President Biden’s move to cut gasoline taxes is doomed to failure.
That’s not because Congress won’t like it, or that it will take money from infrastructure. It’s because price is how we ration short supplies. No one has suggested an alternative rationing mechanism.
My family has done its bit for conservation. We bought a Toyota hybrid. We keep the thermostat at 77 during the summer. Except for our recent vacation, we’re not driving much because we’re working from home.
Privileged people can do this. Those without privilege, or those who think they’re without it but are, have a harder time. Poor people who live far from work get chewed up by inflation at times like these. Middle class folks who’ve bought giant pick-ups, boat trailers and homes in the exurbs are also hurting. There’s rising anger on both sides. Conventional wisdom says Republicans benefit as the “out” party.
I don’t want this to be about politics, however. I’m a finance reporter.
American oil producers have responded to higher prices by pumping nearly 1 million barrels/day more this year than last year. It would make little sense for frackers to increase budgets and drill more because that supply won’t come in for a few years. Meanwhile cheap production is going to start coming in from off South America. It costs more to frack than to drill out “elephant” fields off Guyana, then suck that up with the equivalent of a straw.
Russia lacks the technology to exploit its oilfields, and we’re not selling it to them. What production they have is coming off the market or being diverted to China, which is making Russia a client state.
The bigger problem is in refining. It’s a tough business, a capital-intensive business, a dirty business. The Trump people tried to save a giant Philadelphia refinery whose history goes back to the 19th century. They failed because the economics didn’t work, even with promised subsidies. Their only solution today is to accelerate global warming by cutting back regulation, letting those refiners who remain kill your grandchildren. Even that’s not going to help much.
The market for finished products has been moving to the Middle East for years. Sheikhs have been building refineries. Their share of the industry’s profits has jumped. Saudi Aramco is worth four times more than Apple.
That’s why Biden is going to Saudi Arabia. It sucks for liberals, who see an absolute monarchy that murders critics and call him a sell-out. But we need the Saudis.
Biden must convince the sheikhs that it’s in their interest to increase supplies and take a profit hit. He has our military-industrial complex to back him up. But the sheikhs have been allied with Republicans for over 50 years. They’d much rather have an American government they can control than the one they have.
Selling the need for this move to the left, and getting some action that holds off the right, may be the hardest balancing act American diplomacy has ever faced. It’s the most important event of this long, hot summer.
