John McCain’s support of the moratorium on offshore drilling during his first presidential campaign was certainly laudable, but his decision to completely change his position and tell a group of Houston oil executives exactly what they wanted to hear today was the same Washington politics that has prevented us from achieving energy independence for decades. Much like his gas tax gimmick that would leave consumers with pennies in savings, opening our coastlines to offshore drilling would take at least a decade to produce any oil at all, and the effect on gasoline prices would be negligible at best since America only has 3% of the world’s oil. It’s another example of short-term political posturing from Washington, not the long-term leadership we need to solve our dependence on oil. Instead of giving oil executives another way to boost their record profits, I believe we should put in place a windfall profits tax that will help to ease the burden of higher energy costs on working families, and we should invest in the affordable, renewable sources of energy that Senator McCain has opposed in the past,” said Barack Obama.
After reading this from the Obama campaign, I’ve got to say that I think Obama may be the most clueless politician around when it comes to economics; particularly the economics of oil. Where to start? While there are many issues I have with his statement, two in particular are especially horrible.
First, he complains that, “opening our coastlines to offshore drilling would take at least a decade to produce any oil at all.” This is the same argument Bill Clinton made in 1996 about drilling in the Arctic National Wildlife Refuge (ANWR) when he vetoed legislation allowing the drilling. It would have been very nice if oil from ANWR had started pumping in 2006. 500,000 barrels per day may not have solved all of our problems, but would certainly have impacted our economy in several ways. First assuming that drilling in ANWR didn’t impact oil prices, this would have reduced our trade deficit by almost $20 billion per year. The reality is that it would have also impacted oil prices, so the price of imported oil would have dropped which would have reduced the trade deficit even more. The irony of Obama’s statement is that he then calls McCain’s position “short-term political posturing.” It is amazing to me that Obama complains off-shore drilling will take too long so it is short-term posturing on McCain’s part in the very next sentence.
His position on off-shore drilling is bad, but not as bad as his support for the windfall profits tax, “I believe we should put in place a windfall profits tax that will help to ease the burden of higher energy costs on working families.” This is one of the dumbest statements imaginable and proves Obama has no clue on how the economy works. The windfall profit tax will not ease the burden on working families, but will put a tax directly on them. Here is how a windfall profit tax will work in practice:
You have a company like BP that pumps oil out of the ground in Russia with TNK. This oil is then refined overseas. Once they have products like gasoline and diesel, they then decide where to ship these products since there is a surplus of gas and diesel in Russia. Option 1 is to ship it to the U.S. Option 2 is to ship it elsewhere. If you ship it to the U.S., your profits will be taxed with a windfall profit tax. If it is shipped elsewhere, it will not. BP will ship the product elsewhere until U.S. prices increase enough for the NET profit of shipping it to the U.S. to equal the NET profit of shipping it elsewhere. In other words, pump prices will have to increase the amount of the windfall profits tax to make it worthwhile to ship to the U.S. I’m not exactly sure how this eases the burden on working class families.
