the opil companies, continue to fuel the myth of bad big buisness. It is a wind fall for governement tax coffers.
Speculators are out there with their agenda of "America can afford it" and "we need to adjust for world inflation rates." I fo one could care less if the rest of the world is paying more either in actuality or in adjusted rates.
If we can get things cheaper then good for us. Speculators play the market and "guess" on the value of things. That is why they do not deal with tangible stocks, only futures. Real in the speculators, tell government that they need to quit tax and spend policies and gas prices may settle down.
June 16, 2008
6:14 a.m.
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anarchist writes:
vudumom, factual, intelligent, non-partisan, accurate. So why is it you bother to post here?
"Such favoritism by government is bad policy.",ruinous also comes to mind, socialism creeps ever more into the republic, Nikita Khrushchev (http://www.nps.gov/archive/elro/gloss...) must surely be smiling.
June 16, 2008
6:42 a.m.
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Michael writes:
I would like to know how many US Senators have ever sold a piece of property/real estate or stock, or art, or anything that they were able to sell for 3, 4, 5, maybe even 10 times (or more!) what they paid for it? Did they have any desire to pay a tax on the "windfall" profits they made from nothing more than market forces driving up the price of something they did nothing more than purchase? They did not have to explore for it, extract it, construct it, transport it, refine it, etc. But had anyone tried to tell them to give up 25% of those profits they would have howled like scalded cats. They are all morons - McCain included.
June 16, 2008
7:40 a.m.
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TC writes:
It will indeed be interesting to see what Saudi's 500,000 BPD increase in production will do to oil prices and prices at the pump. My guess is it'll drop both by an amount that is disproportionate to the 0.006% of world demand for oil that this amount represents. If prices do drop dramatically, it would support the arguement that oil prices are being driven by speculation not suppy and demand. But who knows? It'll be interesting to see what happens.
June 16, 2008
8:26 a.m.
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dilligaf writes:
We are being held hostage. I agree taking away tax breaks or increasing big oils taxes will just get transferred to us. But want we can do is to do everything we can to take business away from them. ANWAR is not the answer. That is just giving them more business. We need to invest big time in alternative means. And as far as the government doing something there is things they can do. We are investing a lot of money in the middle east. We need to cut them off. This war isn't helping. Why are we spending billions to help countries that are sticking it to us. Iraq and Kuwait should practically be giving us oil. We save their a--. Billions of American tax dollars are being spent rebuilding Iraq while their oil profits pile up. What is wrong with this picture. All of you cons want to come to the defence of these greedy capitalists but they are holding serve over us and all you can do is defend them and bash socialism when it is capitalism that is drive us into the ground.
June 16, 2008
8:26 a.m.
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davis_x_machina writes:
"of course it all comes down to supply". Why is it that the wingnuts only wish to address half the classic equation? I see no benefit from increased production that could not be achieved by stringent conservation and energy efficiency measures, only the latter carries collateral benefits of cleaner air, water and less crowded streets and highways whereas the former enables the big energy companies to continue to pay their legions of lawyers in their work of helping those energy companies avoid their responsibilities as in Exxon still fighting to avoid paying their share of the clean-up costs for the Prince William Sound disaster almost these 20 years ago. Near as I can tell the major factor in the present situation is the speculators and the "derivatives" the MBA ( More Bogus Accounting) pirates are allowed to develop.
June 16, 2008
8:52 a.m.
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anarchist writes:
I propose that all those that wish for stronger conservation and the resultant winfalls be taxed on them and begin conserving by shutting off their computers and walking to the DNC to battle the demon republicans and overthrow the constitution and bill of rights and replace it with Marxist socialism that has worked so well for the U.S.S.R., after all, if the democrats won't allow protests at their conserving green rated convention, why should it be tolerated anywhere else, so on three, shut them all off, one...two........three........is it safe yet?
June 16, 2008
8:56 a.m.
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Konyok writes:
Close loopholes created when oil prices were unreasonably low? Yes! Windfall profits tax? No!
June 16, 2008
8:58 a.m.
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rjnova writes:
It is abundantly clear the govt is the absolute worst at picking the winners and losers and why they should redistribute income. Corn based alcohol for fuel is the most glaring at the moment.
I read Harley Davidson generates 25% profit on their motorcycles. If oil profits are obscene at 9% how can the Democrats allow 25%? The first question is who are the Democrats to say what is a windfall profit? They do not understand risk and profit in the first place. Moreover, they get taxes on that obscene profit. Dems all want a lifetime govt job paid for by taxes which contributes nothing to the economy it only takes from producers and gives to non-producers.
vudumom is on the mark. There has to be a reasonable way to stop the speculation. Like if you do not take delivery on the oil contracts you must put up 50% of the value not 5%. There are good and important reasons for users to buy futures but I have read speculation accounts for everything over $65/bbl.
June 16, 2008
9:07 a.m.
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anarchist writes:
http://biz.yahoo.com/ap/080616/oil_pr...
NEW YORK (AP) -- Crude oil futures hit a record close to $140 a barrel Monday as the dollar weakened against the euro. Retail gas prices rose to a record $4.08 a gallon.
Also supporting prices was an overnight fire at a StatoilHydro ASA drilling rig in the North Sea, which could affect as much as 150,000 barrels of daily oil"
So if the Saudi's (evil republicans in disguise) up production by 200,000, and we have a loss of 150,000, no wonder its going up still, unless of course its the republicans being evil
June 16, 2008
9:20 a.m.
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anarchist writes:
Monday June 16, 9:41 am ET
By John Wilen, AP Business Writer
Oil futures shoot to a record near $140 a barrel
"Saudi Arabia, the world's largest oil producer, told U.N. chief Ban Ki-moon over the weekend that it would boost output by 200,000 barrels a day, or by 2 percent, from June to July. In May, the kingdom raised production by 300,000 barrels a day. That increase was largely ignored by traders amid strong global demand and falling production elsewhere."
June 16, 2008
10:04 a.m.
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HankRearden writes:
Forward69,
Forcing a company to invest in alternative energy is the same as a windfall profits tax, although the energy companies would do a better job than goverment. The profits from my businessa are mine and I will decide to spend them on improving my busines to improve my bottom line, investing in a new business if I think I can make more money doing something else or buying that bright shining new Hummer. The point is the profits are mine and are a reward for being smarter or luckier than the person that didn't invest as I did. I took the risk and I will, thank you very much, figure out what to do with the rewards.
June 16, 2008
10:09 a.m.
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jay writes:
1992
$19/barrel
$1.05/gallon
2000
$23/barrel
$1.42/gallon
today
$138/barrel
$4.00/gallon
I love hearing the rationalizations from the republicans on this trend.
first it was supply and demand...but that doesn't hold water.
next it was those evil environmentalists...unfortunately that talking point has been debunked by the actions of the dem-led congress that has nearly triple drilling permits over the last two years.
finally it was those evil speculators...and yet no one can tell us what happened in 2002-2003 that made them all of a sudden realize that oil was a commodity.
gee...what happened in 2002-2004 that could have destabilized the middle east and horribly devalued the dollar....
hey, I know what will lower gas prices! let's invade iran!!
June 16, 2008
10:09 a.m.
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temurlan writes:
By definition a winfall profit is a sudden profit that results from circumstances other than investment or action from the company. The companies profits are up because demand is up. More volume means more profit. They invested in the oil to fuel process and they create the fuel. They make 4 cents a gallon in real profit. The government makes a lot more per gallon than that in taxes for doing absolutely nothing. So who is really getting a windfall here?
June 16, 2008
10:28 a.m.
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jay writes:
"Why can't you libs just admit that you care more about snails and caribou than you do people?"
pjmama...i'm going to give you the benefit of the doubt here and assume you haven't seen the increase in the number of drilling permits granted by those evil environmentalist dems in congress.
if you continue to use that debunked talking point, however, we can assume you're nothing more than a republican political stooge.
like i said, i'm giving you the benefit of the doubt and will assume you'll leave that one out of the quiver.
June 16, 2008
10:36 a.m.
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anarchist writes:
PajamaPulitzer, using facts to try to educate some folks only confuses them and sends them running to obama's web site for courage and they return not at all or with a mouthful of rhetoric they claim as fact, Mr. Rosen did a piece of falsisms that explains it to a point, but rhetoric is so much more fun than reality, so save the effort.
http://www.barackobama.com/issues/urb...
"As president, Barack Obama would repeal the Tiahrt Amendment, which restricts the ability of local law enforcement to access important gun trace information", "He supports closing the gun show loophole".
"If the opposition (citizen) disarms, well and good. If it refuses to disarm, we shall disarm it ourselves." Josef Stalin
Maybe we can find a way to tax rhetoric instead.
June 16, 2008
10:39 a.m.
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mytwosense writes:
vudumom: "What needs to be done is reign in the speculators. Deregulation of them in 1999 is what is causing the high prices today.If Congress had a brain they would see they are the problem not the oil companies."
Good point! I don't know if the speculators are the entire problem, but agree with your assessment that their role isn't being properly addressed by our legislators. At least not that I'm aware of.
June 16, 2008
10:42 a.m.
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anarchist writes:
jay, I would like to see those figures, and the source, and for the record I am an independent. There was another editorial dealing with nuclear power, as well as other sources, whats you stand on nuclear? What is your soulution, today, right now to the problem, not in january if You please, but an immediate solution?
June 16, 2008
10:55 a.m.
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davies writes:
I don't think the proposed windfall profit tax was even a sincere attempt at legislation by the Demmies - they just wanted to score a few points with their voter base. It's hard to imagine a law that says that "unreasonable" profits will be subject to an additional tax. That's like passing a law against "unethical" conduct, without defining the conduct in question. Of course, it would keep the lawyers busy arguing about it in court.
June 16, 2008
11:24 a.m.
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Eli writes:
"I don't think the proposed windfall profit tax was even a sincere attempt at legislation by the Demmies - they just wanted to score a few points with their voter base."
You hit the nail on the head there, Davies. This is becoming a summertime ritual.
June 16, 2008
11:29 a.m.
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davies writes:
jay: "I love hearing the rationalizations from the republicans on this trend."
"first it was supply and demand...but that doesn't hold water."
"next it was those evil environmentalists..."
"finally it was those evil speculators..."
Regarding the above, please note that environmentalists blocking access to additional sources of oil affects supply. Therefore this is still a supply and demand issue.
Also, speculators make money in the market by buying a commodity and then selling it for more. The only way they can do that is to temporarily withhold that commodity from sale in the market, thereby reducing supply. So (you guessed it), it's still a supply and demand issue.
So I think the "rationalizations from the republicans" on this issue can be summed up as:
Supply and demand;
supply and demand; and
supply and demand.
June 16, 2008
11:41 a.m.
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jay writes:
"Therefore this is still a supply and demand issue."
not unless you can make the case that demand has more than tripled in the last 5 years...which of course is rhetorical.
can't do it.
thus...the rationalizations are still....rationalziations.
anarchist...i'm all for nuclear as long as they solve the management and security issues. france is very good at this and i'd be all for bringing their best folks over to give us a hand.
June 16, 2008
noon
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davies writes:
jay: (Fuel prices are not a supply and demand issue) "...unless you can make the case that demand has more than tripled in the last 5 years..."
Fuel is not the only commodity in the world market! In a market with many different types of commodities for sale, a tripling of the price of one particular commodity does not mean demand for that commodity has tripled. It only likely means that the demand has increased and/or the supply has decreased, and that people are now willing to pay three times more for it than they used to. If they pay three times more for fuel, you can generally expect that they will be spending less on other commodities.
June 16, 2008
12:02 p.m.
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Konyok writes:
There is something really weird about the numbers.
Using Jay's figures, which I trust, and a standard 19.5 gallons of gasoline refined from a barrel (42 gallons) of crude oil, I get the following series:
1992 $19 bbl $1.05 gal | $0.97 gas fraction cost (bbl / 19.5)
2000 $23 bbl $1.42 gal | $1.18
2008 $138 bbl $4.00 gal | $7.08
Holding all things equal, the price of gasoline *should* be like $7.25 per gallon, given that the gasoline portion of each barrel of crude should be costing $7.08 per gallon.
Have they figured out how to increase the gasoline yield from a barrel of crude? Are they adding more ethanol than we think?
Anybody know what gives?
Meanwhile, here's something completely different:
http://www.timesonline.co.uk/tol/news...
June 16, 2008
12:06 p.m.
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jay writes:
back to the speculation argument, davies?
what happened in 2002-2003 to all of a sudden make speculation go nuts?
i never said that supply and demand wasn't a FACTOR...but you can't blame the environmentalists (or demand) for the trend displayed above.
June 16, 2008
1:16 p.m.
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davies writes:
I can "blame" any factor that makes or keeps supplies lower, and/or that makes or keeps demand higher - the important question is just HOW MUCH each factor affects the cost.
And the more important question is what can we do to stop depending on foreign oil so much, and stop sending boatloads of our money to whoever will sell us what we want?
June 16, 2008
1:28 p.m.
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jay writes:
sure, the far right can try to scapegoat the environmentalists or the dems in congress for our high oil prices...but the facts don't support that position.
June 16, 2008
1:36 p.m.
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daRock writes:
Actually demand HAS skyrocketed in the last 5 years. China alone is hording oil at least until the Olympics are over. Many other countries are increasing global demand as they move from bicycles to scooters and cars for transportation. Exxon/Mobile is a big oil company in the US but pales in comparison to those in middle Easternn and South American countries.
As US consumers decrease demand (by choice or force) the rest of the world will gladly purchase the 'extra' oil that will become available. Forcing my family of 5 (plus dogs) to drive a hybrid or smart car will really do nothing to help.
One of the biggest reasons why we are paying more at the pump is the relative weakness of the US dollar. As congress is controled by the Dems and the White House is Rebublican, there is plenty of responsibillity to go around. It is not just one man or party.
June 16, 2008
1:41 p.m.
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davies writes:
I think higher prices are here to stay. Drilling in ANWR would help to alleviate the situation, if there's as much crude there as people seem to think. But it certainly won't bring prices back under $3 or anything like that. It might only keep them from going up more quickly. What is most important is that we have GOT to reduce our dependence on fossil fuels in general, and especially foreign oil.
June 16, 2008
1:47 p.m.
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jay writes:
i agree with you wholeheartedly about reducing our dependence on fossil fuels, davies...and agree that we need to weigh the benefits of increased domestic drilling...which is why i believe that the increase in drilling permits by the dem-led congress is a step in the right direction.
"Actually demand HAS skyrocketed in the last 5 years"
has it? has it tripled? that's the only way you can say that demand is the major cause of skyrocketing fuel costs....which of course you can't because it hasn't.
it comes down to this being a global wake up call...one that a lot of folks have been predicting for a long, long time.
we need to do away with the policy stances that have devalued the dollar and destabilized the middle east. those are the quickest way for us to significantly decrease fuel costs. couple that with the increase drilling permits signed by the dem-led congress and the pending plans to incrase funding for alternative energy r and d and we start to do what we can to help ourselves out of this mess without worrying what china and india are doing to demand.
June 16, 2008
3:10 p.m.
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sheepherder writes:
I wonder what our elected officials would do with that extra windfall tax money. Hummm, more government programs...excellent!
June 16, 2008
3:20 p.m.
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Big_D writes:
We have propaganda based on propaganda. The Saudis and other producers of oil are making obscene profits not the American importers and refiners and to omit them from the profit discussion is dishonest. The Saudis also owe us for the attacks of 911 carried out by their people on their visas. The Saudis are also building new cities out of the ocean and desert with our money. The kicker to this is they are hiring the Bin Ladin family to build it. Are any of Bush’s failed policies his or does everything just happen to Bush as a coincidence. I don’t believe in coincidence too much so I am skeptic that all this has just “unfortunately happened” to the US. Seems it has just been as overly fortunate for Bush’s financers. I guess you all just believe in coincidence.
June 16, 2008
8:48 p.m.
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Sweetpickle writes:
The price is good where it is, but would be OK even higher. The administration seem to think $4.50 is OK for now, and even that has great benefits.
India and china are already having trouble with their gas subsidies.
The low dollar value is helping our exports and balance of payments.
Manufacturing jobs will move back to the U.S.
Oil related stocks are a great investment.
Inflation will lower the war debt because it gets paid back in cheaper dollars.
Some prices are down.
It's a great opportunity if you're prepared.
June 16, 2008
10:33 p.m.
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daRock writes:
Hasn't the average American ALWAYS cared more about inexpensive gas than some endangered snail? Point? As for the Bin Ladin family, the base family in Saudi Arabia is NOTHING like the wayward son. Osama is the wild offshoot. Their family is very well respected and should NOT be judged by his behaviour.
June 17, 2008
6:37 a.m.
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anarchist writes:
Fuel fight gives terrain to Senate battle
By Michael Riley
The Denver Post
"'We've had an oil-and-gas man for eight years as president; we've had an oil-and-gas man for eight years as vice president. There is no question we've gone too far,' said Udall, who is running for Colorado's open Senate seat."
http://www.denverpost.com/ci_9608067?...
June 17, 2008
8:50 a.m.
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roger44 writes:
Mark Udall is right, but he voted against more military spending but advocates another division for the army. He says we need to stop the addiction to foreign oil, but unless you're an idiot, we already know that, come up with a specific plan Mark, not just generalities. My problem with Udall is he's a career politician, get elected then do nothing. In 1945 Harry Truman asked congress to come up with a national health plan, see how fast they work? Congress has had over 40 hearings on oil companies that furnish less than 10% of the oil in this country, how's that working for us? Brazil gets 7 times the energy out of sugar cane for ethanol, we use corn and get far less, yet we put a tariff on their ethanol to protect the farmers. Who protects the consumer? Our domestic vehicles get lousy mileage, yet people still buy a tank of a vehicle for transporting one person to work. Ritter could lower the speed limit in Colorado, but then he might lose some votes, but someone has to lead the pack. It's sad when you have to vote for the lessor of 2 evils. Put a box on the ballot that says none of the above and see how many folks choose it, have got it in other states I've voted in.
June 17, 2008
2:04 p.m.
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spencerr writes:
Another factor that keeps demand artificially high is the willingness of some governments to subsidize oil for their people/businesses. Price doesn't accurately act as the equilibrator of supply and demand if oil is subsidized in...say, China. Oil is cheaper than it should be in some other countries' markets because of this.
Now, take Obamamama's approach to fixing the problem...the opposite of a subsidy (a tax). He expects that taxing big oil will somehow help the problem. The typical lib approach of pouring gasoline on a fire in order to put it out.
June 18, 2008
10:42 a.m.
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anarchist writes:
Oil falls as crude supply holds, gas demand drops
Wednesday June 18, 11:52 am ET
By John Wilen, AP Business Writer
Oil falls on smaller-than-expected drop in crude supplies, big decline in gasoline demand
NEW YORK (AP) -- Oil prices slid Wednesday after the Energy Department said crude oil supplies fell less than expected last week while demand for gasoline dropped nearly 2 percent.
June 18, 2008
5:37 p.m.
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anarchist writes:
"By DAVID ESPO, AP Special Correspondent
41 minutes ago
SPRINGFIELD, Mo. - Sen. John McCain called Wednesday for the construction of 45 new nuclear reactors by 2030 and pledged $2 billion a year in federal funds "to make clean coal a reality," measures designed to reduce dependence on foreign oil. In a third straight day of campaigning devoted to the energy issue, the Republican presidential nominee-in-waiting also said the only time Democratic rival Barack Obama voted for a tax cut was for a "break for the oil companies."
McCain said the 104 nuclear reactors currently operating around the country produce about 20 percent of the nation's annual electricity needs.
"Every year, these reactors alone spare the atmosphere from the equivalent of nearly all auto emissions in America. Yet for all these benefits, we have not broken ground on a single nuclear plant in over thirty years," he said. "And our manufacturing base to even construct these plants is almost gone."
http://news.yahoo.com/s/ap/20080618/a...
not all the eggs in one basket, using multiple resources, horrors.