Tuesday, July 15, 2008

Mental Recession or Just Mental?

While Phil Gramm may think Americans are engaged in some macabre game of hide the mortgage check, his friends at the White House seem to think simply wishing the economy in the right direction is a plausible alternative. Bush's speech today was rife with the typical folksy dribble and sincerest regret for misplacing the ever-elusive magic wand. Black magic or no, economic remains a numbers game, and concrete realities have never been Bush's strong suit.

President Bush began Tuesday trying to calm consumers troubled by an increasingly shaky economy, but his words had little effect.

By the end of the day, the Dow had closed at its lowest level in two years, the government reported that prices had jumped at their sharpest pace in 27 years, and the chairman of the Federal Reserve Board warned that "significant challenges" lie ahead.

Even the administration's plan to support the mortgage finance giants Fannie Mae and Freddie Mac — hurriedly announced over the weekend — didn't stem the tide. Both enterprises saw their stocks drop more than 25 percent.

Truth be told, though, one can understand the indifference of Bush, Gramm and the rest of the free-market crusaders, as they're probably doing just fine. A core principle of Friedmanism is that economic success hits the top rung first, and downturns take out the bottom just the same. Gramm and those like him are free to play chicken with the market, assured that when they get in over their heads the Fed will bail them out. Most Americans don't have that benefit.

Despite Bush's valiant effort to paint a rosy picture, the numbers remain unchanged, and aren't nearly as pretty.

_ Wholesale prices were up 1.8 percent last month, the Labor Department reported. Producer price inflation has grown 9.2 percent in the last year, the fastest since 1981.

_ General Motors Corp., battered by the decline in auto sales, suspended its dividend and announced plans to lay off salaried employees and borrow up to $3 billion.

_ Oil prices fell by $6.64 to about $138 a barrel, as investors became concerned that the slow economy will dampen demand. But the price was still well above year-ago levels.

_ Retail sales were up a scant 0.1 percent in June, the Commerce Department reported Tuesday. Gas prices accounted for all the increase, Vitner said. "You take out gasoline prices and sales were down," he added.

Bush and McCain would also like to apply the principle of willing the country to a good economy to oil production, assuring us that simply opening the OCS will invoke OPEC to lower the price of oil and save us all. The faulty logic inherent in that argument has been pointed out ad nauseum, yet it persists.

To recount just a few things I've enumerated before:

  • Between 1999 and 2007, the number of drilling permits issued for development of public lands increased by more than 361%, yet gasoline prices have also risen dramatically contradicting the argument that more drilling means lower gasoline prices. There is simply no correlation between the two.

  • Oil and gas companies have shown that they cannot keep pace with the rate of drilling permits that the federal government is handing out. In the last four years, the Bureau of Land Management has issued 28,776 permits to drill on public land; yet, in that same time, 18,954 wells were actually drilled. That means that companies have stockpiled nearly 10,000 extra permits to drill that they are not using to increase domestic production.

  • Oil companies are only drilling on 27% of the federal lands leased to them and 24% of the offshore acres, leaving the companies with 68 million acres of leased acreage on which they are not producing oil or gas.

At some point, one would think that our leaders would be called to point to some tangible evidence that their rhetoric has even a brush with reality, but that has yet to happen. Consider that the argument at its core is "if we simply allow the oil companies to drill, oil prices will go down."

Now contrast that with reality: We've allowed the oil companies to drill on 68 million acres and oil prices have gone up exponentially.

The market for the empty rhetoric of Bush and McCain should dry up once it becomes so detached from reality as to be absurd, yet the cavalcade of buffoonery marches on.


Pure Speculation, June 12
McCain, No Stranger to Irony, April 25

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