"Work Out With a Vet" at AHS

On Saturday, the AHS JROTC put on a Veterans Day activity called "Work Out With a Vet". It sounded cool, so I took Miles with me (everyone else was busy with other activities).

Before the workout, we got to climb around in a Coast Guard boat and a Blackhawk helicopter.

They had some speeches, the school dance team performed, and then we were led in a workout by the JROTC, followed by some training drills.

The headliner vet was our favorite eye-patched congressman Dan Crenshaw. After the workout, he also ran the ninja warrior course without much trouble.

I was able to grab a quick selfie with him as the event wrapped up.

Big Tech

As you may have heard, Apple recently surpassed ExxonMobil as the most valuable company as measured by market capitalization.  At this time of economic uncertainty, it is unconscionable that Big Tech continues to take advantage of hard-working Americans by inflating prices on essential portable computing devices.  With the technological advances we have made in this country, it is absurd that we have to pay upwards of $800 per iPad (not to mention the astronomical costs of data plans) when Apple's past history clearly shows that their products will be obsolete within a year.  It's manipulative and deceptive and it's time for the government to discontinue its policies promoting Big Tech at the expense of the middle class and give some of the benefit of this windfall back to the people who need it most.  There is no reason Apple should be so obscenely valuable, and it's time they paid their fair share (or at least were paid fairly for their shares...).

State of the Union

I watched the State of the Union address last night.  I generally don't watch Obama's speeches because generally they're all hot air, but I make an exception for the State of the Union.  It would take more than I feel like writing to go into details, but I thought it was interesting how quickly he (or at least his lips) shifted to the political middle, all the while trying to make it seem like these were novel ideas he had come up with.

I'd like to think it's because the recession is ending and the spending he initiated really was an anomaly for a troubled time, to be followed by fiscal responsibility and government efficiency.  But I have a sneaking suspicion it has something to do with the Republican majority in the House and an upcoming election.  Look for him to try to ride any successes from his opposition to another term in office.

Also, is it just me, or did the whole scene seem less impressive in HD than it used to in SD?  I felt like I could see everyone so closely that they were just regular people, in a somewhat unimpressive room.  Or maybe it's just my disillusionment continuing to grow with age.

One last thing, did you notice the expression on John Boehner's face?  Watching him almost made the whole thing enjoyable.

Insurance vs. Care

So in the current kerfuffle over health care, one thing that pets my peeve is the seeming confusion over what insurance is. When you buy car insurance, you pay small amounts of money to ensure that in the event of damage to the car, the insurer will cover the larger repair cost. (I know there are deductibles and other extra details, but that's the basic idea.) This works because of statistics and actuarial tables and so forth that allow many people who aren't crashing their cars to pay small amounts and the insurer to use that money to repair the cars of the fewer people who crash them. It works the same for home insurance, life insurance, disability insurance, and any other insurance you can think of.

Currently I keep hearing about how health insurance companies are "discriminating" by denying insurance to people with preexisting health conditions. To me that is no more discrimination than an insurance company who refuses to pay for repairs to a car that was crashed before coverage was bought. It's like burning down your house, then buying a home-owner's policy and expecting the insurance company to rebuild it. Insurance insures against a future event. People with preexisting conditions are no longer looking for health insurance, they are looking for health care, i.e. treatment.

Health insurance provides health care when the need arises. The other option is to pay the full cost up front. Barring "discrimination" based on preexisting conditions would only encourage people to not have actual insurance, and instead apply for health "insurance" only when a condition arises to receive expensive treatment without the monetary investment. It doesn't take a genius to figure out that the business model of insurance would be shot. Yet, mandating health insurance to provide that monetary base grates against American ideas of freedom.

The underlying problem, unfortunately, is that health insurance and health care deal with people's lives. You can either repair a car, or you junk it and replace it, or you live without. Repairing people sometimes requires life-long treatment during which insurance/care may be lost. It's hard to say, "Well, your insurance doesn't cover that, so adios!", or "You could live until you're 100 with this drug, but because you lost coverage for a month, you'll die at 60", or "You were too arrogant or dumb to get insurance so you deserve to die."

I don't know what the best solution is (although I have some ideas), but I do know that there is a distinct difference between health insurance and health care, and blurring the line between them in political rhetoric will do nothing to change reality. Somebody's got to pay for it.

Texas vs. California

As it's said in the blogging world, "hat tip" to WILLisms.com for referring me to this book, specifically this chapter on the current economic differences between California and Texas. It's long for a casual blog post read, but fairly easy reading considering the subject matter. The authors show their bias, but their arguments are hard to refute.

Some points I found interesting:

• Texas is doing extremely well financially, despite having no state income tax.
• People and businesses are leaving states like California and New York that have high tax burdens and going to places like Florida and Texas, which do not. Generally, those that have the most incentive to leave are those making the most money, exacerbating the former states' problems.
• States such as California (and the Federal Government) that rely heavily on a progressive tax code where the rich are taxed at a higher rate than the poor (based on income) are more susceptible to economic downturns because of a wider swing in tax revenue. In boom times, more people fall into higher tax brackets amplifying revenue, but when the bust comes and salaries decline, much of the minority that was providing the bulk of tax revenues falls into lower tax brackets and the overall decrease in revenue is amplified.

The whole book is very interesting reading, if you have time. Also, one of the authors has an eponymous curve representing the optimal taxation idea I was trying to get across in a former post. Basically, I agree with what they say.

Obamanation

I caught the swearing in and inaugural address of President Obama at lunch on a TV in the hallway at work. I thought his speech was good; he definitely has charisma. If he actually does what he said in his speech, I think he'll have a good presidency. I was left with the feeling that it's not going to be as bad as the right is predicting and not as successful as the left is hoping. As usual, the reality will fall somewhere between the optimistic and dire predictions of the opposing talking heads and no doubt disappoint all around. I'm just thankful for our national respect for and acceptance of a peaceful transition of power.

Vote early, vote often

As I mentioned in a previous post, I've heard about enough of the political debate this season so last week I took advantage of the early voting period to cast my ballot. This is the first time I'd actually gone to a polling location and used a polling machine. I voted by absentee ballot in 2000 (mission) and 2004 (college). The process itself was rather mundane -- stand in line, show ID, check boxes on the machine -- but what I didn't expect was a feeling of great appreciation for the whole process. It was uplifting to see all kinds of people peacefully queuing up to vote for the candidate of their choice, each person with perhaps dramatically differing views, yet all submitting themselves to the democratic process for a stable government transition. It's nice to know that regardless of the outcome, there will not be a civil war, or a coup d'etát. Many will be upset, but this country will still be ruled by the people, for the people. The campaigning has been fierce and divisive, but after the election the country will move on. In the grand scheme of things, I know my individual vote made little difference, but in combination with the millions of others cast it will determine the will of the people and it made me proud to live in this country.

Thoughts on Politics

So I'm kind of politicked out. The incessant news coverage of the presidential primaries and campaigns, and the increased politicization of the economy, immigration, wars, and everything else got me all riled up (comparatively speaking, quick snickering) for a while. I read a ton of things and developed strong opinions. Then I read other things and saw the merits of opposing philosophies and the holes in my own. Now that the election is nearing and important issues are boiling down to "I'm right and you're an idiot", "Irrelevant facts disqualify your candidate", and "Relevant facts about my candidate should be ignored", I think I'm done.

I think what I've learned the most from this year's election is what is makes politics so contentious -- no one is right. And they never will be. Everyone ostensibly has the same general goals, something along the lines of peace, prosperity, and happiness* for everyone, but there is no perfect way to achieve this.

Each major party's philosophy, if executed to perfection, with perfectly able leaders and perfectly willing citizenry, would bring about our common goal. But in our imperfect world, each party's philosophy, if executed exclusively, would fail in one aspect or another. For example, Conservatives may rely on the citizenry to help the needy at the expense of those who lose their life waiting for help that never comes, while Liberals may rely on government to do the job at the expense of individual prosperity and freedom.

It's made me appreciate our two-party system a little bit more. With only two parties, philosophies must be gravitate towards center to keep a viable support base and it is easier to accomplish goals when you control a larger percentage of the government. Having mandatory 4-year presidential cycles allows enough time for one party to accomplish some goals, yet not enough time to completely convert the government to their style. Over time, our government becomes a blend of these philosophies in action, hopefully balancing out into something functional, if not successful.

What's interesting to me now and the cause of my newfound political malaise is the fervor with which each group defends its positions (and obvious weaknesses) while simultaneously inflating its own ego and debasing the opposition. They resort to half-truths, distortion, defamation, coersion, and downright lies to gain control of something nobody can effectively control. It's a pity a politician could never win by telling people the complete truth -- what they need, but don't want, to hear -- and that a politician can't win without exposing the faults of his or her opponent.

I just have to remind myself of two things. The first is that we are lucky to live in a country where we can more or less determine the quality of our life by our skill and effort. Precious few in the history of the world have had that privelege. The second is that given the basic freedoms that we have, the most important of our common goals -- happiness -- cannot be dictated by or achieved through a politician, the government, or economy. Ultimately it is our own doing.

So I'm actually at peace going into these elections knowing that regardless of the outcome and the consequences with which I may or may not agree, it will likely balance out well in the end. Everyone has the same goal. And I, personally, can still use my abilities to provide a comfortable, happy life for me and my family. Considering the alternatives, I'll take it.


*Sounds suspiciously like "life, liberty, and the pursuit of happiness". Great minds think alike, I guess.

Thoughts on Taxation

Thought 1

It seems like there should be some kind of empirical way to find the optimum rate of taxation that maximizes revenue for government and minimizes burden on taxpayers. The level between being taxed so much that they can no longer stimulate the economy and being taxed too little that the government doesn't have enough to perform its fundamental responsibilities.

There are several cans of worms, I know, such as what constitutes the government's fundamental responsibilities, bull and bear markets, and inflation's role in balancing out income lost to taxes, but holding as many variables as possible constant, it seems like an optimal tax rate could be found.

Thought 2

I read this on a blog the other day, and it was an interesting idea. What if everyone, regardless of income level or situation, paid some income tax (flat or curved). This would make everyone personally invested in government spending. Then, have income tax be directly proportional to federal spending. If the government spends more, taxes go up. If they spend less, taxes go down.

You can bet politicians would be held accountable if the effects were that dramatic and immediate on their consituency. There are plenty of problems with this, too (cut-backs on necessary spending (defense?) for political expediency), but it's an interesting idea.

Incentive Theory

With the presidential election going on, I've been thinking a lot about the efficacy of politicians and the government. The founding fathers hit upon an inspired idea to form our government around a policy of checks and balances. Going off of what I am going to call Assumption 1, which is People will generally abuse the power they are given if they can get away with it, the founding fathers set a circular check on the powers of each of the three branches of government. So far it has worked remarkably well. While the roles of these branches has evolved over time, no one person or group of people has exercised undue power over the others. More than 200 years of stability is a testament to this principle's success.

The problem I have with government today is its ever-expanding size and scope and the spending that goes along with that. The root cause of this, I think, is what I call Assumption 2, which is People generally want to do as little work as possible to receive the greatest reward. The inability of the government to check its own size, scope, and spending is due to a lacking corollary to checks and balances that I call Incentive Theory:

Incentive Theory states that the incentives and disincentives of each involved party must be balanced to achieve the desired outcome, given Assumption 2, that people generally want to do as little work as possible to receive the greatest reward.

An obvious example in government is welfare and unemployment benefits. The desired outcome is that those in a poor financial situation can be sustained while finding the means to become self-sufficient. Receiving money while doing no work is the epitome of Assumption 2, therefore a substantial incentive or disincentive is necessary to achieve the desired outcome of self-sufficiency. In this case, since there is little incentive the government can give other than money, a disincentive is probably required. Discontinuation of funds if the individual fails to meet certain criteria, or a requirement to pay back an increasing percentage of funds received could be appropriate disincentives to remaining self-unsufficient.

As another example, let's consider a typical government entity. The desired outcome is to provide the service intended with the least amount of burden on the people. With little threat of losing jobs or marketplace, and in accordance with Assumption 2, the entity's workers can underperform, yet receive the same reward as if they had done more work. Sometimes inefficient work even provides a greater reward as it can result in greater funding. The individual taxpayer who helps fund the entity would have to exert a disproportionate amount of work to regain his fractional contribution, an unlikely occurrence given Assumption 2. Incentive Theory could suggest an incentive for the entity, such as bonuses for work achieved or for cost reductions or a disincentive for the entity such as firings for failing to achieve those goals. Another approach would be to give an incentive to the taxpayer by specifying the responsibilities of that entity and allowing non-government corporations to compete for the contract.

If that last suggestion seems far-fetched, consider a ubiquitous government entity: the public school system. The desired outcome is to give our children the best education possible for the least amount of money. As it stands, taxpayer money is collected from all, regardless of whether they have children or whether their children attend private school, to administer a government-run school system. This has an advantage over a completely private system in that it distributes the cost of educating children over the entire population (because well-educated children are a benefit to society as a whole) and puts schools in locations that otherwise would not have enough money to create demand. Because the funding is compulsory, the public schools hold a pseudo-monopoly, which encourages teachers' unions and reduces alternatives for education. In accordance with Assumption 2, the unions negotiate for higher pay regardless of suboptimal performance (and often because of suboptimal results), while the public school system retains underperforming teachers because the work required to fire them, which could result in strikes and poor parent perception, is too great. The work required by a parent to send a child to a private school in addition to compulsory education taxes is often not possible or worth the reward. Thus the teachers have no incentive to increase performance, the schools have a disincentive to firing underperforming teachers, and the parents have a disincentive to finding alternative options.

A voucher system balances some of those incentives. The government could continue to tax everyone since the reward for an educated populace is worth the amount of work needed for that fraction of one's salary, therefore there is an incentive for funding. The amount allocated to each child could be directed to the school of the parents' choice. For a small amount of work in choosing the appropriate school, the parents are rewarded with a better education for their child, therefore there is incentive for the parent to participate. With more employment options, the strength of the teachers' union would be weakened, allowing for higher pay for those who perform well and loss of employment for those who perform poorly, therefore there is incentive for teachers to perform well. Schools would want to reduce spending as much as possible to maximize profits, therefore there is incentive for schools to be fiscally efficient in accordance with the demands of the customer, the parent (e.g., some may want to pay more for music education). There are of course drawbacks to this method, such as what to do if no one wants to run a school in a certain area, or to a lesser extent, waiting for the market to balance school locations with demand, but it conforms much better to Incentive Theory.

As I said at the beginning, I've also been thinking about the efficacy of politicians. In my mind, the disincentive of being voted out of office does not balance the incentive of saying whatever it takes to get elected nor the incentive of doing things for power, influence, or money that are contrary to the constituents' desires or not beneficial to them. (I also think the incentive to do what the people want does not always balance the disincentive of misfortune if what the people want is bad for them, but it is the job of elected officials to do what the people want.) A disincentive such as criminal punishment, however, seems impossibly hard to adjudicate and unnecessarily restrictive when situations change and any physical incentive would be impossible to regulate objectively. Perhaps the politician's compensation could be determined by the satisfaction of the constituents at the end of each term?

Anyway, that's the gist of what's been swirling around in my head lately. If you skipped to the end, I don't blame you. This is one of those topics I wanted to think through by writing it out, and it took a bit of writing. I'm sure there are plenty of holes in my examples, but I think the fundamentals of Incentive Theory are sound and could be applied to almost any situation. I'd be interested to hear any thoughts any of you have or applications to other scenarios.

Oil companies want low prices too!

I've heard many times that oil companies don't actually want high oil prices, despite the apparent benefit of large profits, but usually without an accompanying explanation. This is my attempt to clarify in my mind why this would actually be true.

1. High oil prices encourage investment in alternative energy and transportation sources. This is a simple matter of economics. As the price of gasoline rises, demand for alternative fuels and vehicles will rise. This is bad for oil companies, because it will cut into their market share. Oil companies are looking for that perfect balance -- a price that is high enough to turn a profit, but not high enough to convince people to stop using oil. All you have to do is watch the news to know the balance has swung too far. If current trends continue, it will eventually take a big bite out of oil companies' profits. The best scenario for oil companies is for everyone to buy hybrids, lower demand, which will lower the price, and allow people to remain dependent on oil instead of finding alternatives.

2. High oil prices encourage nationalization of oil resources. When oil prices are high, oil-rich nations that previously allowed oil companies to produce their oil nationalize (i.e., take ownership of) those companies' operations and run it themselves. This is bad for oil companies in at least 3 ways:

• Past investments. Oil companies' assets can be seized, resulting in lost investment capital. Even if the value of the physical assets is paid for by the nation, much is lost in previous research and labor costs.
• Current profits. The nations gets all the profits, meaning loss of revenue for oil companies.
• Future profits. That nation is now closed off to exploration by oil companies (other than the national company), meaning a loss of future revenue for oil companies.

Now you might think that it's only fair for a country to be able to use its own natural resources for its benefit, and that is true. However, nationalized oil companies are notoriously inefficient at extracting oil. They get only a fraction of the oil that an independent oil company can get (competition breeds efficiency). That's why they can only operate when oil prices are high. The sad part of all of this is that getting oil is not like sipping it through a straw. If oil is not extracted efficiently the first time, there is no (viable) second chance to get the rest. The pressure is lost, and that significant fraction of oil the nationalized companies couldn't get is left unreachable, wasted.

3. High oil prices reduce the profit margins on gasoline. When oil prices are high, gasoline prices are high. As gasoline prices rise higher above the previous norm, consumers are less likely to ignore price aberrations of a few cents. This forces refiners and retailers (in which most big oil companies have operations) to narrow already thin profit margins to maintain a competitive advantage. Since they are already a small percentage of overall profits for large oil companies, you may see the retail stores (i.e., gas stations) being sold by big oil companies if oil prices remain high in order to focus on the more profitable crude oil, natural gas, and chemical operations and avoiding the negative publicity that comes from having branded stations.

4. High oil prices draw scrutiny from the government. When oil prices are high, oil companies make huge profits because investments made years previously at a certain cost of operation are paying off more than expected because of reasons that have little to do with the oil companies themselves. In any other industry, this would be good fortune, or even prescient planning, but in the oil industry, because of its influence on transportation, it is a "windfall" that inspires the ire of the public and government alike. The rash decision is to increase taxation of the oil company to somehow redistribute back to "hard-working Americans", but this will inevitably result in less money invested in the company, less return on "hard-working Americans'" stock ownership in the company, and higher prices passed on to the consumer in the future. Oil companies would prefer to keep prices lower and stable to avoid the impetus for increased taxation. If oil prices drop again, will the taxes be repealed?

5. High oil prices often signal market volatility. In the oil industry, investments are often measured in decades and billions of dollars. If oil prices are higher due to real economic demand, then high prices allow investment in higher-cost extraction like oil shale. However, if the price is high artificially, such investments may prove disastrous when the price drops and production costs exceed sales. Oil companies would prefer a stable price so they can make sound investments.

It's not my responsibility

FEMA recently announced that they are closing all the FEMA trailers used by victims of hurricane Katrina. They are taking away these emergency, temporary trailers after 3 years. And of course, FEMA is the bad guy because these people have no place to go.

You could see it coming, but it still annoys me. Put unaspiring people into free trailer homes, and they'll take the easiest course -- stay until kicked out. Granted, many didn't get the trailers until up to a year after the storm, but you can get an associates degree in 2 years. I can't believe that these people, barring the elderly and disabled, couldn't have improved their situation, through hard work, enough to move out, regardless of intelligence, race, or previous condition. This quotation sums up the problem:

I didn't ask to be in this situation. I'm a citizen. I'm a native of this city. And it's part of their responsibility to take care of us as taxpayers. And they're not doing that.

Ultimately, of course, it is an individual's responsibility to take care of himself and people would be better off for realizing this. We can look to others for help, but in the end it's up to us. As government has continued to bloat and expand its role, we pay more and more in taxes and understandably expect something in return. The Founding Fathers did a remarkable job constructing a government that protects against consolidated power, but unfortunately did not plan a way to limit the overall size and power of government. The more we pay in taxes, the more we expect, and the more we expect, the more we have to pay, both literally and figuratively, to actually get it.

It's a vicious cycle and it's transferring individual responsibility to the collective. We all pay into the same big pot and everybody gets treated fairly. Fair has been tried before in many socialist forms. It doesn't work. It saps the energy out of a people by giving them nothing to strive for, and it produces mediocre goods and inefficient services. Ironically, it becomes unfair to those who could have achieved more.

We have strayed so far from our original, limited government that it's almost unrecognizable. I understand the desire to help those that can't or won't help themselves, but doles only create dependence. If the government wants to save us from ourselves, require us to pay into a health or retirement plan, like we're required to have auto insurance. Take it out of our paychecks like Social Security if you have to, but let the individual pay for himself and choose where the money goes. The government could even sponsor one of these plans, although chances are slim it could compete against free-market competition.

This is unfair to the poor people, you say, who will get shoddy treatment for their meager contributions. In answer to this, yes, it is. And life will always be unfair to everyone in different ways, but forcing fairness only creates animosity. If people are forced to take responsibility for themselves and choose their own services, the free market will provide much more efficient, higher-quality, low-cost services than the government ever could. And if the money we are wasting now on government services were used in an incentive-based way to allow people to improve themselves, they could fish for themselves instead of eating for a day. Give people incentive to improve and they will improve. Give them a way to be lazy, and they will be lazy.

It's sad to see that the conservative movement has lost sight of this and that the voters have accepted it. Our choices are Democrats with big government and liberal ideals, Libertarians with small government and liberal ideals, and Republicans, who have kept their conservative ideals but become big government. Somebody, whether a reprioritized Republican party or someone new, needs to turn on the light bulb for the American people. Instill in them a sense of pride for running their own life instead of submitting to government ineptitude. Give them back their tax dollars to use as they decide. Show them that their life is their responsibility, and that they could actually do really well for themselves if they put in a little effort and limited the government to regulating instead of implementing.

I doubt it will happen -- once you've given the lollipop, it's hard to take it away -- but I can always hope.

The Oil Industry cont.

Here are some interesting facts from ExxonMobil about their role in the oil industry that people should know about:

1. ExxonMobil is the largest non-government owned company in the energy industry, yet they produce only about 3% of the world's oil and about 2% of the world's energy.
2. The United States imported only 14% of its crude oil from the Middle East in 2007. The majority came from North America (55%), then Africa (16%), the Middle East, South America (12%) and Europe/Asia (3%).
3. Global demand for oil and other liquid fuels is expected to be more than 35% higher in 2030 than it was in 2005.
4. ExxonMobil estimates it will have to invest over $25 billion annually to keep up production rates.
5. In a commodities business, earnings rise and fall in cycles. Oil is currently in an "up" cycle and the oil companies depend on these profits to maintain profitability with very long-term investments during the "down" cycles.
6. In 2007, the oil and gas industry earned, on average, about 8.3 cents per dollar of sales. The Dow Jones Industrial Average for major industries was 7.8 cents per dollar of sales.
7. About 75% of ExxonMobil's earnings come from outside the U.S.
8. Crude oil and natrual gas production (i.e., not gasoline refining and sales) have generated 2/3 of ExxonMobil's earnings over the past 5 years.
9. From 2003-2007, ExxonMobil's U.S. tax bill was $64.7 billion, exceeding U.S. earnings ($46.0 billion) by more than $19 billion.
10. From 2003-2007, ExxonMobil's earnings grew 89%, while income taxes grew 170%.
11. The Windfall Profit Tax of the 1980's reduced domestic oil production as much as 6% and increased imports as much as 16% (1990 Report of Congressional Research Service)
12. Imposing (arbitrary) punitive taxes on success discourages the stable, long-term investment in decades-long projects necessary to sustain oil output.

The very first item is the one I thought was really interesting. Producing only 3% of the world's oil, ExxonMobil can hardly dictate world prices in order to reduce the price of one byproduct of oil in one market as so many expect them to do. Sure, they could sell gasoline at a loss in the U.S. and lose what amounts to a relatively small fraction of worldwide profits (see #7 and #8). But the company is publicly owned. Selling gasoline at a loss does not have a direct increase in profits in other parts of the business like giving away free drinks might cause people to buy more food. There's no point in keeping a dead weight, so stockholders would demand that the downstream (gasoline-selling) part of the company be eliminated and eventually it would be replaced in the market by a company like Valero, who only refines and sells gasoline, and therefore must do so at a profit.

Point 2 also caught my attention. The U.S. is not nearly as "dependent" on middle-east oil, or even foreign oil (if you count Canada as not foreign) than the talking heads would have us believe.

The Oil Industry

Since recently starting my job, I've obviously had an increased interest in the oil industry and although it shouldn't be, it's surprising to me how little people understand it.

I recently rebutted an email I received saying that boycotting one oil company (in this case the largest, ExxonMobil) would force ExxonMobil to lower its prices, which would then force the others to do the same to compete. As with most of these emails (like the one-day boycott of all gas stations) it is of course entirely untrue. Boycotting one brand does nothing to reduce demand, it just diverts profits from one to another. If anything, it reduces competition and forces shortages at the remaining stations, which then have to buy gasoline from the boycotted brand at a markup to meet demand, which raises prices. And supplying other companies is common practice in the gasoline industry, so it wouldn't even be a huge deal.

Oil companies are, by necessity, huge global corporations. They have operations in hundreds of countries which are often shared by the local oil company or government (or both). This means they get a share of the profits for their part in exploration and drilling, but perhaps not direct control of where the oil goes. In other words, they can't take all the oil they find and ship it directly to the US. There are also many different kinds of crude oil, which require different refining processes, so oil must be routed to capable refineries*. And often, it's just plain inefficient to ship it all over creation.

Basically, vertically integrated oil companies (all the big ones) that explore, drill, produce, refine and distribute, don't necessarily refine and distribute the same product they drilled. They are dependent on the world markets to sell the crude oil they find to refineries at market prices (otherwise the refineries would buy cheaper crude on the market from those that have more oil than refineries) and buy crude at market prices for their own refineries. Basic market principles then apply!

This means when China, with a rapidly increasing demand for oil, builds a new refinery and is willing to pay $10 more per barrel, the price will go up around the world to make it worth selling to other places besides China. It means as the value of the US dollar drops, foreign currency is worth more and since oil has to be sold at world market prices, more US dollars have to be spent to get the same amount of oil. Since crude oil is sold on a speculative market, it means economic fears can artificially drive up the price of the commodity as the demand for investment in supposedly more sure-fire oil commodities goes up (higher demand + stable supply = higher prices) and demand for other riskier investments (mortgage crisis anyone?) goes down or when civil unrest threatens oil-producing countries. This also means that currently the oil companies are making most of their money selling crude oil, not gasoline. Because the market prices happen to be higher than the cost of finding and producing oil currently (which in many cases started decades ago when it was cheap to do so), they are currently making a profit selling crude. Their refining operations currently have a smaller profit margin than they used to, in order to keep gasoline prices as low as possible. Current exploration and drilling is by far more expensive per barrel than it used to be, meaning the if prices stay the same, the investment won't yield as much and the profits will be lower in the future.

So how is the next president going to fix this (besides going back 30 years and investing in public transportation)? Apparently nothing worthwhile. First-generation biofuels have turned out to be an environmental bust (see this site), perhaps even exacerbating food shortages (read this article), but there's no talk of eliminating subsidies. There has been recent talk of a federal tax moratorium on gasoline. Many are rightfully calling this idea ridiculous. For one, the federal tax on gasoline is one of the few taxes that actually makes sense, because it provides the money to keep up the highway infrastructure by taxing those that use that infrastructure the most. By eliminating it, you reduce the cost artificially (cost being the only thing holding back demand), which as Economics 101 will tell you, will increase demand, which will raise the price until it's back where it started, except we're polluting more and our highway bridges will collapse.

The popular thinking is that a reduction in federal taxes should be compensated with a "windfall tax" on oil companies. Basically, tax "big oil" more when it is successful, because they are apparently unfairly forcing people to buy gasoline. I also have many problems with this idea, the least of which is that it may affect my salary. First, basic logic would show that increasing taxes on a product will cause the price of that product to rise, not lower. Second, taxation is already part of the problem. Oil companies currently pay more in taxes than they make in profits. This might work if there were enough supply to meet demand. This leads to Third, which is that oil is getting increasingly harder to and more expensive to find and produce, and the oil companies need to invest those profits, while they're there for the having, into exploration to keep up oil production in 10-20 years, when demand will be even higher. Fourth, oil company profits are at or lower than the profit margins of other industries (if you want to see "windfalls", check out the pharmaceutical companies' profit margins), they just make a lot because they happen to sell billions and billions of barrels. It will be interesting to see what the government's plan is when oil production goes down from American companies because they can't afford to invest in exploration (which requires billions of dollars).

One more thing to remember when grumbling about gasoline prices and big oil profits. ExxonMobil, Chevron(Texaco), and ConocoPhillips are all owned publicy. About 1.5% of shares are owned by insiders. The rest are owned by private stockholders and mutual fund holders -- regular people all over America. When these companies do well, people's retirement funds do well. There is not a cadre of super-wealthy oil executive robber-barons running the operations.

In short, there simply is not a way to "fix"** the price of gasoline without either reducing demand, which Americans have so far shown unwilling to do in significant numbers and the government is unwilling to do with tax policy for alternatives (read this article) and both are unwilling to do with public transportation, or increasing supply by drilling in the US, which the environmentalists have been blocking for years (read this article). Strengthening the dollar against foreign currency would also help. If none of these things happens, the price will continue to rise until the price itself forces down demand and equilibrium is found.

Personally, I think the easy oil has been found and foreign governments have turned stingy. The era of cheap gasoline is over in America and I think it's for the better. I will be glad to see all those wasteful SUVs off the streets. I would love to see better public transportation (I hate parking!). Whether or not global warming is real, pollution is real and I would welcome cleaner alternatives for power generation. I think high gasoline prices will finally force Americans to do what they've said they'd like to do, but couldn't be inconvenienced to.

You can find some more interesting reading from the oil industry's point of view here:

• The Truth About Oil and Gasoline: An API Primer
• Putting Earnings Into Perspective

*This is why ExxonMobil laughed when Venezuela threatened to stop supplying crude (after seizing without compensation the operations EM had invested in), because EM had the only refineries that could refine Venezuelan crude.

**Why people think they have a "right" to gasoline at a certain price is beyond me.

Thought on Illegal Immigration

One of the arguments against enforcing immigration laws is that there will be a lack of people willing to do the jobs that illegal immigrants do. No one will pick fruit, mow lawns, or clean buildings. In pondering the issue, the thought occurred to me -- we have the solution sitting under our noses! There is a huge labor force between the ages of 14 and 21 (or so) that is missing out on the valuable lessons learned from hard work. Instead of learning to appreciate work and manage their money, they are being pampered by their parents and given a sense of entitlement that eventually filters into society and politics. I think teenagers' time would be far better spent harvesting oranges to pay for college than hanging out at the mall on their parents' tab. It'll never happen, of course, but it's a thought.

Political Commentary

Good reading: http://www.msnbc.msn.com/id/7592675/

Tony Blair

I caught Tony Blair's foreign policy speech today on C-Span2. I was again impressed by him and it's always interesting to see perspectives from the other side of the Atlantic. A news story about the speech can be found here. On the page, there is also a link to view video of the speech.

Jihadist

Quotation from an interesting article about a Yemeni jihadist in Iraq:

Back at his home, he had a final dinner with his wife and children,who went to bed without being told their father was leaving. "My favorite daughter came and sat in my lap and slept there. She opened her eyes and said, 'Daddy, I love you.'"

He was weeping openly now, a thin man with a thin beard under a ragged tree in a courtyard in Fallujah. "You know these memories are the work of the devil trying to soften my heart and bring me back home," he said.

Mormon Minority Leader

We may have a Mormon as the new Senate Minority Leader:

"The one-time chairman of the Nevada Gaming Commission is also a Mormon who stands at odds with most of his party by opposing abortion rights."

Redskins Rule is Broken

Well the election is pretty much over now. The votes are in and George W is going to continue to be our president. I watched the returns all last night and as I thought about the possible outcomes, I just couldn't see John Kerry as president of the United States. I couldn't envision him giving press reports or state of the union addresses, or meeting with foreign leaders. I think the right decision was made.

So I have a couple of thoughts about the results of the election:

1. As much as I'm glad Bush won because of the values he brings to the White House, it's almost as satisfying to know that he won despite the concerts by Bruce Springsteen, despite the Ramen and underwear (and movie) of Michael Moore, and despite the comments of actors and actresses who spouted off their opinions as if we cared. I hope it broke their bubble a little bit. I hope they're a little bit humbled. I hope they realize that they're not as influential as they think. There are a lot of red states in the middle that don't care what Hollywood is doing.

2. Speaking of red and blue states, is it any surprise that the media has a liberal bias?? Where are all the major news sources located? Very blue New York and very blue LA. Maybe if the news started out, "From our headquarters in Toledo, Ohio...", we could expect it to be unbiased.

3. Isn't it interesting how the elections results are splitting more and more on moral values than anything else? Church-goers voted for Bush and non-church-goers voted for Kerry. What with gay marriage being thoroughly banned in 11 states, this issue is sure to be the divisive issue for years to come and probably the dominating issue separating the two parties, replacing economics.

4. Only having local news channels, I was relegated to enduring the local coverage of the Utah elections. Because of the large number of breaking stories all over the state, I think they called up every reporter on the payroll, including the interns, to produce some pretty horrible journalism. Amidst all the sound gaffes and awkward transitions, my favorite line of the night: "...[he] looks to have a small margarine of victory..."