Nationalizing America's Oil Companies

I was listening to the radio on the way to work this morning and the topic of discussion was how a local lawyers group had set up a series of "discussions and debates" for high school seniors on a variety of topics.  The first was topic was 

"If gasoline goes to $10 per gallon, should we nationalize the oil industry?"

These students voted that they did indeed think it was a good idea.  The lawyer/moderator said something to the effect that  "all those young people who voted to do so, did so only after considering all the facts and after having thoroughly debating it.  It was the American way."

Good to know that our young folk are so well schooled in sophistry and debate.  Yay. Unfortunately, it seems like they might be a pantload light on economics or history.  The REAL cost in the increasingly eroding return on investment we have in our educational system is in the damage these energetic and idealistic, yet ignorant, pups can do when they are given the keys (and handguns and whiskey) of power.  The regrettable shrinking SAT scores just portend that.

Let's face it.  The entire premise is so silly on so many levels that I cannot believe it was seriously chosen as a topic of debate.  

First, what good would nationalizing the US oil industry do?  

If it was done to decouple price from market conditions, you know, the whole "supply and demand" bugaboo that screws up Marxist economic theory, you would succeed in dropping the price of gasoline to $5 or $1 or a penny a gallon or whatever level you choose to fix it at.  Until it runs out. The lower you set the price, the faster you won't have any more product to sell.

The problem with all price manipulation is supply disruption.  The two go hand in hand, like Pressure and Temperature.  Fix the price artificially low, you will soon run out of product because no one in their right mind will continue to make it... unless you control the whole market.   Fix it to high, and you are swamped with product. Just ask the Department of Agriculture.

Unfortunately, the US is a long, long way from controlling the whole oil market.  Our "Big Oil" bogeymen that haunt our fevered dreams in the pages of Time and Newsweek and Mother Jones and the Atlantic Monthly control MAYBE 20% of the word's oil supply, and most of that isn't in the US.

Should our "mighty race of genius toddlers", as I heard our government described in a movie recently, noting the age of aides in D.C., decide to do that, the Multinationals that make up Big Oil wouldn't be American very long.  You can take away their domestic assets, but you ain't taking away their worldwide assets.  Switzerland or Dubai beacon as fine corporate headquarters.  Thus, we are dealing with around 5.5 to 6 million barrels of oil a day that you get to "nationalize".  Too bad we consume 20 million.  Whoops.  

The other bummer is that the US production that was, what is that word for "taken without consent of the owners"?  Oh yeah, stolen from its rightful owners, the producers and royalty owners, have this nasty habit of Declining, meaning "making less and less everyday", unless new wells are drilled. 

I wonder what the exploration budget will be for Nationalized E&P Company?  Do you think that Nationalized E&P will support the thousands of independent oilfield service providers?  Or would we have to Nationalize all of them as well?  

I think it is safe to say that without the competition of tens of thousands of creative folks coming up with ideas where to drill and frac and perforate, drilling rates would most likely fall dramatically, and service companies would "consolidate".  Unfortuneatly, this leaves only 1/3 of American demand that can be sold under market this year, 1/4 next year, 1/5 the year after, not to mention the couple of hundred thousand unemployed oil and gas folks, and a collapse of the school tax base in many states, including a huge percentage of overall state budgets in Oklahoma and New Mexico. 

Whoops.

Thus Nationalizing the US oil industry will certainly decrease DOMESTIC supply.  It cannot help but do so.  Where does all of this lead?  It leaves us increasingly dependent on foreign oil supplies.

Will our foreign oil-supplying "friends" listen when the American people demand their "right" to cheap gasoline?  I mean, after all, the American people have a "right" to all sorts of things for free or cheap, like healthcare.  Right?  Hell, we can rationalize it all sorts of ways.... Just look at the arguments being proposed for the "right" to universal healthcare.  The problem is that the "rights" arguments hold a lot less water when you demand your "rights" from Saudis instead of preying on the misspent guilt of fellow citizens who make more than you.

What do you bet that Putin or Ahmadinijad (or however you spell it or pronounce it) or the Saudi royal family will not be as attuned to our American "rights" as, say, the ACLU?  So, assuming I am right, these fellas, with the rationality that comes with being a maker or seller of goods rather than the rationality of American high schoolers who have been apparently conditioned that they should be given things ,  aren't likely going to sell us that oil for $5 or $1 or a penny for gallon of gasoline  equivalent if they can get a better price elsewhere.  

It seems like our only choice, once we have decided to take other folks' property domestically, is to extend that same rationale and make the foreign owners  sell us their property at below market conditions.  I mean, if it was good enough for patriotic Americans to have their property confiscated, it sure should be good enough for the towel wearers and ex commie bastards, right?

Clearly, Hugo and the Sheiks and Putin won't appreciate the beauty of our reasoning that this is some sort of American Right, so that leaves us with the other alternative to stealing... War.  Hard to do the whole war thing without fuel, though.  Ask Nazi Germany.  I wonder if the concept of  "mandatory draft" popped up in the debate that Mr. Lawyer was so proud of?  

For the life of me, if one was knowledgeable about where America's energy comes from, who controls its supply, and how supply and demand really work, how could one rationally propose such an idea?  Congressmen and Senators, sure.  We have come to expect insane statements from them.  But American High School students?  I expect better.  

Survey says 10 out of 10 economists would tell you that the fundamental price will rise in that scenario.  Should you force your supply to be sold "outside of market", the result will be scarcity as you run out of hostage supply.  This isn't even debatable.  It is as immutable as a law of physics. Are they still teaching laws of physics in high school?  If so, I wonder why since it doesn't seem to help you in a legal career...

By the way, here is a picture of the fellow they just busted for trying to do the ol' WMD thing in NYC.

I guess I can understand why profiling is such a bad idea.  Who woulda thunk this fella would be a terrorist?  I think we can declare victory in regards to the terrorist threat to our national security from blue-haired senior citizens from Amarillo.  Our airport security seems to have shut that threat down cold.  

Comments

[Royal Enfield]

Your concerns presuppose there is a difference between big government and big oil. They are the same guys. We don’t even nationalize our armed forces in the U.S. All nationalization of big oil will do is put Blackwater in the oil business. Meet the new boss…same as the old boss. Lennin said “the best way to control the opposition is to lead it”.

[Karl]

I usually like you writings ( or I wouldn't subscribe) but ... While you make good points, this post came off as the somewhat senile ravings of an old coot with one leg in the nursing home. Think about who you're speaking of here... High school aged children. The exercise was not to reach a specific conclusion, and it would have corrupted the political lessons in the classroom if that lawyer you cite as being "so proud" had guided the discussion. Or would you rather the moderators HAD guided the conclusion? Towards your goals, of course?

[Open Choke]

Bingo, Karl... I AM an old coot. I like the childlike innocence and freedom of my senility. Just lose the nursing home.

What concerns me, Karl,is that high school students can reach a conclusion about nationalizing any industry in such a facile manner that ignores basic understanding of markets and supply and demand. How can that be the case? Why are they not educated in this arena? Why are most Americans ignorant here? This is WHY we are the beneficiaries of the magnificent largesse that comes of being part of this society, and we apparently don't even understand why.

Sorry the message wasn't clearer, or that it was offensive. The blame doesn't lie with the students, it lies with our educational system and whatever other powers exists that want to obfuscate, for whatever reason, the real benefits of a market system.

[Royal Enfield]

Maybe it is not misunderstanding of the market. Perhaps the perception of a market is rooted in ideology. Sometimes where you stand depends on where you sit.

You have done a very good job repeating the capitalist’s position on the purpose of a market. A socialist may take the position that markets are not created to match supply with demand, but are created for profit, and when left alone, they spin out of control or turn into monopolies. Therefore, markets need regulation and social input.

History shows that the socialist view is correct every time.

[Open Choke]

Hate to disagree, Scott, but the concept of supply and demand works every time. It is your precious socialism that hasn't worked as advertised. Ever. And violence is the all to common method employed by the idealogues to get people with the program. I vote with every dollar I spend for people and institutions (even corporations) that make my life better that I am free to use or not use. Your ideal leaves me with no choices other than yours.

[Open Choke]

Although I am not a Sean Hannity fan, this "face of socialism" from the G20 meeting should be disturbing...

http://www.youtube.com/watch?v=vy3gxBuEFKY

[Royal Enfield]

“Hate to disagree, Scott, but the concept of supply and demand works every time.” Choke…have you read the newspapers? Look what laissez-faire capitalism has produced in America. In case you missed it, we just nationalized General Motors and the banking system. Capitalism, as we once knew it is gone. It is gone because it failed due the same old reasons it always fails. Nationalizing the oil companies is a drop in the bucket compared the nationalizing the banking system. The game is over.

[Open Choke]

Scott, you are being disingenuous when you try to confuse fraud with markets. I am not against regulating a market to ensure transparency and to prevent fraud. Confusing cons and frauds with legitimate markets is just lazy. Your solution, if you truly are a socialist, is to the fact that some people cheat is to create a bureaucracy to take the place of legitimate businesses and prevent freedom of choice. Command and control by an ungovernable massive central authority that somehow you aren't scared of. I don't get it.

[Royal Enfield]

Choke, maybe being lazy is not the issue. I am not confusing fraud with markets. I am asserting that an unregulated market is a fraudulent market. It happens every time. It is the nature of a capitalist. They will kill the golden goose to get two eggs in one day. In recent years, capitalists have created new markets to avoid regulation, and then raped any and all that were foolish enough to engage these markets. Enron was the 20th century king of this game. Band width futures, electricity futures…..etc., is what ENRON was all about. If you can’t get an existing market deregulated, create a new one.

Now comes the 21st century, and CDF’s and derivatives are the new unregulated medium. Same result. Same thing, only the scale is bigger. This time they did it. The genie won’t go back in the bottle this time.

As we say “Game stays the same. Only the players change.”

[Open Choke]

Scott, Let's separate finance and insurance from Free Market for a moment. The banking system in the US is hugely munged up and a bit of a monopoly. Finance makes up 30% of our GDP. WTF? However, note that most investments are NOT made ignorantly. Why would someone invest in iffy mortgages? Because they were insured by Fanny Mae and Freddy Mac. Gov took the risk out. Why would anyone invest in the Enron type markets? Insurance. Except that we really don't understand if insurance companies are economically viable in the first place. A Richter 9.5 level earthquake in Southern California bankrupts the global insurance industry, as does one in Tokyo. They are gambling that it won't happen on their watch. Socializing risk that doesn't except these 100 or 1000 or 10000 or 100000 year events guarantees worldwide economic failure. Figure out how to realistically deal with insurance and you fix a lot of problems, healthcare among them. But insurance lobbies heavily to pass laws that MANDATE having it for all sorts of things... to the market's detriment.

Anytime the reward is near term and the risk long term, bad juju happens. Not a perfect allegory, but that is why you want the prospect generator to have WI instead of an ORRI.

[Royal Enfield]

I’ll let you have the last word on this subject. We have beaten it to death.

I apologise, but, in my opinion, you commit an error. I canm prove it.

I think, that you commit an error. I can prove it. Write to me in PM, we will talk.

It to you a science.

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