Recently in Economics Category

As we creep inexorably toward the one-year mark without meaningful rainfall (how mind-boggling is that, anyway?), ideas that were once bandied about in sci-fi mode now start to take on some semblance of credibility. Like, for example, the idea that we have plenty of water available to Texas, it's just a bit on the salty side. So, let's build some big honkin' desalination plants like Saudi Arabia has and we can solve a bunch of our water shortage issues.

Unfortunately, the reality is depressingly ironic. As this Reuters article points out, the Saudis are starting to worry more about peak water than peak oil, and the cost of desalination is starting to make a significant dent in their oil-derived riches.

It's an understatement to say that the Saudis are ginning out a lot of desalinated water. The quoted figure of 3.36 million cubic meters per day equates to almost 900 million gallons per day, enough to supply the equivalent of five cities the size of Midland with their entire water usage. The problem is the expense of producing that water. Using today's currency exchange rate, it's costing almost $2.4 million per day to make the water, and that doesn't include the cost of transporting it.

Of course, the Saudis are hit with a "double dip," as they're using oil and gas to produce the water that they would otherwise have been selling to us. The article estimates that about half the cost of desalination is energy-related.

Desalination is still something that needs to be considered as a way of mitigating the effects of our extreme drought, but it's not only a long-term solution, but also an expensive one. On the other hand, all the cheap alternatives are gone.
One of our local TV stations made a provocative post on Facebook this morning, on the subject of the Congressional hearings about gasoline prices, and whether oil companies "should get these tax breaks as oil and gas prices continue to soar, even if it impacted business here in West Texas?"

The comments were predictably appalling in their lack of understanding of even the most fundamental economic realities, both concerning oil company earnings and taxes, and the pricing of crude oil and gasoline. Here's a sample, completely unedited (you might want to have a barf bag handy):
IF the United States were to opt out of OPEC (or just do away with OPEC all together), WE would be able to survive and support ourselves.

if anything they need to PAY BACK the money theyve stolen from us over the past 10 years

why not just stop importing oil, and stop putting money into terrorist pockets thus making our country vulnerable.

Pshh there should be a law against gas going above a certain price. And if for some reason it has to go above that set price for any length of time the oil companies should be fined and that money should be paid back by them to the American people during income tax as their way of saying sorry we are ripping you guys off here's your money back.

NOPE. Everybody I know is STRUGGLING. Why should THEY GET A BREAK-OF ANY KIND??? Let the ppl that go to work-EVERYDAY-get a break!

they make profits, why shold they get a break!

Well. It's hard to believe that our nation has an economic crisis, given the simplicity of the solutions these budding Nobel laureate geniuses have pointed out. How could we have been so stupid as to miss the fact that we could have just done away with OPEC and - voila! - gasoline would be cheap and life would be good. And I was particularly surprised to learn that the US has apparently secretly been a member of OPEC all these years. Why, it makes perfect sense now that I've been shown the light!

Enough of the sarcasm (not really, but let's rise above it for the time being). How about let's defy tradition and base our opinions on facts for a change? To wit:

  • The profit margin in the oil and gas industry is 6-8%. Perspective: this was lower than all manufacturers as a whole, and much lower (by a factor of 2-3x) than pharmaceutical and computer manufacturers. [Source]

  • The oil industry generates almost $100 million PER DAY in revenue for the US Federal Government [Source]

  • Between 2004 and 2008 the industry incurred more than $300 billion in income taxes, more than half of which went to the US Federal Government [Source]

  • Oil prices are NOT SET BY OIL COMPANIES. [No source required; it's just fact, like the sun rising in the east]

  • ExxonMobil is frequently used as the poster child for all the things wrong with the oil and gas industry. In the last three months of 2010, they earned a little more than 2 cents per gallon on gasoline, diesel and other finished products made and sold in the US. And gasoline sales made up only 3% of the companies net income. And as far as taxes go, over the past five years, ExxonMobil incurred a total U.S. tax expense of almost $59 billion, which is $18 billion more than it earned in the United States during the same period.  [Source]

  • And, finally, in case there's some lingering doubt, the US is not, has never been, and never will be (thanks to many factors, not the least of which is our own federal government) a member of OPEC. Sheesh.
The facts surrounding the "tax breaks" alluded to by the TV station are beyond the scope of this post, but it's worth noting that many of them are not oil and gas industry-specific; they apply equally to all manufacturing industries.

If you get some kind of perverse pleasure from punishing oil and gas companies by raising their taxes, so be it. Just recognize that (a) it won't result in lower gasoline prices, and (b) it will, in fact, result in lowered US production of oil and gas, and the logical supply-and-demand impact will be...oh, never mind. That economic concept is apparently too complicated for some people to grasp.

Update: I intended to include a link to George's excellent post over at Sleepless In Midland wherein he breaks down the supposed "subsidies" that oil companies enjoy.

"The intricate economics of terrorism"
January 15, 2010 5:33 PM | Posted in: ,

Loretta Napoleoni is an economist, journalist, political activist, and author. Her professional specialty is in the financing of terrorist activity, and how mainstream economic activity is affected by that financing. I found [via Bruce Schneier's blog] the following video of a speech given at the 2009 TEDGlobal Conference, and it's quite fascinating.

In a relatively short amount of time, Napoleoni posits that (1) most terrorists couldn't care less about the ideology of the group with which they're aligned - they're in it for much more self-serving reasons; (2) the pre-9/11 US economy benefited greatly from money-laundering activities used to finance terrorist and criminal organizations around the world, because - let's face it - everyone wants US dollars; and (3) the Patriot Act essentially shut down those money-laundering activities, causing a massive flight from the dollar to the Euro; Europe is now the center of those illicit activities, and is enjoying something of an economic boost as a result.

If you can spare fifteen minutes to watch the following vid, I think you'll be challenged by what you hear. I gained a new perspective on terrorism and the implications for how it might be more effectively fought...and perhaps why it's not being fought equally on all fronts.