8/02/2008

Neighborhood Politics: Party Politics, Oil Markets and Iraq...

This is the second open letter I have circulated among friends and family, wanted to invite everyone to comment freely. E-mail is an awful way to really debate. I invite people in the Skompton Political circle to publish openly and open each of their thoughts individually to comments to publish here, because it is much easier to parse each person's argument openly and even attract an outside perspective on our interesting local dynamic.


First of all, thanks for allowing me to participate in this debate, it is fascinating to learn more about each of you and incredibly entertaining to read Mr D and Mr M strangle each other via e-mail. I have many points to make, each directed at specific arguments (assumptions) articulated in a previous participants argument. However let me preface with some general comments and facts that all of us would be well served to have readily available so we can maintain factual consistency. Following each indisputable fact, I will apply the wisdom found within the realities of that fact to our ongoing debate.

Facts:

1. The Great Depression in 1929 that occurred under Republican President Herbert Hoover and the Republican Congress set the stage for a more liberal government; the Democrats controlled the House of Representatives nearly uninterrupted from 1931 until 1995 and won most presidential elections until 1968. Since 1968, the GOP has dominated presidential elections, with Jimmy Carter being the ONLY Democrat to win 50% of the electorate (Bill Clinton interestingly won two consecutive elections with just 42% and 46% in 1992 and 1996 respectfully). Republicans in fact did not have control of Congress from the beginning of the FDR Administration until Newt Gingrich's Contract with America in 1994, though GOP majority only lasted 12 years and only half o. So Mr. Dammrich's assumption about congressional control was both correct and faulty, though I think that in terms of laws on the books, the vast majority passed in the 20th century were written, debated and voted on by a Democratically controlled legislature.

George W. was in fact the first President in modern history to see his party gain seats in both mid-term elections during his two term presidency. Having worked for Speaker Hastert in Washington, I think that this is a historical anomaly because when a president and a speaker have too close of a working relationship, the institutional dichotomy that is supposed to exist between those two offices disappears and each just assumes the other is doing the right thing rather than guaranteeing it through tough deal making and political posturing (ala Newt and Bubba). Bottomline, it is not ever good to have a monopoly on power, so if Barack cannot lose the White House as many seem to think, we better hope that Harry and Nancy take a nose-dive; which isn't an unrealistic possibility.

Here is the much more interesting part of my argument this evening...

2. Gasoline is far from the only by-product of a barrel of oil. By definition, each "barrel" of oil contains 42 gallons of "black gold". According to the Texas Oil and Gas Association, each barrel produces 19.2 gallons of gasoline; 9.2 gal of distillate fuel oil (home heating and diesel fuel); 4.1 gal kerosene; 2.3 gal residual fuel oil; 1.9 gal liquefied refinery gases; 1.9 gal still gas; 1.8 gal "coke"; 1.3 gal asphalt road oil; 1.2 gal petro-chemical feed stocks; 0.5 gal lubricants; 0.2 gal kerosene; 0.3 gal for other non-specific use. Extra 2.2 gallons represents "processing gain". (These numbers are based on 1995 usage)

One tragic mistake made by politicians who pander on the rising cost of a barrel of oil is that they assume the only tangible effect that cost increase has on the everyday lives of Americans is at the gas pump. In fact, the numbers above, while providing greater perspective on the use of oil and its importance as more than just the source of gasoline, don't even begin to show the "ripple" effects of the price increase on the international market.

The best example I have yet heard came from Jim Cramer, host of CNBC's Mad Money. Kimberly-Clark, the US conglomerate that produces everything from Huggies, Kleenex, Depends, Kotex, Scott Products and many other "poly"-based and paper products. Despite increasing prices each of the last several quarters to keep up with the rising cost of production, specifically the cost of oil which is the base from which almost all of its non-paper products are created, quarterly earnings are expected to drop 10% in Q3. Essentially, for each dollar increase in the price of oil, K-C realizes one-penny drop in quarterly earnings. That may sound negligible, but this is one of the 5 largest consumer products companies in the world, so pennies/share are a major factor considered by potential investors. K-C's year-end stock price has been consistently above $60 for the last five years (2007-$69.34; 2006-$67.95; 2005-$59.95; 2004-$65.81; 2003- $58.10), though as of this week the price had dipped as low as $55/share.

This is the impact of rising oil prices that is NEVER mentioned by politicians, but I think I just mentioned three different types of Americans that are directly affected by our foreign dependence on oil in a way totally unrelated to driving. 1) Shareholders in K-C have seen a dramatic loss of value since oil prices have increased; 2) Employees at K-C are working for a company with margins that are tumbling, which cannot be good for job security; 3) Consumers that buy Kleenex, Scott Towels and Huggies are going to see prices go up to compensate for increasing costs of manufacturing until K-C can be confident they have covered their loses.

I agree that offshore drilling is neither a long-term, nor a short-term solution, and the only real way to solve the energy crisis is to find another way to transport ourselves that doesn't require ever-increasing oil production. This will probably have to be in the form of transnational high speed railways that connect major metropolitan areas and lessen our dependence on highways. This is a strategy already being employed by the EU, China, Japan and many others. The by-product of such an energy strategy would be less carbon emissions and lower dependence on OPEC oil, which should be a guiding principle underlying all legislation written and passed by the US Congress. However, we live in a world driven by oil (no pun intended), so why buy it from Saudi Arabia, Venezuela, Iran, Nigeria and Iraq (which is now one of the five largest oil producers in the world), which are the 5 largest oil producing nations, when we could produce it domestically and both increase global supply (thus driving down prices for everyone) and become truly unreliant on foreign producers.

One very positive result of the US invasion of Iraq is in fact the oil it is now producing for the global market, which was previously reserved for corrupt UN officials and states that recognized the Saddam Hussein regime. UN sanctions (though now largely believed to have been a joke) kept Iraqi oil out of the international marketplace. Today, largely because of the stability (both political and civil) provided by the US-led coalition, Iraq is producing oil at pre-war levels and making deals with the world's largest companies in the Western world for the first time in a quarter-century. How often do you hear this from the candidates? It certainly undermines Obama's only remaining legitimate point against the success of the "surge", which is that the political process has failed to formulate under more peaceful conditions. If that is so, who is pumping the oil and signing the deals with BP, Exxon and other major oil companies? I suspect not the clerics, but I am not sure, someone please enlighten me.

I have already spent much more time elaborating on these two basic facts than I had planned, but sometimes I get carried away. I may have contradicted myself, but I doubt it and I am not going to proof read so please forgive typos and anything that seems out of place or more relevant to another topic. I am sorry if I rambled, but trust me it could be and might get worse. I will continue my discussion of the facts surrounding this debate tomorrow after some much needed rest, enjoy...

Tomorrow I will focus more Iraq, specifically the merits of invasion and the long-term benefits of our permanent presence in the Middle East...
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