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The Palin-Bolling Proposal To Lower Gas Prices

Conservatives need to do a better job of explaining how they would lower gas prices.  More drilling is a great piece of the pie, but there needs to be more.  Governor Sarah Palin and Eric Bolling, Fox News host of of The Five, have put together a comprehensive plan to lower gas prices and they mapped out the details in the video below. 

The FOX gas price solution show was titled “Paying at the Pump.”  Gov. Palin and Bolling rolled out some excellent ideas to combat skyrocketing gas prices.  When President Obama was sworn into office, gas was priced at $1.85 cents a gallon.  Clearly, the President’s energy policy has been an abject failure with gas prices hovering close to $4.00 a gallon. 

This show contains a comprehensive conservative means to lower gas prices.  Conservatives need to make a strong case to the American people that the solution to high prices at the pump is a conservative solution.  Get the government out of the business of hiking gas prices through wrong headed government policies.  As usual, government has caused many of the problems leading to a massive hike in gas prices and President Obama has exacerbated the problem.

It is important to note that high gas prices causes price inflation in consumer goods.  Having gas prices so high is a drag on the economy in the transportation of goods and in the production of many products.  The impact of gas prices doubling since President Obama was sworn into office is currently harming the economic future of the United States.  High gas prices hammer the middle class and low income Americans harder than the well to do.  High gas prices are a problem that needs to be addressed in the very near future or our economy shall stagnate.

The first point Palin and Bolling made in the show was that gas prices cause inflation on many other products used by Americans.  Anybody who has made a recent trip to the grocery store has felt the pinch of increasing prices.  One of the reasons why these prices are hiking is because of high fuel prices, yet another important, and lesser known factor, is the impact of environmental regulations forcing truckers to use vehicles at increased cost.  The experts on the show argued that environmentalist extremists and anti-energy policies are one of the factors hiking grocery prices.

We can all thank the Environmental Protection Agency (EPA) for some of the gas price inflation.  Kenneth Green of the American Enterprise Institute wrote a blog post titled EPA-Induced refinery closures linked to high gas prices. Green cited an article in Investor’s Business Daily that put responsibility on the EPA for higher gas prices.

The untold story behind soaring pump prices is that major U.S. refineries are going out of business and creating at least regional shortages thanks in no small part to costly EPA rules. Over just the past six months, three refineries supplying about half the gasoline, diesel and jet fuel to the East Coast have closed, including two owned by Sunoco Inc. They say they simply cannot make money anymore. Philadelphia-based Sunoco’s refinery business in the Northeast has lost almost $1 billion over the past three years as U.S. demand for gas fell and the cost of foreign crude soared. But over the same period, it had to shell out “significant expenditures for environmental projects and compliance activities” to satisfy onerous EPA mandates, according to the company’s latest 10-K report. In fact, it’s spent more than $1.3 billion just to comply with stricter EPA rules, which carry stiff fines or penalties for violations. Sunoco fretted that these regulatory costs would grow exponentially under the Obama administration, which has hit some of its refineries with fines.

The federal government has passed on a $1.3 billion tax on the American consumer in the form of EPA regulations.  Regulations are a hidden tax on the American people and they limit choices.  The fact that three refineries have closed is evidence that this burdensome regulatory structure is increasing gas prices. 

One simple solution would be to suspend these regulations to see if gas prices come down and more refineries come on line.  Strip the EPA of any authority to implement the rules that are causing higher gas prices.

Of the many laughable and wrong headed ideas of the Obama Administration is the President Obama’s suggestion of getting regular tune ups and inflating tires.  This will have no impact on gas prices and is not a realistic means to solve our energy problems.  Obama has also embraced the miracle fuel of converting Algae to gas.  Yet another unproven miracle fuel idea that is not at a stage where Algae is being considered a realistic solution to our nations’ energy problems.  These Obama ideas can go in the silly category and should be treated as non-serious solutions.

One serious proposal that will increase gas prices is to impose higher taxes on the Oil and Gas industry.  The President’s idea to raise taxes on the Oil and Gas industry was rejected by the United States Senate, because it would raise prices at the pump. 

The President’s idea is to single out the manufacturing tax credit extended to the Oil and Gas industry.  A tax credit that applies to all manufacturers.  The President acts as if the federal government is subsidizing Oil and Gas, yet fails to point out that every manufacturer is allowed a 9% deduction from revenues as part of our corporate tax code.  Already, the federal government has singled out the Oil and Gas industry for a manufacturing tax credit.  An increased tax on the Oil and Gas industry will be passed on to the consumer in the form of higher gas prices.; therefore the President’s removal of what he calls a tax subsidy would effectively increase gas cost at the pump for all Americans.  

Another problem identified by Gov. Palin’s segment on the Fox broadcast is that there are large swaths of the United States off limits to drilling.  Production is up on private and state properties, yet on federally controlled lands, production is not where it needs to be.  Gov. Palin made the point that in Alaska is loaded with resources that are untapped. 

Palin said on the show the following:

In the 50s oil was discovered and the Navy set aside a petroleum reserve, the NPRA, was set aside for the development of oil and gas.  That was in the 1950s, yet that unit, that land, still has never been touched.  And then in the 1960s more oil was discovered and ANWR was created.  It is a huge unit, 20 million acres, was set aside for wilderness for refuge and in mid-1980 it was expanded for oil and gas development in the coastal plain, the tipy top of ANWR.  So we have these huge swaths of land, 20 million acres in one unit and 19 million acres in another unit, reservoirs that have proven to hold oil and gas that have not been tapped yet.

If President Obama was serious about domestic oil production he would urge Congress to open up drilling in ANWR today.  Yet again the environmental extremists have won the day.  They have thwarted the Keystone pipeline and drilling in ANWR, as well as off the coast of Florida, the East Coast, the West Coast and many on land areas that could help reduce America’s dependence on oil.  According to Rayola Dougher of the American Petroleum Institute, 87% of the acreage offshore is off limits to drilling and development.

The President’s solution seems to be merely a political one.  Obama has targeted individuals who trade in futures as if they are the individuals responsible for a massive spike in gas prices.  This is consistent with his Class Warfare campaign, because he can blame Wall Street for high gas prices.  Yet again, President Obama is trying to shift blame away from his own anti-energy policies as a means to blame somebody else for the problems he has failed to solve.

President Obama needs a straw man to draw fire from his incompetent energy policy.  The President has seen fit to demonize “speculators” as if they are evil people driving up the price of gas at the pump.  The fact of the matter is that speculators are trading on the knowledge that the President’s energy policy is not going to produce more domestic sources of energy.  As good traders they are operating on the smart bet that as President Obama thwarts more domestic oil production, gas prices will go higher.

The President said earlier this week, “we can’t afford a situation where some speculators can reap millions while millions of American families get the short end of the stick.”  According to the AP, the President’s proposal to bring down gas prices contains three elements, federal supervision of oil markets, increase penalties for market manipulation and empower regulators to increase the amount of money energy graders are required to put behind their transactions.  

According to AP the following elements are included in the President’s plan:

  • Increase six-fold the surveillance and enforcement staff of the Commodity Futures Trading Commission to better deter oil market manipulation.
  • Increase spending on technology to provide better oversight and surveillance of energy markets.
  • Increase civil and criminal penalties against firms that engage in market manipulation from $1 million to $10 million.
  • Give the Commodity Futures Trading Commission authority to increase the amount of money that a trader must put up to back a trading position. The administration officials said such authority could help limit disruptions in energy markets.

Eric Bolling stated on his show that one element of the Obama proposal may make some sense – raising the energy trading margins.  

Bolling is a guy who has some experience on the issue of futures trading.  He was on the Board of Directors (2000-2005) of the New York Mercantile Exchange (Now Chicago Mercantile Exchange) and an oil trader (1990-2007).  Bolling argued that merely using existing authorities to force Wall Street banks and other institutions trading in derrivatives to put some skin in the game would insure against reckless trading.

Maybe one of the problems we have today is the idea that the big Wall Street traders are considered “Too Big To Fail,” therefore they act as if they have an implicit insurance policy from the federal government to bail them out if the oil futures market collapses.  One solution to the problem would be for the bailout supporting Obama Administration to pledge not to bail out big Wall Street banks and trading firms if they go belly up as a result of bad energy futures trades.  That seems like a good free market solution to the problem.

Although the Dodd-Frank legislation already says that financial institutions will no longer be bailed out, and will be allowed to fail, this is not necessarily true.  The standard interpretation of this language on Wall Street is that no one needs to worry about failing any more, because a Federal bailout is assured.  It’ll just be called by some different name.

As usual, President Obama has takes the wrong tact.  He refuses to drill more on federal lands, his addiction to green energy is well known and he is not expected to renounce bailouts as a legitimate policy of the federal government.  Remember how much money Wall Street funnelled to his campaign after the 2008 Wall Street bailout.  One should not expect him, in an election year, to stick a finger in the eye of one of the sectors of the economy expected to give him $1 billion to fund his re-election campaign.

Obama is engaging in more class warfare by demonizing “Speculators” as a class of people robbing the American people.  Bolling pointed out on the show out that a simple change to the margin requirements may solve the problem.  That solution may preclude the over-broad response by the Obama Administration to the gas price problem. 

Bolling pointed out on the show that the whole world uses 83 million barrels a day.  The markets move over 4 billion barrels a day in the form of derrivatives on the market.  Bolling further pointed out that these futures are not being traded by the Saudi Arabians nor other middle eastern members of OPEC.  Also, not Shell or Gulf or any other oil company making these future trades.  The traders are the bailed out (i.e. failed) Wall Street entities that have already done lasting harm to the idea of free market capitalism with the bailouts.

Bolling pointed out that these Wall Street firms don’t have to have any skin in the game if they buy and sell an oil future in the same day.  He further pointed out that if they hold a future overnight, they only have to prove they have posted approximately a 5% against the margin of the position.  Conservatives need to understand that this is not in the form of a new regulation.  The regulations authorizing this new margin requirement already exists in the law. It is not a new additional regulation nor is it a fee.  It is merely a margin account to show the companies still own the collateral used to make these trades. 

Now some will point to the fact that exchanges already have the ability to increase margin requirements for trading positions.  They absolutely do this in volatile conditions, when they fear that traders may be taking on too much leverage, increasing their risk of failure.  Additionally, futures markets have strict daily trading limits and positions are marked to market every night.  This means people who bet wrong can generally get forced out of the market before they can bankrupt their counter-parties. 

Some will argue that if the Obama Administration comes to Congress to demand that legislation enabling regulators to impose position limits or margin requirements is pointless.  The exchanges already have a self-preservation interest in enforcing these at times of stress.  It is important to note that the Palin-Bolling plan did not call for more legislation, yet the Obama Administration is trying to get Congress to pass legislation to force regulators to make this decision. 

The President’s plan does not define “manipulation” and gives regulators the power to make subjective decisions.  How will market participants prepare for regulators curtailing otherwise-legal activities.  Having Congress implement all the aspects of the Obama proposal may make the markets all the more unstable.

Now creating a margin requirement that is too high will stifle the market and move these trades to other markets.  That would hurt the financial sector of the American economy and also do lasting harm to free market capitalism.  Bolling’s idea has merit and a reasonable margin requirement may be one element of a comprehensive plan to get gas prices under control.

The fact that the Obama Administration already has the authority that this Administration is not serious about gas prices.  They punt all the difficult decisions to Congress, yet they refuse to do anything to “Drill Baby Drill” domestically.  This Administration is firmly in support of demonizing “Speculators” and “Big Oil” by increasing taxes and comparing “Speculators” to the guys that cause the Enron scandal.

Another idea that needs an airing that didn’t make the Palin-Bolling show was devolving highway programs back to the states.  Right now the federal government collects $18.3 cents on every gallon of gas pumped in the United States.  The feds collect the taxes then dole these revenues back to the states to pay for highway programs, bike paths and miscellaneous earmarks.  The best solution would be to devolve the programs back to the states where they belong and eliminate the federal gas tax.  States already collect hefty gas taxes and they could increase the state based gas taxes to cover the shortfall.  Without the federal government bureaucrats wasting these tax dollars there would be measurable savings at the pump.

At a minimum, conservatives need to roll out a comprehensive plan and force Congress to consider these plans over and over again.  Gas prices are a big issue and if conservatives in Congress are not forcing vote after vote on good ideas, then they will lose the messaging war to the Class Warrior in Chief who is seeking to use scare tactics and class warfare to secure another term in the White House. 

There is a conservative solution.  Governor Sarah Palin and Fox’s Eric Bolling have rolled out a conservative plan that deserves a national debate.

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