Wednesday, March 31, 2010

A Sop To The Right

I'm sure there will be much panty-twisting among my fellow lefties over this, but I can't say I blame Obama much:

WASHINGTON — The Obama administration is proposing to open vast expanses of water along the Atlantic coastline, the eastern Gulf of Mexico and the north coast of Alaska to oil and natural gas drilling, much of it for the first time, officials said Tuesday.

The proposal — a compromise that will please oil companies and domestic drilling advocates but anger some residents of affected states and many environmental organizations — would end a longstanding moratorium on oil exploration along the East Coast from the northern tip of Delaware to the central coast of Florida, covering 167 million acres of ocean.

Under the plan, the coastline from New Jersey northward would remain closed to all oil and gas activity. So would the Pacific Coast, from Mexico to the Canadian border.

The environmentally sensitive Bristol Bay in southwestern Alaska would be protected and no drilling would be allowed under the plan, officials said. But large tracts in the Chukchi Sea and Beaufort Sea in the Arctic Ocean north of Alaska — nearly 130 million acres — would be eligible for exploration and drilling after extensive studies.

OK, sounds double-unplus good for the environmental wing of the nation. After all, we're opening up pristine areas to exploration for a dirty disgusting resource that's caused nothing but trouble for the nation, once you factor out the incredible benefit our economy has gotten.

Map those leases out against population densities, and you can see that Obama has, for the most part, avoided large urban areas, and centered the exploration off-shore from some of the richest (read: Republican) communities in the nation, as well as some of the most sparsely populated areas.

Why is he doing this, and particularly, why now? Well, it looks like Wall Street is getting its revenge for the recent scoldings its endured. Not satisfied with a slap on the wrist and the threat of more oversight, Wall Street has settled Obama and his administration dead in their sites to try to topple the US government and replace it with a more business-friendly one.

OPEC countries also are convening in Mexico this week to map out a strategy for keeping prices from rising higher.

But officials may face an even bigger problem: The recent rise in prices seems to be driven by Wall Street investors — not market supply and demand.

Hm. Not fun. Of course, the cover story is that Wall Street is betting on a robust recovery, but in truth, the betting could conceivably derail that recovery, something the "smart money" has to know going in. Here's the kicker: part of this is due to the wildly successful "Cash For Clunkers" program of 2009.

After peaking at nearly 9.8 million barrels a day in August 2007, demand for gasoline has fallen steadily to a low of 8.5 million barrels day in February 2010 — a drop of 13 percent. But in the past 12 months, pump prices have increased more than 50 percent and oil prices have more than doubled.

“People are using oil as a store of value rather than as a commodity,” Beutel said. “It’s the investors who are buying.”

More oil has been available, which normally would drive prices down, but because speculators are soaking up the excess supply, prices have remained firm and begun to creep upwards. Stocks and bonds have been risky investments this past year while oil has tanked, it's a commodity that would be among the first to recover once the economy begins to tick upward, which it is showing all kinds of signs of happening now. Couple that with the dollar's volatility (oil prices are pegged to the dollar) and you can see why people would invest in oil to hedge against market fluctuations and internationalize their investments without risking money in any particular market or sector.

Oil can travel anywhere.

One possible solution, besides the showcase of drilling for more domestic oil, is to levy a surcharge tax on oil and gasoline, especially now that the heating season is ending. The tax would burden the investors primarily, but would of course harm drivers. But driving is usually a matter of choice (despite the inevitable cry of "it's my livelihood!" it usually isn't), and forcing drivers to make tough choices might do the trick of forcing the speculation to stop.

Remember, it's been speculation in housing that's caused the current economic mess we're in now, so we can see that speculation is never a good thing when it comes to marcoeconomic issues.

The other issue, and perhaps the bigger issue for Obama's administration, is the "sop" factor I mentioned in the title. It's going to be hard for the Republicans to paint Obama as a socialist (and the Democrats as a whole) and antibusiness if Obama is practically giving the natural resources that even George W Bush would not give to Big Oil.

I expect to see other givebacks to the economic conservatives (the social conservatives got a plum in the executive order with respexct to federal funding of abortions) since at this point, money is going to trump polling, and by nodding in the direction of the corporatists, Obama establishes that the rest of this first term will be about pushing the nation towards economic recovery.

Make no mistake: the healthcare victory was a big one, but perhaps the last real victory the liberal wing of the nation will see before 2013.