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REUTEMAN: No more handouts; cheaper oil all we need

By Rob Reuteman, Rocky Mountain News (Contact)

Published October 31, 2008 at 8:05 p.m.

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We don't need Congress to pass another economic stimulus package. The precipitous drop in the price of oil over the past two months has more than provided one.

Don't get me wrong, I'd love to get another check in the mail, as would the long line of public servants bellying up to the trough. But enough is enough. The federal government has been on a $2 trillion spending spree since last spring, trying to shore up everything in our economy that needs shoring up, and it's time to institute a little more scrutiny.

On Friday, the price of oil on the New York Mercantile Exchange settled in at $67.81 a barrel. That's a 54 percent drop from the record price of $147.27 a barrel set on July 11. A week ago, when the average price of gasoline was $2.86 a gallon, the price differential from July amounted to a $125 billion stimulus to the economy. That's according to energy economist Lawrence Goldstein, director of the Energy Policy Research Foundation. His figure took into account the amount of fuel used by drivers, households and businesses.

And the average price of gas on Friday was $2.50 a gallon, 36 cents less than when Goldstein did his math last week. In fact, he further concludes that if oil averages $80 a barrel next year, which many analysts calculate, "that will amount to essentially a $275 billion stimulus package to the U.S. economy."

The House Committee on Ways and Means heard testimony Wednesday to work out a second stimulus package that would be introduced when Congress reconvenes this month. This would be the second such "stimulus" this year, a successor to the one passed last winter that gave tax breaks to businesses and sent $600 checks to most Americans. The House passed a $61 billion stimulus package in September, but it was blocked in the Senate. House Speaker Nancy Pelosi signalled another try this month, and President Bush said he may lower his resistance.

The voice of reason during testimony Wednesday came from the conservative Republican Gov. Mark Sanford, of South Carolina.

"I'm here to beg of you not to approve or advance the contemplated $150 billion package," Sanford testified. "This $150 billion salve may in fact further infect our economy with unnecessary government influence and unintended fiscal consequences."

Sanford easily tallied $2 trillion the federal government has pumped into the economy so far this year: the $168 stimulus package last spring, the larded-up $850 billion financial rescue package passed in September (Paulson had sought only $700 billion; Congress added the rest). Then there are the hundreds of billions of dollars in loans and partial nationalizations of Fannie Mae, Freddie Mac, JPMorgan Chase, Bear Stearns and AIG.

"This year's $2 trillion plus in bailouts and handouts seems that much more momentous when you consider that federal tax revenues last year were only $2.57 trillion," Sanford said. "Simple math demands we ask ourselves if $2 trillion did not ward off the crisis in confidence we're currently experiencing, then how much can $150 billion more help?"

One responsible thing Congress did with the rescue package was to postpone the use of $350 billion until a new president is in place. Otherwise it likely would have been spent. AIG is burning through its $85 billion federal loan and already is indicating it will ask for more. Someone has to put a stop to this insane spending spree. We simply don't have the money coming in to sustain it. Congress can set a tone for the new administration by calling a halt to plans for yet another economic stimulus.

"If you go ahead with this," Sanford testified, "the question has to be asked: Who bails out the bail-outers?"

Let's come back to the dropping price of oil. Crude prices are down because demand is down - in this country and around the world. The world's economies are hurting. The price of oil won't stay at these levels for long. Not long ago, we were hearing predictions of $200 a barrel next year. That hardly seems likely now. This price drop is a temporary reprieve, a welcome economic stimulus in and of itself. Let's take advantage of it while it lasts.

Business editor Rob Reuteman can be reached at 303-954-5177. To comment on this column, go to RockyMountain News.com/business.

Comments

  • November 1, 2008

    9:23 a.m.

    Suggest removal

    jacka writes:

    Amen!

  • November 2, 2008

    7:11 a.m.

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    dwschulze writes:

    "Congress can set a tone for the new administration by calling a halt to plans for yet another economic stimulus."

    You're kidding, right? Congress setting the tone for spending restraint!

    This congress created much of this economic crisis when it shielded Fannie Mae and Freddie Mac from reforms sought by John McCain in 2005 but blocked by the Democrats in the Senate. Instead Fannie and Freddie went on a buying spree, buying bad mortgages and setting up the crisis we have now.

    If Congress wants to set a new tone it should investigate the actions of its members that caused this crisis. People who need investigating include Barney Frank, Chuck Schummer, and Chris Dodd. There will be others, but until there's an investigation we won't know who.

  • November 2, 2008

    10:35 a.m.

    Suggest removal

    liquidone writes:

    Finally, some common sense!

  • November 2, 2008

    2:46 p.m.

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    ghoax writes:

    ditto! It would be good to have the chart showing exactly what your Fed and state governments take just from the oil and gas business...not only gas taxes but everything else.

    They need to get out of the environmentalists bed and out there working for us, period.

    The decline in oil prices, from the lower use because of the higher prices shows exactly how the concept of supply and demand works. Imagine how it would react if there we're news we were actually drilling for our own resources... (I know that's a tough one for libs, ask a good conservative how it works)

    this guy sums it up pretty good

    http://www.youtube.com/watch?v=lD5JlQ...

  • November 2, 2008

    3:43 p.m.

    Suggest removal

    windbourne writes:

    Sigh; Economic stimulus absolutely are disasters as done. All it does is run up federal debt, and about 1/2 ends up in China. IOW, it stimulates an economy who does not reciprocate. If it ended up in Canada or Mexico, I would be fine with it, since they are our biggest exports. But that is not the case.
    The idea that we can impact our oil prices are ridiculous. America no longer has the ability to do that. Why? Because even if we increased our output by 5% today (which it will take us more than 5 years to do that), OPEC and Russia would simply cut back less then 1% and override the price. Simply put, we are at the mercy of countries of which most of them, we are on shakey terms with. They NEED 90-100/bbl. IOW, our gas prices will be above 3/gal by xmas. Heck, OPEC just announced an output cut. So is Russia. So is brazil. ALL MAJOR PRODUCERS are cutting BACK.
    So, what is our only chance out of this? Keep drilling (but cleanly), encourage AE, Move off oil based economy, build nukes.
    There are some key tech coming on-line.
    1) gas produced by algae. one company currently is scaling up, BUT so far, they can only produce at equivelence of 100/bbl. They are still trying to mod Algae to produce more, but so far, .......
    BTW, that will help with Gas. It will not help with many of our other oil products.
    2) geo-thermal electricity and HVAC are about to be a real. Colorado could have been the big owner of this, but Ritter has done d*&n little in this area. Fortunately for America, Google has more intelligence (makes sense). They are investing in a company called potter drilling who is going to make DEEP and horizontal drilling CHEAP. Basically,it uses the similar tech that Colorado School of Mines has but was lacking the financial backing.

    Now, if Obama will have more sense than ppl like Ritter. He has to show the sense of ppl like Schwarzenegger and Richardson.
    But so far, I think that he does.

  • November 3, 2008

    3:41 p.m.

    Suggest removal

    Diff writes:

    The easiest way to give the average work a day guy a break, and maybe help to stimulate the economy is to pass the tax cut for the middle class - and make it effective, by reducing the withholding allowance table for federal taxes - and most people would receive additional money to spend right a way in each paycheck. No need to do some costly mass mail out etc. you'd just have an extra $150 buck more or less every month to spend..
    That would also be the best way to make sure the money went into the economy.
    But there is a case to be made for the reduction in oil prices and energy costs - as I think that played a part in the down turn, as gasoline for you car took more out of the economy than the Fed figured in - and it all went to big oil, and they are simply holding on to it for the most part...
    so - pay for the tax cut, buy implementing a windfall profits tax on oil companies and other energy producers!
    and that is a republican idea -
    It was good enough for Nixon 35 or so years ago!
    and the time has come to do it again!

  • November 5, 2008

    12:19 p.m.

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    jpclauss writes:

    I commute daily from Colorado Springs to Denver, and there is no doubt that the shocking drop in the price of gas has been a godsend. I agree that this should be taken advantage of while it can be, and the falling price of crude is dependent on the traditional market force of demand to some extent. But make no mistake, crude oil still does not play by the same rules as other commodities. People forget that this market is essentially controlled by OPEC, which is a cartel. Mr. Reuteman astutely points out the dramatic swing in "expert" predictions and forecasts on the market for crude next year, but keep in mind that OPEC itself has been trying to constrict supply to curb the plummeting price to no avail. Now that Senator Obama (with his bold renewables project) has been elected President, the price is bound to become more complex and erratic, not less. This is a market to which the rules, by and large, does not apply, and its economic reprieve cannot be counted on.