Speculators and the Price of Gasoline - Discussion

This is an issue that I had not originally intended to discuss. But since it is one of the favorite hobbyhorses of the Left and since Eric Offner of Manhasset Hills, NY has been raising this issue forcefully, I discussed it in my post of March 29, under the heading "Control of the Weather (Discussion)." Offner has now chosen to pursue this, which prompted me to do a fairly long dissertation on the subject. I now want to share my analysis with my readers.

Offner wrote:

First see the article in Business Week entitled "Why Obama's Crackdown on Oil Speculators Won't Work." 

Then answer these questions:

1.) If a crackdown on oil speculators won’t work, does it not imply that there are oil speculators?

2.) Is it possible that Wall Street oil speculators affect the price of oil?

3.) The bigger question is whether speculation on food, water and other necessities exists and whether such action is ethical?

4.) Is failure to restrict unethical behavior unethical?

My response to his questions is set forth under corresponding numbers:

1.) Yes of course there are. The question should not be whether there are speculators but whether it is ever possible to eliminate them and whether they are bad. The answer is that it is not possible to eliminate them and in many cases not even possible to regulate them. Sometimes they are bad, sometimes good, most often neither.

2.) It is not only possible, it is probable. But that is not necessarily bad. Look at the article you sent me. He argues convincingly that speculators even-out the speed at which prices change. Without them, as happened some years ago the price can quadruple almost over-night and a more gradual rise is better for the economy and consumers.

3.) Yes and Yes. Let me take this down to basics. There is a rumor that sugar, or for that matter water, will be in short supply. Most people, i.e. consumers upon hearing this will head for the markets and hoard it. The result is the price goes up and soon the shelves are empty. A self-fulfilling prophecy. Now let us suppose a larger speculator wants to take advantage of the situation and so he goes out and buys many tons of sugar, puts them in a ware house (or he buys futures) and then taking advantage of the rising prices resells it at a hefty profit. As he and others begin to sell the price goes down. Is he/she now a good speculator? How do you stop this? Do you make it illegal for anyone to buy more than a certain amount? How do you determine the amount? How would this effect a legitimate store or a legitimate wholesaler, who by the nature of their trade must buy large amounts?

The way to stop this is price controls and rationing which brings about a black market, where the price is even higher and even less sugar in the stores. We are now seeing this in Venezuela.

Are there times when rationing and price controls are appropriate? Yes!!! But only in extreme cases, such as war-time, when the evils of the black market are preferred to letting hoarding control, but it is always a close question. Where the hoarding is by a limited group, intent on creating shortages and raising prices, it falls afoul of the anti-trust laws and definitely should be prosecuted.

Is Obama's approach sound? I don't know, but it is good politics. He is doing something!!!

Raising the margin price on commodities speculation seems like a sensible thing to do, but it takes someone more knowledgeable than I to analyze the consequences. The article you sent me seems knowledgeable and objective.

I will say this. When Allan Greenspan talked about the stock market suffering from irrational exuberance, the obvious thing to do, as far as I could see and still believe, was to raise the margin requirement, which was within the power of the Fed, but because of Greenspan's hostility to all regulations this was not done - ditto for so many other things that could have headed off the crash.

But I don't know the commodities market - We apparently have regulations but we need money to enforce them. Everything else is shooting in the dark. Simplistic answers whether from Left or Right rarely have any merit.

The article in Business Week appears to be an intelligent one. It recognizes that regulations are important and need enforcing by the CFTC. Thus it is apparent that we have regulations in place that are not being enforced, or at least not being enforced adequately. But the Republican Congress will never appropriate the money needed. Instead, they will make sure that what can be done is not done, and then blame the President, who can only do so much without Congress' help.

There are many problems with the world's food supply that are exacerbated by US policy.

The use of US ethanol as an additive to gasoline has created a shortage of corn and driven the price higher, but the corn lobby will prevent Congress from changing this.

Our foreign aid program with food is counter-productive. The law requires that we not give money to aid organizations for food aid, but rather buy the food from American farmers at much higher prices than we could buy it on the world market and it must be shipped in US vessels. If the law would allow our aid to be by buying the food from African farmers, we would save money both in the price of the food and in the shipping costs and we would aid the African economy. Now it enriches the American corporate farmers and hurts the African economy because it competes with the African grown food and drives that price down.

4.) No and the question is irrelevant since I have said such action is not unethical. But even where it is unethical there is always a weighing of unintended consequences. Simplistic questions and simplistic answers to complex problems are, well, simplistic.

I then added:

The oil market is a world market. How do you regulate trades made outside the US? If you rationed gasoline in the US, it would have no effect on the price of oil on world markets. If you had price controls on gasoline that were below the world price of oil, no one could afford to sell gasoline, since they would lose money on every gallon. World markets and globalization make a new ball game. But we can no more change it than we could stop the industrial revolution and now the technological revolution that brought about globalization.

Furthermore a high price of gas is not bad. It makes clean energy and conservation much more competitive

Even boycotts have limitations. We put a boycott on Iranian oil. But if China does not join the boycott, can it be effective? The boycott might force the price of Iranian oil to go down, in which case China gets a windfall. How do you stop this? Only with a full fledged blockade of Iran, an act of war, which would put us in conflict with China and get Iran to try to close the Straight of Hormuz. Can you imagine what the price of oil would go up to? Speculators will make a lot of money, but they are not causing the price rise - they are taking advantage of it. Is there anything we can do - yes, but I am not smart enough to know what. Ask Barney Frank - he understands these things better than I do, and while I am talking about Barney Frank I commend to you an interview of him, which appeared in New York Magazine.

Also we do have laws on the books and the Commodities and Exchange Commission, which needs more funding as recommended in the article you sent me to enforce the laws and regulations. But the Republicans will never authorize this. What can we do? Get rid of them to whatever extent we can.

But I get tired of the Left and their "it’s the speculators.”

Finally allow me to add that while normally a two party system benefits the country, now a defeat of the Republican Party to the point where we have only one party has the best hope of reforming the system. Now it is broken and can't be fixed. In our system a one party system would not last long. The Democratic Party would split in two.

Talk of a third party in our system is very counter-productive. It would make sense if we had run-offs as e.g. the French and most of the world do.

Comments, questions, or corrections, are welcome and will be responded to and distributed with attribution, unless the writer requests that he/she not be identified.

Control of the Weather (Discussion II)

In my last post entitled "Control of the Weather (Discussion)" that was posted and distributed on March 29, I set forth some comments made by Eric Offner Esq. of New Hyde Park, New York. To access those comments double-click on the title of the post above.

At the end of that post I promised that: “Next time I want to tackle a very important and complicated subject, i.e. the role that race plays in American life and politics. It will be entitled: “It’s All About Race.” But since the discussion emanating from the comments contained in that post continued, I want to share them with you.

In response to the comments I made as set forth in that last post, Eric Offner wrote:

Thank you. Please discuss the present Supreme Court hearings. It seems that we will get a 5 to 4 decision, as was the case in the decision that made Bush President. We can throw out the commerce clause, and cite pre new deal case law. By the way I did not realize that the price of gas issue is a left/right issue, but I do not intend to pursue this. Your scholarly articles are very much appreciated.

To which I replied:

I am sorry to say that the Supreme Court hearings on the Health Insurance Reform Act is not a subject I plan to address in forthcoming commentary. There are only so many subjects I can deal with, and as I have indicated, I am anxious to deal with the issue of race in our society and politics.  

I will say, however, that 5/4 against is not a foregone conclusion. Kennedy has been and continues to be the linchpin, so that we do not have a court of 9, but essentially a court of one. Kennedy decides. However, that does not mean a 5/4 if it is upheld. Some commentators have speculated that if Kennedy goes with the liberal 4, Roberts will join the majority for upholding the law, in order to appoint himself as the one who writes the majority opinion. That would make it 6/3 but assure a narrow holding, with concurring opinions.        

As for the Commerce clause - yes it has been under attack for some time. They are pushing for a pre-New Deal interpretation. Only Kennedy can stop it and if Obama loses, the Right wing Court majority will go to 7/3, when Ginsburg retires or dies, and Kennedy will no longer be the swing vote. It will lead to total Right Wing domination.    

As for the price of gas being a Left/Right issue, it is not. Rather it is a partisan issue. There is a difference. When Bush was President and the price of gas reached levels comparable to the price now, Democrats, including Obama, attacked Bush. I don't remember the details but my guess is that Bush was no more responsible than Obama is now.

But then, after listening to the NewsHour on PBS on Friday March 30, I felt further comments were called for. I wrote:

Since saying "that the Supreme Court hearings on the Health Insurance Reform Act is not a subject I plan to address" I have seen additional facts, particularly on the NewsHour on PBS on Friday that made me feel I had to comment. So here goes:              

In listening to the NewsHour on PBS yesterday I saw a clip of Romney on the campaign trail (See here at two minutes into the video) where he says: Obama Care “will directly control almost half the US economy.” There is a tendency to exaggerate on the campaign trail, but this is beyond all reason. The absurdity is evident when we consider the government will not control anything. It will regulate the health insurance industry. Regulate not control (Medicare or a single payer might be considered as controlling but this does not control, it regulates) and the whole Health Care Industry of which insurance is a small part, is 16% of our economy. See here.              

He then goes on to say, “if I am President I will repeal it.” Doesn’t he ever read the Constitution? The President can’t repeal an act passed by Congress. Only Congress can. 

At 55 minutes 22 seconds into the video we get a discussion between Brooks (representing the Right viewpoint and Shields representing the Left, actually they are both rather moderate) and they both are embarrassed to note that some of the justices during the hearing are actually expressing Tea Party talking points.  

It is difficult for me to understand why there is even a question as to the Constitutionality of the Law. It is no different from any other tax levied, i.e. you pay taxes on your income unless you choose to give money to charity, in which case you don’t have to pay a tax on that portion. Social Security taxes don’t benefit you directly and not immediately. They benefit another generation, i.e. those over 67.              

Talking about forcing people to buy broccoli is and was intended to be facetious. But of course Congress can tax people who don’t eat broccoli, if it is shown that there is a reasonable connection between that requirement and the regulation of Commerce, but that can only be decided when that issues is before the court. Even if such a regulation were ridiculous it would not therefore make it unconstitutional. Some of the justices are behaving like clowns.              

If the court, after the Gore case and the United Case goes down the same partisan ideological route it will discredit its legitimacy. Years ago, (at the moment I can’t pinpoint when it changed) one could not tell how a justice would vote by whether a Republican or a Democrat appointed the Justice. Now that is controlling.              

In Roe v. Wade a decision that was 7 to 2 (not 5 to 4) the majority consisted of Harry Blackmun, William J. Brennan, Chief Justice Warren Burger, William O. Douglas, Thurgood Marshall, Lewis Powell and Potter Stewart. (It was not the Warren Court, and by the way Earl Warren was appointed by Eisenhower, a Republican.)

Blackmun was appointed by Nixon (Republican); Brennan by Eisenhower (Republican); Burger by Nixon (Republican); Douglas by Roosevelt (Democrat); Marshall by Johnson (Democrat); Powell by Nixon (Republican); Stewart by Eisenhower (Republican). Of the 7 justices in the majority, 5 were appointed by Republican Presidents. Yet this has now become a partisan issue.              

When we know how a justice will rule by which party appointed him/her, then it is an extension of the party, and no longer a judicial forum.                       

I don't know what the answer is, but we cannot indefinitely allow a partisan body to have the power to overrule an elected legislature. Only a judicial non-partisan body can be allowed to do that.

And Irving Lesnick Esq. of Boca Ratan, Florida picked up on the issue of eliminating speculation in oil and other commodities, writing:

Your comments are interesting, as always. While I generally agree with them, I will mention a disagreement, or at least a query, since you prefer disagreement, with your statement that outlawing speculation would require banning all commodities trading. It seems to me that the situation here is somewhat like that which prevailed in the life insurance business in the 1700s or so in England. There people were buying what we now call term life insurance on the lives of public figures.  Reportedly, it became a bit of a bubble, and both because it was viewed as morally objectionable as gambling but probably more importantly because some of the public figures began worrying that allowing the wrong people to get into a position to profit from their speedy death, their death might become more speedy than it would otherwise be. The response was the imposition, I think by legislation, of a requirement of insurable interest in the purchase of insurance, which limits insurance purchases to situations where the purchaser would suffer a loss from the occurrence of the insured against event. There are non-speculative reasons for buying and selling commodity futures - a manufacturer who wants to be protected against a rise in the cost of raw materials, an airline who wants to be protected against too much of an increase in fuel prices or and farmer who wants to be protected against a fall in the price of his or her future crop. Requiring participants in futures markets to have these kinds of interest would bar speculation, without banning commodity trading. How to structure such a requirement is, of course, another question.

To which I responded:

Your analysis is worthy of one who was an editor of the Yale Law Journal.                 

You are absolutely correct that there is a way to outlaw speculation without banning all commodity trading, and the insurance industry, (your area of expertise) is clearly a perfect example. But that then brings us to the question of whether it is desirable to stop speculation. I would argue that it is not desirable. If you placed the kind of restrictions on the commodities markets as you suggest, the market would shrink to a degree where "legitimate traders" would have a hard time finding buyers when they were ready to liquidate their positions. Furthermore not all commodity traders can be defined in the futures market as your focus suggests. What about commodities like gold and silver? Traders in gold buy the metal to hedge against inflation. How do you limit this? Or do you limit the market to jewelers.

The problem becomes similar to the stock market, where one could argue that only legitimate investments in a start up business should be allowed, but without a secondary market, the primary market collapses. That is also true in commodities. When you get rid of the "speculators" you are getting rid of the secondary market.                 

Please advise if I am missing something.

And then added:

This reminds me of Revolutionary times. Since the Continental Congress had no taxing power and the states were very poor providers of money to fight the war, the Congress issued promissory notes that went unpaid and because it appeared they would never be paid, they became worthless. A secondary market of speculators arose ready to buy the notes at huge discounts, thus giving them some limited value to the relief of the primary holders. Jefferson argued that the notes should not be paid because that would unjustly enrich the speculators. Hamilton in turn argued that what was at stake was the full faith and credit of the US. Washington sided with Hamilton, the speculators were paid, and the Full Faith and Credit of the US was never in doubt thereafter. [Until the Tea Party (to all intents and purposes, the Republican Party) decided to threaten to prevent the US from paying its debts. For the first time since then, the US full faith and Credit has now been put in doubt.]  The bracketed portion is a bit of a digression, but the point is a secondary market, which usually consists of speculators, is vital to a functioning market.

Comments, questions, or corrections, are welcome and will be responded to and distributed with attribution, unless the writer requests that he/she not be identified.

Control of the Weather (Discussion)

My last post "Control of the Weather" was distributed on March 23. I was greatly gratified when Eric Offner, impresario of Jazz concerts, author and lecturer on the law, humanist and mental health advocate (See here for a description of Offner in Who's Who in America) seconded the compliments from Pearl Duncan writing:

I agree with Miss Duncan. I learn a lot from your articles.

And then added:

Today I disagree with you. The price of gas is set by speculators. I would outlaw speculation on most commodities.

To which I responded:

I am glad to receive your disagreement. I receive disagreements so rarely, and yet differences of opinion are useful in arriving at intelligent conclusions.  

Your view on speculators is not unique and you may have noted that in the discussion on the PBS NewsHour referred to in my post and accessible here, Daniel Weiss, of the Center for American Progress (a left wing think tank) mentions Wall Street speculators as one of the causes for the high prices, and speculators are a favorite target of the Left for everything that may go wrong in our economy. But who are speculators? They are the people who buy and sell stocks and commodities. They are people like me, who invest in the stock market in the hope of making a gain, but sometimes sustain a loss. They are the union and other pension funds who invest in the market. They are as much to blame, or rather deserve credit when prices go down. Without them there would be no market in anything, because all traders, and that in effect means all merchants are speculators. You say you "would outlaw speculation in most commodities,” but you can't do that without outlawing all trading in commodities. 

They are a convenient scapegoat whenever anything undesirable happens in the market, but they reflect market conditions, they don't create them. 

What I have not mentioned, heretofore, and which needs mention, is that another factor that drives up world oil prices is the saber rattling about Iran. Netanyahu with his threats drives up the price of oil, and so do the Republicans with their demands that we use military force, again. They play a clever political game, because the are complicit in driving up the price of oil, and then seek to profit politically from the higher prices, which they helped to generate, and finally Obama himself, when he says we will use military force if that is necessary to stop Iran from getting the bomb, a position he was forced into, as the only way to keep Netanyahu from his own military action. And of course Iran, every time they talk of closing the Strait of Hormuz. 

Surprisingly, OPEC, which used to be the culprit in past oil rises, is not complicit this time.  

Next time I want to tackle a very important and complicated subject, i.e. the role that race plays in American life and politics. It will be entitled: “It’s All About Race”, but I am postponing that discussion because it will, of necessity, be long, and multi-parted, and so, rather that append it to this concluding discussion on the price of oil, I will let it go till next time.

Comments, questions, or corrections, are welcome and will be responded to and distributed with attribution, unless the writer requests that he/she not be identified.

Control of the Weather

My last post "The Culture Wars Resume" was published on March 16, 2012. For those who may want to re-read it, just click on the title above and it will appear.

In response thereto I received a message from Pearl Duncan of Manhattan, NY which read:

You columns are fabulous. Your column about the culture wars was not only insightful and enlightening, it was educational, especially for young people who just started voting and were too young to have noticed the last go round. Keep writing. 

And then added:

Because I write about culture and you express such keen political insights in your article, I forward them to my nephews and nieces who are in college and to other readers and young people on my list. Keep writing. Your insights and analyses are very valuable. 

Let me say that this comment is particularly appreciated, because I get so few comments of encouragement and it is very hard to keep researching and writing without a clear indication from my readership that my efforts are appreciated and that they serve the purpose of being informative and mentally challenging. But I particularly appreciate the kind words from Ms. Duncan, because she holds the distinction of being a published author of poetry and short stories, has been written up in the New York Times and is a recognized expert and lecturer on the use of DNA in research on genealogy. Other references to her work appear here and here and many others references which a search through Google quickly reveals.

This post’s title, “Control of the Weather,” will undoubtedly cause the reader to wonder what the weather has to do with a column that concerns itself with politics. I chose this heading to illustrate the irrationality of the voter going back to 1858. The story is told about Queen Victoria and the then Prime Minister, Benjamin Disraeli, as related on the following web site. I want to quote from it because it is so apt.

Queen Victoria tells Disraeli that she is proud to have him as her friend. Dizzy tells her that he is afraid that he will not be her Prime Minister for long. No, not because of his health. The nation has had five bad harvests in a row and the voters can't forgive the party in power for not being able to control the weather. Victoria says that this means that she may have to put up with you-know-who:  that opinionated, half-mad, fanatical, old man Gladstone. Disraeli says the worst part of it is that Gladstone believes God has put him in charge. 

But I guess that is a lot of verbiage to make my point, that in fact in often made by our punditry; namely that the President will be blamed for whatever is amiss in the country, regardless of whether it is in his control or not.

Right now much is made of the rising price of gasoline and the media has pointed out that as the price of gasoline goes up, the President’s approval rating goes down. Republicans, led by their putative candidate, Mitt Romney, have made every effort to reinforce such irrationality and as I have pointed out in my addendum to my post "Social Security – An Honest Evaluation."

The reader should note that in 2008, near the end of the Bush Presidency, gas prices were higher than they are now. They then dropped precipitously at the beginning of 2009, just as Obama took office, as a result of the recession. As the economy recovered the price went back up, so that now it is almost as high at it was before the recession.

What we can quickly see from this is that the price is tied to demand and supply like all commodities. When the economy is strong demand goes up and so does the price of gas, when the economy tanks demand goes down and so does the price.

But of course the demand/supply is not limited to the US. It is a worldwide phenomenon. Whether we give more drilling rights to the oil companies, or build more pipe lines, may some day have an impact on oil prices, but it is, and always has been far in the future. The fact is that oil production in the US has increased substantially since Obama became President, as can be seen from the graph below which can be accessed on the web along with a good discussion here.

The credit for this increase in production cannot be claimed by the Obama Administration, though it has granted more permits than the environmental community feels comfortable with. There is always a substantial lag of time between permits granted and actual production, but it does show, that increased production does not necessarily produce lower gasoline prices. In fact, strange as it may sound, the opposite is true. When prices are low many wells are not profitable. When prices rise such wells become profitable and more oil is produced.

As for the Republican drive to gut environmental laws, this recognizes the importance of energy to our economy, but it ignores that as important as energy is, the purity and availability of our water supply is far more important. We are even now running into clean water shortages and this is leading into fights between cities and farming communities vying for the diminishing supplies of clean water, even as our aquifers run down and in some places run dry. As for the purity of our air, it is hard to imagine anything more important. Just one aspect of the Clean Air Act, which by the way was the proud achievement of a Republican Congress led by President Nixon (oh how times change) would according to Earth Justice prevent up to 8,100 premature deaths, 5,100 heart attacks and 52,000 asthma attacks every year, and that is just from cleaning up industrial power plants and that does not even begin to address the dangers faced by future generations from global warming.

Can anything be done about the high price of gasoline at the pump? The PBS Newshour had an interesting discussion on this, which you can find on the web here beginning at 2 minutes and 11 seconds into the video or of the reader prefers set forth in the transcript, where Kenneth Green of the American Enterprise Institute, (a Right Wing Think Tank) sets forth how prices at the pump could be lowered. He summarizes this as follows:

About 75 percent of the price of gas is the world price of oil, reflects the world price of oil. But there's a federal gas tax that can be changed. There are EPA requirements for specific fuel blends that can be changed. So it's not quite true to say the president has no power, but it's not as big as some people might like.

First it should be noted that he agrees that the President's power to effect the price of gasoline is limited. But then he sets forth two ways that the price of gas can be effected and he is absolutely right. As he says the: “federal gas tax that can be changed.” That tax is now 8¢ a gallon so the repeal of the tax would lower the price of gas by 8¢, not a huge reduction, but it would help and in fact Ron Paul advocates this repeal. See here. But first of all it is not within the power of the President to repeal the tax – the power lies with Congress, but more important this tax is designated to go into the highway trust fund and it is falling short of its need, or as USA Today says in its headline: “Gas tax falling short in paying for transportation needs” See here. So while this could be done it is not desirable to do so.

As for the second suggestion: “There are EPA requirements for specific fuel blends that can be changed” this is again true but the effect on prices would be small and the impact on the environment large.

Which summarizes the situation better than anything that can be said by the Administration.

For those who might be interested in reading more extensively on this subject I would commend an article which an be found here and another that can be found here.

Comments, questions, or corrections, are welcome and will be responded to and distributed with attribution, unless the writer requests that he/she not be identified.

The Deficit & Spending

That we are in an economic downturn there can be no doubt but to blame it on the normal cyclical effects of the business cycle and to the price of oil is to ignore, as some would like, the failed policies of the past eight years. When this Administration with its Republican Congress took office we had just completed eight years of economic prosperity. When Clinton took office he inherited from twelve years of Republican misrule a failing economy (see here) and a $290 billion deficit. When he left office eight years later he had succeeded in turning that into a $100 billion surplus that was expected to quadruple in the decade ahead. There was even an expectation that before long the National Debt accumulated since the founding of the Republic would be wiped out. Now eight years later we have, according to the Office of Management and Budget, a deficit projection of $482 billion, the largest deficit in American history eclipsing the previous record of $413 billion set in fiscal 2004. See here.

Deficits matter! In fiscal year 2006, the U. S. Government spent $406 Billion on interest payments to the holders of the National Debt, which for the most part is China. Compare that to NASA at $15 Billion, Education at $61 Billion, and Department of Transportation at $56 Billion. It is the third largest item in the Federal budget after Defense and the Departments of Health and Human Services. If that 406 billion were available it could have been spent at least in part, on shoring up our infrastructure, which is collapsing, on education, and the myriad needs of our country. Right now numerous vital agencies, such as the FDA are under funded. When Congress recently passed a bill putting tobacco under the jurisdiction of the FDA the White House objected on the ground that the FDA is having enough problems dealing with its present jurisdiction for foods and drugs but never considered giving it the resources that it needs. Our National Parks are under funded and not being maintained. Our educational system is in crisis. And of course our energy needs are not being addressed.

In 2001, when this Administration took office gasoline was priced at about a $1.60. Now it is over $4.00. Who is to blame? It is a matter of world supply and demand but the supply has been relatively steady. It is demand that has skyrocketed. Many have pointed to China and India as the culprits and to be sure their demand has gone up. But their demand is a fraction of ours particularly when counted on a per capita basis. According to T. Boone Pickens, a leading oil magnate, (and incidentally a man who helped finance the Swift boat attacks,) we were importing 24% of our oil in 1970. By 1990 that had gone up to 42%. Now in 2008 we are importing 70% of our oil at a cost of $700 billion a year or $7 trillion over ten years. Yet when it was proposed that the CAFÉ gas efficiency requirements on autos be raised early in this Administration, this Administration and its cohorts in the Republican Congress wouldn’t hear of it. When other conservation measures were proposed, they wouldn’t hear of it. Instead, they gave away billions of dollars to the oil industry

They like to blame China and India and other emerging economies for causing the increased demand, but again according to Pickens the Chinese have 44 cars per 1,000 people as compared to 750 cars per 1,000 people in the US. The whole world consumes 85 million barrels of oil of which the US consumes 21 million or 25% even though the US population is only 4% of the world population.

Some talk about our present economic malaise as being part of the business cycle, exacerbated by greed in the housing and financial markets but fails to point out that Republican policies were to blame. Now the Administration, through its Secretary of the Treasury, Henry Paulson, is calling for regulations but that is closing the barn door after the horse has gotten out. It is the failure to anticipate and to have put regulation in place before the crisis is at the heart of the crisis just as the failure to address the oil crisis before it came upon us is to blame.

They talk about posturing but fail to talk about the real posturing that is being fostered upon us. Instead of real solutions to our problems we are offered drilling off shore. Aside from fouling our beaches and our environment it would do nothing for our economy or the price of oil either in the short run or the long. As Pickens points out we can’t drill our way out of this mess. Any oil extracted would not come on the market for ten years and even then the amount extracted would be insignificant and do nothing to favorably effect supply or the price of this commodity. And McCain stands there and postures and postures and in typical Rove manner slanders and slanders.

In the end they offers us the same policies that got us into this mess. His solution is to cut out wasteful spending, something we can all be for, but that is a bromide that keeps being offered and never turns out to be a solution. The idea that taxes must be reduced and reduced and never increased is what got us into this horrendous deficits, not just on the national scene but in the States as well. Both New York and New Jersey are facing budget crisis.

They talk about Social Security being taxed, but fail to tell us that this is a tax that was proposed by the Reagan Distraction or that it was intended to shore up Social Security and that every cent of that tax goes back into the Social Security Trust fund. Nobody has proposed its elimination, and its elimination would further undermine the solvency of SS.

As for the ATM it is unfortunate that this was not indexed for inflation. As it has been pointed out too much revenue is being generated from this tax for it to be eliminated, but it will be adjusted as it has been in the recent past so that it does not hit the middle class, and it will be indexed for inflation. Even then it will be a large loss of revenue for the Federal government and means must be found to make up for this loss.

The suggestion that tax collections be stepped up is a sound one but there has not been the will on the part of the Bush Administration to tap this source and McCain, despite disclaimers appears to have adopted every one of the Bush policies. It should be noted, however, in order to accomplish this, new laws targeting off shore tax shelters would have to be enacted and there seems to be no desire on the part of Bush/McCain to pursue this avenue. In addition additional funding for IRS’ enforcement would have to be appropriated not something Bush/McCain team has given any indication of favoring.

However, there is no reason why income earned from capital gains should be taxed at a lower rate than income earned from labor. We take pride in being a country that has a work ethos but taxes our labor as if it had less value than a passive return on capital. It is this, of course that causes the enormous inequality in the burden of the rich whose main source is return on capital as opposed to the middle class which earns most of its income from the effort of its labor, whether white collar or blue.

First we must bring our taxes in line with our expenditures. We cannot go on with an ever-increasing deficit. We cannot do this simply by cutting out waste. Cuts in other areas are simply not possible without hurting the middle class and the poor. We must pay for the war in Iran and in Afghanistan and its aftermath, which will cost billions even after those wars are concluded in replacing equipment and caring for our wounded veterans. We will not tolerate an attack on our main social programs such as Social Security, which McCain referred to recently as being an outrageous system, or Medicare or Medicaid. We should put a stop to the huge subsides paid to farm corporations but that is not about to happen. There are definite limits on our ability to substantially cut expenditures.

Thus if we increase tax on capital gains we can close the budget gap and then substantially reduce the tax burden on our working population.

Without a doubt middle class working people invest in the market and any increase in the capital gains tax would, to a limited extent, impact those people but the impact on someone who has a $10,000 or even a $100,000 investment in the market is miniscule, and can be more than offset by lower taxes on his salary or wages. If budget balance is achieved a lowering of taxes on labor may be possible. Right now earnings on capital are favored in so many ways that it is no wonder that that billionaire, Warren Buffet said that his tax rate is lower than his maids. We should consider lowering the payroll tax on the lowest earners and make up for the loss to the SS trust fund by increasing the cap on contributions. Capital gains are favored in so many ways other than by the low rate that substantial additional revenue can be obtained from this source simply by requiring brokers to notify the IRS when a security is bought and its purchase price. Right now brokers are only required to notify the IRS when a security is sold, so that short of an audit, the taxpayer can easily misrepresent its basis and its purchase date.

Under the present code even the small capital gain on investments is taxed only when security is sold but tax payers who are wealthy enough to let the securities increase in value until their death escape paying any tax either by them or their heirs. When the Security is passed to the heir, the heir does not inherit it with a basis of the purchase price, but rather gets a new basis as of the value of the security at the time that he inherits it. This is patently unfair to those who because they need the proceeds of the security before dying must pay capital gains taxes.

The Bush tax cuts which expire in 2010 had this expiration date built in because the figures of lost revenues were so large that the Administration knew that without the cutoff date it could not be passed. This is still true. The revenues lost from a total renewal of this ill conceive tax cut would lock our deficit in and assure its growth for decades to come. That is why no Republican Congress extended it when they had the majority. To now ask the Democratic Congress to take this irresponsible step is the height of Chutzpa. It should be allowed to expire, though tax adjustment to protect the middle class will be passed or as Obama has said, “No tax increases for people making under $250,000.” Personally I would have made that $150,000 but the promise has been made and will be kept.

The High Price of Gasoline

I have recently received an e-mail from two different sources that is being circulated on the web. For those who may not have seen it or don't remember it, I reproduce it below:

"This was originally sent by a retired Coca Cola executive. It came from one of his engineer buddies who retired from Halliburton. It's worth your consideration.

Join the resistance!!!! I hear we are going to hit close to $4.00 a gallon by next summer and it might go higher!! Want gasoline prices to come down? We need to take some intelligent, united action. Phillip Hollsworth offered this good idea.

This makes MUCH MORE SENSE than the "don't buy gas on a certain day" campaign that was going around last April or May! The oil companies just laughed at that because they knew we wouldn't continue to "hurt" ourselves by refusing to buy gas. It was more of an inconvenience to us than it was a problem for them.

BUT, whoever thought of this idea, has come up with a plan that can really work. Please read on and join with us! By now you're probably thinking gasoline priced at about $1.50 is super cheap. Me too! It is currently $2.79 for regular unleaded in my town. Now that the oil companies and the OPEC nations have conditioned us to think that the cost of a gallon of gas is CHEAP at $1.50 - $175, we need to take aggressive action to teach them that BUYERS control the marketplace..... not sellers.
With the price of gasoline going up more each day, we consumers need to take action. The only way we are going to see the price of gas come down is if we hit someone in the pocketbook by not purchasing their gas! And, we can do that WITHOUT hurting ourselves. How? Since we all rely on our cars, we can't just stop buying gas. But we CAN have an impact on gas
prices if we all act together to force a price war.

Here's the idea:

For the rest of this year, DON'T purchase ANY gasoline from the two biggest companies (which now are one), EXXON and MOBIL. If they are not selling any gas, they will be inclined to reduce their prices. If they reduce their prices, the other companies will have to follow suit. But to have an impact, we need to reach literally millions of Exxon and Mobil gas buyers. It's really simple to do! Now, don't wimp out at this point.... keep reading and I'll explain how simple it is to reach millions of people.

I am sending this note to 30 people. If each of us sends it to at least ten more (30 x 10 =3D 300) ... and those 300 send it to at least ten more (300 x 10 =3D 3,000)...and so on, by the time the message reaches the sixth group of people, we will have reached over THREE MILLION consumers. If those three million get excited and pass this on to ten friends each,
then 30 million people will have been contacted! If it goes one level"

I am amazed that so many hair-brained schemes are so readily and so enthusiastically distributed on the web and the issues that prompt this outpouring of indignation. In this case it is the high price of gasoline.

First of all there are hundreds of people dying in the Dafur genocide. There are hundreds of thousands of Iraqis dying in their country even without counting our own brave soldiers. Our own country causes people to disappear - they call it rendition - and to be tortured. Some may very well be terrorists, but others are totally innocent and after being tortured are told, "so sorry, we made a mistake!" How many are never heard of again because their disposition covers up the mistake, we will never know.

We are having our phones tapped without any court warrants as provided for by our constitution and our laws. They tell us that this only involves the bad guys but how do we know. Our President tells us "Trust Me" but can we, as the Congress dominated by his cronies’ refuses to exercise any oversight. Corruption is rife. Legislation, inserted in the dead of night called "Earmarks" rewards those willing to pay either by so-called campaign contributions or by outright gifts of vacations and other "gratuities". This costs us untold billions while the Congress refuses to change the "system".

My friends there is a serious cancer growing on our body politic and we ought to rise up in anger and outrage.

BUT WHAT IS IT THAT TRULY OUTRAGES US! HIGH GASOLINE PRICES. I hate to say it but high gasoline prices are good for our nation. If high gasoline prices will cause us to use less gasoline that is a positive good. It would be better if the windfall from these high prices went into our government coffers where it could be used to repair our highways and our infrastructure, instead of into the pockets of the oil companies, but there is a finite amount of oil that can be pumped and no one has yet found a way to repeal the law of supply and demand. If the world tries to buy more oil than can be produced by suppliers prices will rise. Is there a way to prevent this? Yes! It was done during World War II. It is done with price controls and rationing. The time may come when this will be necessary but it isn't necessary yet and hopefully it will not become necessary. It should be used only during true emergencies.

I can think of many reasons not to buy from Exxon-Mobil. They are environmental predators. But boycotting them will not bring down oil prices. That is a pipe dream! What is driving the high price of gasoline is the high price of oil and that is a price that is a world price and it makes no difference where the oil is bought.

A while ago we heard of boycotting oil from the Middle East. Then it turned out that we only buy a small portion of our oil from the Middle East. Most of it we buy from Venezuela. But it makes no difference. In a sellers market if one country doesn't buy it another will. This is a true case of globalization.
Why the sudden rise in oil prices. Well the Iraq war is one. Iraq is pumping less oil now than under the oil for food program. China and India are another. They keep buying more and more. The saber rattling against Iran is probably the most immediate cause. The world and the oil markets are nervous about a cut off from that major source.

There is no short-range solution. Oil prices will fluctuate up and down over the months and maybe years to come. But there is only one trend in the long run and that is up. Get used to it!!!!!!! Get smaller, efficient cars.

Is there something our government can do? Yes! But its effects will only be long term. We can spend billions to develop alternate fuels, efficient means for using those fuels, while making sure that they do not spew CO2 into the air. If we do this we will become the suppliers to the world , a boon to our economy and to job creation and save the world in the process.

THERE ARE NO QUICK FIXES!!!!!! JUST AS THERE ARE NO FREE LUNCHES!!!!!!