A View From The Press Box

Your commentary is dead on and what is most insightful is the comment that most Americans know more about Paris Hilton than the reasons behind the hike at the pumps.

Take it a step farther. Most Americans can't name the mayor of their city or their Congressman or their state legislators. They don't know the name of the Senate president or even the Speaker of the House.

Expand that lack of knowledge to include economics. Expand that to include why we have the current housing meltdown and the credit squeeze. Many can't tell you the three branches of the federal government.

I went online one day and took the new immigration test. I'll bet as many as three-quarters of the citizens of this nation could not pass that test.

We know nothing about our own nation. We have given all power to people that have their own best interests at heart and the interests of their party's power at heart, and not the interest of the people of this nation.

We could drill in those locations, but the oil will go to the world-wide pool. It will make prices cheaper for everyone in the world and will not benefit Americans...if we could even get it out of the ground and processed in time to make a difference.

Cell phones, gadgets, big TVs are important. Paris Hilton matters. Sadly, we know little about what is really important to this nation and what grows more important every single day--an economy that is in deep, deep trouble and that affects the welfare of all of us.

Let's not get into a panic. An economy "in deep, deep trouble"? Keep things in perspective-- the economy hasn't even stopped growing. Unemployment is still down in the middle single digits. My commute to work is as crowded as ever. Exports have expanded. The dollar is coming back. The sky is not falling.

Even the news out of Iraq is terrific, where the war is effectively won and over. On to the next challenge--a resurgent Russian empire.

Let the free market work. It will put the price of things, including oil, where it needs to be to balance supply and demand. Price increases lead to reduced demand and increased supply and increased use of substitutes. No need to force anything through the ham fist of government.

Of course oil exploration and production should be allowed anywhere where there is a prospect of finding some. What's the point of leaving it in the ground?

Of course it will run out someday, but no one has any idea when that will be, and it won't be like a sudden closing of a tap anyway--we'll have time to switch to alternative energy sources when their cost no longer floats 'way above the cost of oil.

Politicians talk and act like politicians. Situation normal. Calm down.

SAM RESPONDS:
It's not really the politicians I'm upset about. It's the ignorance of the American public. Our lack of understanding about what goes on in our own backyard, let alone the rest of the world, is shameful, and leads to bad government. We get the government we deserve, my friend.

Sam, you make some good points, and although I agree with most of what you are saying, I want to make the point that we NEED to have our own energy source so that we do not have to depend on the Middle East for it.

Every solution is going to take time. We've been debating that for years. Let's just do it already!

Thanks for the post. It gets you thinking!

SAM RESPONDS:
You are absolutely right. We need to develop our own energy sources. That might even include more offshore drilling. It might include more nuclear power plants. Anything we choose to do will take time and could have environmental risks.

My point was that people think offshore drilling will have an immediate impact, or even will have a big impact long term. It won't. But that didn't stop the politicians--primarily McCain--from pandering and exploiting the shameful ignorance of the American public.

Sam, it pains me to write this because you're usually a source of insight. But your transparent opposition to increasing domestic oil production, which has no place in an insurance blog, plus your ironic "ignorance of basic economic facts" (to paraphrase your own words), compels me to respond for the first time ever.

One of the most basic economic facts is that prices are set to clear markets based on the EXPECTATIONS about future supply and demand of the participants. If you think something will be scarce in the future, you'll be willing to pay more for it now. If you think it will be plentiful, you'll be willing to pay less.

Signaling a responsible energy policy committed to greater oil production--in fact, any responsible energy policy--will INSTANTLY begin to bring down the price of oil right now.

In fact, some say that the President's actions coupled with the shift in polling on the subject this summer is a causal factor in the recent pullback. While this can't be proven or disproven in real time, the underlying principle is correct.

Insurance people, of all professionals, should know such basic principles and particularly how risks of future events (e.g. shortages in oil production) affect today's pricing for that risk. It's embarrassing to have an insurance discussion that begins with a premise at odds with those principles, and you should know better.

By the way, I'm an "all of the above" American on this subject politically--drill now, harness the wind, build more nukes--whatever it takes to secure the U.S. against mortgaging our very existence to the world's worst regimes due solely to geological happenstance.

SAM RESPONDS:
Actually, as you can see in my response to another posting here, I am not closed-minded to the notion of more offshore drilling, nor to more nuclear power.

However, while I appreciate your point about the oil futures market, an announcement about offshore drilling would only have a minute effect, and no doubt a very temporary one, on such markets.

What has really driven down the price of oil lately is the easing of tensions in Iraq and Iran, plus the decline in consumption in the U.S. due to the higher cost of energy and our deepening recession.

The latter point should be a strong argument for further conservation measures--higher fuel efficiency standards for cars, for one, and a flexible gas tax to keep the price of fuel at $4 no matter what the world price, with the balance used to fund alternative energy development.

As I noted to the earlier poster, my problem in this matter is with politicians pandering on energy (and insurance) issues, exploiting the shameless ignorance of a clueless public.

I hope this clears up any misunderstandings about my position on the subject.

A few comments, please:

The underlying thread to Sam's and Gary's comments is that everyone is an idiot and no one knows anything except Sam and Gary. It is obnoxious.

There is no easy fix on the energy issue, but the fact that we have plenty of oil in U.S. territories that cannot be tapped makes no sense.

I believe that sending trillions of dollars to countries that are not particulary friendly is not a good deal for us. And let's not even get to the ecological impact of allowing other countries to drill with little or no regard for the environment. It is U.S. companies who can extract in the most efficient and clean way.

Finally, you should not have to pretend that you are even-handed when you take shots are Republicans. We know the deal and where you come from.

Just be free with your toughts, baby. The media should embrace its left-wing bias. Be true to your self.

SAM RESPONDS:
I have made no secret that I side more with the Democrats on environmental issues. That said, I am neither totally against off-shore drilling, nor nuclear power--putting me at odds with many fellow Democrats.

Check my other responses to previous posters, in which I elaborate on these views. But I stand by my central point: not that I know everything and no one else knows anything, but the fact that the average American voter does not have a clue what's behind our higher energy prices. Do you dispute that point, anonymous???

I frankly resent the use of "shameless" in the column.

We import far too much oil. We have BOTH supply and efficiency issues. Should we just not drill as there is no short-term benefit?

I frankly cannot understand the logic of this position except that its driven by another agenda, that of reducing consumption by raising prices. Short-run we reduce emissions, long run the dollar is worthless.

Let's see this for what it is--social engineering.

SAM RESPONDS:
There is also short-term environmental risk to consider with offshore drilling. As good risk managers, we should not ignore that contingency. If there was no such downside risk, we wouldn't even be having this discussion--we would have long-since drilled in these areas.

BILL HAS THE LAST WORD:
I believe the more real risk is that so many of our dollars go for foreign oil that eventually the dollar will be worthless and our nation in a shambles.

By the way, where is all the expected environmental damage to our coasts now, and in Alaska for that matter?
Where is the data to support your assessment of the risk?

This is a risk engineering issue--you don't avoid the activity, you engineer out the risk. And the industry seems to have done that quite well. At over $100 per barrel you can double down on safety to boot. The Norwegians and the Brits seem to be doing this quite well.

Sam, I think you display an unhealthy view of the American people, the American spirit and the American way. No less than eight times do you describe your readers as "ignorant."

I think your love of the Democratic party, their mean spirit and their un-American liberal bias is leading you down the path of bitterness.

I also find it telling that only a picture of McCain was included with the post. In your comments you descibe Obama's position as "utterly ridiculous," yet where's the picture of Obama?

Even the title of the post begs for Obama's picture. Why no picture of Dumber?

SAM RESPONDS:
Sir, I call them as I see them.

The only thing "unhealthy" about this picture is the fact that half or more of the American people often don't even bother to vote, while far too many don't even know who their representative in Congress is. It's a national disgrace! Most people can't even find Iraq on a map, let alone explain what's going on there.

Do the test yourself. Ask the average person on the street to explain why the price of gas is so high and see what kind of answer you get.

This isn't a Democratic or a Republican problem. It's an American problem. We are not a well-informed electorate, and we are not a politically engaged population, and that is a recipe for disaster in governance--which is what we've endured for the past eight years.

I love how you try to link me to the Democratic party as if that's some kind of evil. It's not American to demonize those who disagree with you. It's politics. It's how we make national policy.

But in any case, for your information, I have voted Republican for the past four election cycles for Mayor of New York City--twice for Rudy G., twice for Mike Bloomberg. What do you make of that? Hopefully, that I judge the candidates on the substance of their messages and their ability to govern effectively and cast my vote accordingly. So please stop trying to pigeonhole me and set up a straw man to attack.

As for why I put McCain's picture in, I explained that--McCain started the pandering on oil drilling, and he knows better, since he opposed such drilling himself for most of his career. The "Dumber" in the headline is the American public, which can't seem to pay attention to much beyond what Paris Hilton and her ilk are up to.

If you want more Obama bashing (as I bashed him pretty good in this post), check out my next post. I'll be bashing away again.

Sam, you have spent too much time in New Jersey listening to the spin from the Democratic talking points put out by the N.Y. Times as news.

Forget about the politics on the energy issue. Label me whatever you like, but check the facts first before making statements that can't be supported.

We can agree that energy expenses have increased rapidly in the past year and a half, which has had an impact on a variety of consumer prices.

Whether it takes 20 years as you say (nobody else in the media has gone that far as saying it will take that long, but congratulations on setting a new benchmark) or 5 years, as most energy experts suggest, I think and I believe many others think the same--that it is far more desirable to control fossil-fuel energy within our own borders rather than have to rely on some rogue nation for imports.

It may cost a bit more than in Saudi Arabia, but it will also create jobs for hard-working Americans and we will be in charge of how oil or natural gas is extracted so that it is done as environmentally safe as possible. Don't expect Russians or Nigerians to do it cleanly.

The price of oil is set by the commodity markets. Simple economic rules like supply and demand apply here. More supply addresses growing world demand and the price will go down.

Signaling to the markets that the USA is willing to become energy independent while it seeks to develop alternative energy sources would cause tremendous downward pressure in the prices. The price of a barrel of oil would drop NOW, not 20 years from now.

We don't want to be slaves to the Middle East (by the way, large portions of our energy needs comes from Canada and look at how rich that country is from its natural gas and oil exports), Russia or other nations. Lets do it our way and be energy independent.

We have more than enough energy to support our energy needs for the next 60 years if only we would drill where we know there are oil and gas reserves, like in ANWR. and don't be afraid for the caribou because in the far north of Canada where they co-exist, the caribou population has actually grown and flourished near the pipelines.

The price of oil has fallen since President Bush said he would lift the Presidential moratorium placed by his father on offshore drilling. Lift the congressional ban on drilling.

Talk about dumb and dumber if you will, and you will find Barack Obama and his inflate tires now as his key energy policy. It won't help and it won't give us one single drop of oil or a puff of natural gas and will keep the price going up.

It will take many years before the next technology for an energy alternative comes along. We don't need increased taxes or more money going to the government because technology hasn't gotten us away from using the internal combustion engine yet. All that will do is create more government bureaucracies.

So get your head out of your [EXPLETIVE DELETED] and do some basic research before you spout the failed environmental protectionist Democratic talking points about energy.

SAM RESPONDS:
I love how some folks talk about the New York Times as if it's some Communist proganda rag instead of the premiere newspaper in the USA....If you prefer to get your "news" from Fox, so be it.

And if you think the U.S. can ever be energy-independent by drilling offshore and in Alaska, you are dreaming.

By the way, the price of gas is dropping not because Bush announced any change in policy, but because of reduced consumption on the part of the USA, both due to higher gas prices and a slowing economy, as well as due to decreased tensions in Iraq and Iran.

To get to the main point, however--I did not say we shouldn't be drilling more offshore. I said that Sen. McCain is exploiting the gas price issue for his own political gain, and that he knows better. The same can be said for countless politicians in their pandering on insurance issues.

ECON 101 for Liberals:

1) Increased domestic production reduces oil imports.
2) Reduced oil imports reduces the trade deficit.
3) Reduced trade deficit strengthens the dollar.
4) Strong dollar lowers worldwide crude oil prices.

SAM RESPONDS:
Thanks for the pointers, Frank, although you might add the following:

--Higher fuel efficiency standards lowers oil consumption, which lowers demand for oil and dampens pricing.

--A sliding tax on gas to keep the price at $4 per gallon will also encourage less driving, more fuel-efficient cars and more development of alternative energy sources, while providing more funds to develop mass transit and lowering the federal deficit.

FRANK HAS THE LAST WORD:
Your suggestions only serve to reduce productivity in the USA. America grew strong and prosperous because affordable energy was in the hands of the common man. Driving less only serves to damage large and small businesses across America.

What happens to all the mom & pop restaurants along the highways of America when there are fewer people on the road? They go out of business. What happens to all the little quaint tourist towns of America when people no longer visit? They shut down.

Shutting down the productivity of America is not a solution to our energy demands.

The USA has over 2 trillion barrels of crude oil stored in shale. That's more than the entire Middle East and will last over 300 years at today's usage rate.

It's time for America to become energy independent. We cannot afford the huge trade deficit that oil imports are causing and we cannot take affordable energy out of the hands of the common man, only to be controlled by the elites who can afford the higher prices and who can afford "carbon credits."

More domestic drilling, more nuclear energy, and continued expansion of alternative energy is the only sensible solution. Making America come to a halt is not a solution.

While you touched on very good points, you are putting the blame in all the wrong places.

True, the declining dollar does drive the price up, but specualtion is the major factor in the surge of oil prices.

And last time I checked, the government is not in the speculation business. They do pander to how the wind is blowing at the moment, and true, McCain was against drilling "offshore," but as far as I can tell, he has always been for more nuclear facilitites and refineries.

In defense of McCain, CEOs, managers and department heads have always changed their positions on certain things when new information is availible. I am willing to bet you have done it a couple of times in your life. So for you to bash McCain for this very issue is being hypocritical.

When McCain was against this issue of drilling offshore, gas prices were not $4 a gallon. Every good leader in the past have been able to change their mind according to the situation at hand. That is what makes them great when they can analyze a situation and make a proper judgement call.

You are also dead on when it comes to the ignorance of the "public," but then again, I lay this problem at the feet of the Democrats. If they weren't so wrapped up and trying to make this a social issue, and use the schools as they were meant to be, people would be graduating knowing how a basic economy works, what the constitution really says or simply read.

I have so many times heard "we need diversity," or my kids need to be able to "socialize" with other kids, but that is not the reasons why I went to school, and it should not be the reasons why my kids attend school.

The Democrats have so badly mangled the system that simple things like Abraham Lincoln, a Republican President, abolished slavery, or that in 1964, the Civil Rights Act was approved by 82 percent of Republicans, but only 60 percent of Democrats.

Or how about that the KKK was 96% Democrat? Heck, we still have a Democratic senator still in office that was a KKK recruiter--Mr. Byrd from West Virginia.

The reason I bring these points up, is because the public thinks that the Democrats champion "civil rights" when they are the ones that voted against it.

And this, my friend, is information that is not being taught at our schools. This is just one subject of many that our kids are not getting the correct information on, and the liberals just re-write history to fit their agenda.

SAM RESPONDS:
Wow, Clay, you said a mouthful! You raised many interesting points. But I do offer some counterpoints.

To clarify one point, I have no objection to politicians changing their minds for sensible, rational reasons. In fact, I find it insane how the media and rival politicians keep slamming "flip-floppers," as if individuals should not change their views to fit new circumstances, or that no one's thinking can ever evolve on an issue. Such "gotcha" politics is one of the factors souring the public on the electoral process.

The problem with McCain is that he talks as if drilling offshore now will somehow bring down the price of gas tomorrow, or that Obama's opposition to offshore drilling (which McCain shared, and which Obama has since modified) is the reason we're paying $4 for gas, when he knows that's total nonsense.

I would also not blame the Democrats alone for the problems in public education, although their slavish support for the teachers' union has hindered attempts to improve accountability and implement reforms in the school system. My own Republican Mayor, Mike Bloomberg, has made great strides in this area during his two terms.

Still, it's Conservative Republicans, not Democrats, who are fighting the teaching of evolution and pushing to add "Creation Science" to the public school curriculum, as well as pushing prayer in the classroom. Such practices and religious belief systems are not science and have no place in the secular school system, in my view. Including such elements undermines the teaching of rational thought and reason, in my opinion.

You are correct about Democrats and racism in the South. But you forget that it was a Democratic administration--Kennedy/Johnson--that pushed the Civil Rights Act through Congress, and as a result lost the support of many Dixicrats.

You are also right about Lincoln, my favorite president, but his Republican Party was quite different than the one we see today...or the one we saw back in the 1960s, for that matter, when there was such a thing as "Liberal Republicans" like Nelson Rockefeller and Jacob Javits, who believed in low taxes, responsibile government spending and limited government intervension in the economy, but were not captives of the Religious Right on social issues.

Indeed, I wish the Republicans today were more like Teddy Roosevelt's Republicans--committed to responsible regulation to protect the public from private sector excesses, protecting the environment, busting the trusts and monopolies, fighting cronyism and corruption in government. What happened to those kinds of Republicans?

We're gone pretty far afield here, but it's a fun discussion, is it not?

I agree with your main point on the ignorance of the average voter. Churchill said: "The biggest argument against democracy is a five-minute discussion with the average voter."

The modern media has exacerbated this problem. Another example of the above is the "speculator problem." Both candidates blamed them.

This said, I disagree with several of your points.

First of all, the gas tax. All reasonable economists agree that the gas tax should be higher--even very conservative ones such as Greg Mankiw. However, your particular motives for it are nonsensical.

Why is reduced energy consumption by itself a goal? Reasonable responses should be framed in terms of market externalities, which clearly there are.

Maybe you know better and are just pandering to less-educated readers. Pollution, traffic congestion and accidents are all acceptable answers. None of these costs are borne by those who drive the most and contribute to them.

Also your sliding scale point is a step in the wrong direction. While stability in terms of real prices could be helpful, price does serve an important function in the market by signaling scarcity.

Rising prices force people to consume less in the long run. Simply mandating a price would eliminate this function. It would also subject the government to a wildly varying tax revenues.

I believe you have mischaracterized McCain's positions. Simply because offshore drilling cannot fill our energy needs doesn't mean it should be done. A single new farm depletes environmental resources, isn't oppperational immediately, and will only fill a small fraction of the country's food needs. Should we not open new farms? Not farm entire areas?

Percent of total demand is a ridiculous criteria. Effective arguments against offshore drilling should be based on cost/benefit analysis. As the cost of oil goes up so does the benefit of drilling. McCain favors an "all of the above" energy policy.

SAM RESPONDS:
I never try to "pander" to uneducated folks, Matt. I leave that to the politicians.

As for the gas tax, all I am saying is that by setting a floor below which the price of gas won't sell, it will keep the country's attention focused on conservation and alternative energy development.

If the price of gas falls below $3 a gallon again, you know people will go back to business as usual, just as they did buying up all these gas-guzzling SUVs when the price of fuel was dirt cheap. That is simply not in our long-term interests, economically or environmentally.