Saturday, September 12, 2009

Not Good, Let's Think This Through

Trade Wars are not good. They are especially not good in the middle of a huge recession that we don't want to call a depression but is looking more and more like one every month. The Great Depression was heightened by protectionist moves like the Smoot Hawley Act. Obama and our Congresscritters want to start fighting with our big trade partners (Canada-China) and our biggest creditor, China. This is not good. This is stuff you learn in basic econ classes.

When you impose a tariff on a nation, they get upset. When that nation has 2 trillion dollars worth of your debt, they have a huge weapon at their disposal to hurt you back. "Punch back twice as hard" to use an Obama phrase. This is why the Obama-Pelosi-Reid debt problem is so important (Bush ran deficits I disliked, too). China is a major creditor to the US. If they stop buying or just lower their total purchase amounts of US assets, we will see higher interest rates and weakness in the dollar. This affects all citizens as everything we do is priced in dollars. Inflation is a stealth tax on all of us, and a weaker dollar will lead to higher prices in all of the stuff we import. Inflation is a double whammy when the nation is at 10% unemployment. You have less money coming in and that lower amount of money buys less stuff.

This is where I find fault in those first steps the 'change' crew took in the spring. We didn't break up or address the big bank situation. We just poured more money into Citigroup & AIG, did a stress test and said "all clear". A stimulus package was created that poured a lot of money into medicaid and medicare, very little of it went to 'infrastructure projects', and the tax breaks were to people who don't pay taxes already and payroll deduction changes that only affect you if you have a job. There are no lasting impact projects or productive projects or programs to create sustainable growth. It's insulin injection style boosts.

Here is a job boosting solution to please many different people with long term impact: start the conversion of our transportation fleet to natural gas. Many govt vehicles are gas hogs. Let's switch them over to natural gas to create a built in demand for the vehicles (this goes for buses-SUVs-trucks as well). Impose an additional gas tax of $1.00 per gallon offset by an increase in the standard deduction so people's taxes do not increase. If you drive a lot & whine, too bad, ask smokers how they feel paying sin taxes that you don't. The differential between regular gas and natural gas for a car fuel will be great enough that people will see a definite payback in buying a nat gas car. Nat gas cars have a lower CO2 output. Nat Gas is a domestic fuel we have a glut of and can last for years and years (this guy theorizes how much to replace all petro based gas). Nat Gas is also at 7 year lows for price.


1. Natural Gas Producers and Employees - All along the chain (drillers-pipelines-utility firms) there is a sudden heightened demand for nat gas. These jobs are located in the US. They will hire people. This would also help blue and red state economies. This would put people to work.

2. Car Companies - Honda already makes a nat gas car. We can cut a deal with Honda to have it produced in their American plants. GM, Ford, Chrysler can all follow suit. These cars already qualify for the tax credit on enviro friendly cars. With the govt buying for govt fleet vehicles, the automakers would have a built in demand base. We can also run a true 'car fleet enviro upgrade', by doing a trade in program to reduce CO2 emissions by switching. This could be like 'cash for cunkers' except it REALLY would impact the environment.

3. Environmental - The gas tax would definitely skew behavior away from spending money on big, bad gas. This has a direct impact on CO2 emissions. Every car & bus replaced by a nat gas vehicle would produce less CO2 (direct impact). A nat gas-electric hybrid would be even better. If you care about CO2, this is a direct & large impact. Far bigger than CFL bulb switching. Tree huggers should be pushing this.

4. Trade Deficit - Our trade deficit now is mostly China & our Oil import bill. Over 60% of our oil use is for the transportation sector. The US is environmentally handcuffed but still can produce 5.2 mil bpd and currently consumes about 18.7 mil bpd (we import 13.5 mil bpd). Doing rough math, this means about 11.2 mil bpd is used for transportation. A nat gas switch will not replace all gas-diesel use, but if we can reduce transportation use by 1/3, then we would reduce oil product use by 3.7 mil bpd. Because we produce far less oil than we use, that would be 1.35 billion bls less of oil we would need to import. Using a $70/bl baseline price, we're talking about a $100 billion savings per year from the trade deficit. This is HUGE.

5. State & Federal tax receipts - Drilling would create jobs & revenue for corporations. That income whether from ees or the employer would be taxed. The govt would see tax receipts increase. In case you have not noticed, tex receipts at all levels are down.

6. National Security - This would make the US better protected from a disruption in oil supply, which if you have not noticed is from countries with major internal and political problems or in hot spots. Oil would also be less of a weapon to use against us. Oil will be demanded from other countries, and let those countries fund the thug states that are major oil producers (Iran, Russia, and Venezuela come to mind).

I beat the drum often about nat gas as a transportation fuel. We have the infrastructure mostly in place. This would put people to work. This would help our national security and the environment. This makes too much sense and will never be enacted unless we get a red state Democrat elected president or a split Congress with an economically smart GOP Prez elected.

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