Saturday, June 21, 2008

The impetus for all this...

So, now that I've told you what this blog is, here's why I decided "yes, today is the day I join the blogosphere:" I just finished writing an email in response to one a relative sent that basically tried to say the Democrats made oil $130+ a barrel and gas $4+ a gallon by not letting us drill our land. I don't very much like Democrats, Republicans, or politicians in general, but I can't abide unproductive, unwarranted blaming of all our problems on any single villain. After reading an article on the great http://seekingalpha.com/, I was inspired enough to write my response, which I thought was good enough I wanted to make it public in case some day someone else might read it and start thinking more rationally.

Preface: I am convinced by the evidence of global warming (there is so much out there... do a Google scholar search if you don't like Wikipedia and aren't convinced), and do think we need to start reducing our impact on the environment. However, I also recognize the need to keep our society moving, which includes having a plan to get all this great energy that brings these words to you. That puts me in a tough position if I want to remain logically consistent with myself. Below, I try to do so.

This is long enough an outline will help. By paragraphs:
  1. Shoutout to the SeekingAlpha article
  2. Money, power, and oil, and political accountability
  3. It's easier to blame people for our problems than fix them; oil is a political tool
  4. Problems with oil the US can't control
  5. Economies are cyclic and fighting that is dangerous; why I like recessions
  6. There is no simple solution to oil; chaos theory and the economy
  7. Subprime crisis as an example of why you can't regulate your way to economic bliss in a chaotic system
  8. Conclusion: I'm a libertarian

Here is my email (plus a few more cites for those of you more critical of quality of thinking than my family):

I found a great article about this topic on an investment site I read: http://seekingalpha.com/article/82127-oil-prices-and-political-energy?source=yahoo. It says some of the exact things I wanted to say in response to this email in a way I couldn't put together. It also helped me get some of my own thoughts down.

It's not Democrats or Republicans maliciously trying to run up oil prices or being ignorant... it's about money and power, as usual. Oil producers and companies have made a lot of money on oil. They use this money to buy government influence and make more money. Politicians in turn use the oil crisis as a political football to get votes. Unfortunately, unlike other election-year hot topics like abortion or gay marriage, oil and energy policy has an extraordinary ability to do significant damage to American and global society. It's a shame that our leaders get away with inaction in this important area 3 out of every 4 years.

But it's a lot easier to yell and scream and blame people about a problem then do the hard work it takes to fix it. Current leaders from Al Gore to George W. Bush are all guilty of trying to blame instead of fix to some extent. To fix this, we need a combination of reduced consumption, increasing energy supply (whether by alternative energy or expanded domestic oil production or both), creating sensible, practical regulations, and knowing that almost everything coming out of Washington, especially in an election year, is a smokescreen. Politicians survive by manipulating emotions, not being logical and solving problems. Emotions (and money) are how they get reelected.

So much in the oil game is out of our control... foreign subsidies, cartel action, overextension of the dollar internationally, global demand , even how much oil gets sucked out of the ground... I don't have enough fingers to point menacingly at "those people" who made this happen. No one person or group put $4 on the gas pump (or $4.38 if you're in Seattle like me :( ).

Economies are cyclic; sometimes they grow, sometimes they shrink. The real problem is trying to make them grow when it's just not meant to be (like Greenspan's dubious market-must-grow rate cuts). The economy wants to go down a little bit frequently, but if we don't let it, then we get these infrequent huge drops. "Recession" is not a bad word; it's a good thing, because it keeps prices rational, and when everyone panics and prices get too low, "recession"="clearance sale." It may seem callous now while the economy is falling down and people are worried, but I feel lucky to have the opportunity to get into the market when it is so low. Long term, this recession will help anyone who remains calm and realizes they can profit by looking for undervalued investments. The real danger is depression... we get there by blindly assuming the economy will keep going up and up and up until we all live in gold palaces, and then trying to force it to happen. Don't fight economic tides; surf them.

Democrats and Republicans have exaggerated their positions on oil and are just saying the same things over and over until you think they're true. It's not guaranteed that more drilling will cause vast environmental damage, or that more drilling will bring gas prices down. The environment and the economy are too complex to jump to such conclusions. These types of things have an enormous number of variables; you can't just change one or two and fix everything. If we'd been drilling in ANWR for the last 30 years and oil was that much cheaper ever since, do you think we'd have the same demand for oil we do today? Do you think that without the oil problem, everything in the economy would be great forever? These are
chaotic systems, like the butterfly that flaps its wings in China and makes a hurricane in Florida. Governing them with inflexible, top-down rules, no matter how well-intentioned and well thought out, will never be as effective as allowing a market-derived solution.

Another example of how hard it is to govern a chaotic system is the subprime mortgage collapse. It was enabled by a series of laws in the 80's (DIDMCA, Alternative Mortgage Transaction Parity Act, and TRA of 1986) designed to encourage home ownership across society. These laws combined with macroeconomic trends to create a shiny veneer on otherwise dangerous debt practices, and when macroeconomic growth slowed after the .com bubble (chart), the rickety credit structure imploded. If regulations enforced basic good practices, like making a reasonable down payment, not lying about income level, and actually paying off the loan, instead of enabling mortgage interest tax deductions, usurious interest rates, and preposterous loan structures, we might not be in this mess because the market would have imposed the reasonable loan practices it had for decades. (But might is the key word - it's not the case we could say whether or not doing anything different would have prevented the crisis. There are so many other variables and other things that can go wrong just by, say, never having mortgage interest deductions you really can't say).

The problem is our leaders haven't done a good job. We need better government. But to some extent, it's not their fault that they can't do a job which very well may be impossible. In lieu of a brilliant, benevolent leader who can make everything OK, I prefer to follow a quote variously attributed to Thomas Paine, Thomas Jefferson, or Ralph Waldo Emerson (all of whom I respect immensely): "That government is best which governs least."

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