Update: Thanks to a commenter for pointing out an error. I wrote oil production and consumption in terms of “billions” of barrels, not “millions”. However, the underlying ratios were correct as is my point. And the president is still wrong.
The President was at a town hall meeting last week where he received a question about rising gas prices. His answer was full of misdirection on oil production, the causes of gas prices and outright snark at people who find it necessary to buy big vehicles for their big families. It was, in effect, another “bitterly clinging to their guns and religions” moment.
So the questioner asked him what Obama was going to do about high gas prices, and then the President gave him an impromptu supply-and-demand lesson that sounded good, but was—unfortunately and predictably—wrong. He said that a few years ago, when the economy was going great and individuals and industry were buying lots of oil, the high demand drove oil prices up. Then when the global economy tanked and demand dropped, prices dropped. And now that the economy is recovering—he claims—the prices are going up again because demand is up.
For one thing, oil prices are not driven primarily by supply and demand. Oil prices are driven by oil production, which is controlled by the consortium of oil-producing countries known as OPEC.
That sounds like a nice pat lesson from a freshman economics textbook. Unfortunately, it’s completely inadequate. For one thing, oil prices are not driven primarily by supply and demand. Oil prices are driven by oil production, which is controlled by the consortium of oil-producing countries known as OPEC. They decide how much oil will be produced and thus how much we must be willing to pay for it. For another thing, oil prices are also affected by politics, like, say, our little adventure in Libya, attacking Quaddafi on behalf of the al Quaeda rebels seeking to overthrow him.
Rather than higher oil prices being simply an indication of a recovering economy, it’s also an indicator of political turmoil and decisions by a group of non-democratic nations with varying levels of animosity toward the US.
Math is hard
At this point, Obama isn’t done showing what is either appalling ignorance or an appalling cynicism toward the intelligence of his audience.
We have about 2, maybe 3 percent of the world’s proven oil reserves; we use 25 percent of the world’s oil. So think about it. Even if we doubled the amount of oil that we produce, we’d still be short by a factor of five.
It seems reasonable at first, but look deeper and you see that he’s comparing apples and oranges. The United States has 2 to 3 percent of the world’s oil reserves. That’s a static number. That is not production, or supply, a dynamic number. Our consumption of 25 percent of oil is dynamic. His comparison makes it seem like the US produces a minuscule amount of the world’s oil.
In fact, the the United States is the third-largest producer of oil behind Russia and Saudi Arabia. (We produce 8.3 millions of barrels/day; Russia: 9.8 million bbl/day; Saudia Arabia: 11 million bbl/day.) Meanwhile, our oil consumption is 18 million barrels of oil per day.
If we doubled our oil production, we wouldn’t be short by a factor of five as he claimed. We’d actually break even and be producing all of the oil we need and would no longer be beholden to the OPEC oil cartel.
Consider that. If we doubled our oil production, we wouldn’t be short by a factor of five as he claimed. We’d actually break even and be producing all of the oil we need and would no longer be beholden to the OPEC oil cartel. Is the President lying, is he stupid, or is he cynically banking on a lack of education on the part of his audience?
Bitterly clinging to our gas-guzzlers
But he’s still not done. He then goes on to talk about increasing efficiency in vehicles. He takes to task the people who drive fuel-inefficient SUVs and other large vehicles.
“If you’re complaining about the price of gas and only getting eight miles a gallon… [inaudible comment from the crowd] … you may have a big family, but it’s probably not that big. How many kids you have? [inaudible] Ten kids, you say? Ten kids? [snarky smirk on his face] Then you definitely need a hybrid van then.”
It’s not like big families are out there driving gas-guzzling, giant vehicles because we want them. We drive these vehicles because none of the automakers have been producing vehicles for us over the past 20 years. When I was a kid, families bought station wagons and just piled in as many kids would fit. Now, not only do we need to be belted in, we need massive car seats that ensure that you can’t fit more than 2 kids under 12 into an average sedan. There are essentially no more station wagons and once you get up to five kids, you’re looking at either a full-size van or a full-size SUV.
And in my general experience, number of children is inversely proportional to the amount disposable income available for the purchase of new hybrid vans, if they even made one that seats 10. (Do they?)
It’s just another out of touch pandering moment by Obama. He ends by suggesting that his interlocutor think about a trade-in for his eight-mile-per-gallon gas guzzler. Can we get a trade-in on our ideology-guzzling president instead?
Your figures on oil production should be in MILLIONS of barrels per day, not billions
Thank you for the correction. Thankfully, the ratios are still the same so my point is unaffected.
Another reason oil prices are so high is the extraordinarily weak U.S. dollar. This affects oil prices since oil is traded worldwide in U.S. dollars. Since oil sellers can get less of their own currencies when they trade the U.S. dollars, they have to charge more dollars for the oil they sell.
Why is the U.S. dollar so weak? One main reason: The unprecedented monetary accommodation the Federal Reserve is currently pursuing. The U.S. is effectively monetizing its debt in this fashion, which means dollars are being printed to pay current debtholders.
While Mr. Obama and Congress have limited control over the Fed (thank God), the Fed has been put in this position by a level government spending – as a % of GDP – not seen since WWII. For this, we have Mr. Obama and his Democratic Congress to thank.
Oddly, however, Mr. Obama mentioned none of this. Perhaps he thinks his audience is too stupid to grasp it (if so, he’s wrong – Americans grasp these linkages very well). Perhaps he doesn’t understand it himself (doubtful, but I don’t rule it out). The best explanation, of course, is that providing this explanation points the finger directly at Mr. Obama and his Democratic colleagues for the high price of oil. And we can’t have people blaming Mr. Hope And Change for pain at the pump, can we?
“And in my general experience, number of children is inversely proportional to the amount disposable income available for the purchase of new hybrid vans, if they even made one that seats 10.”
While I applaud the author for a fairly consistent and fair report here on the Prez’s meeting and Q & E session, I can’t help waxing a bit scornful about the above quote. Why is it the goverment’s job to keep prices low so people can have huge families (and yes, ten kids equals a huge family!)? There were 5 kids in my family – I’m the oldest – and we went without a lot of things. For instance, we only took one family trip together ever – in a borrowd van visiting the state just below us for an afternoon. We just didn’t have money for such excursions. My mom was a nurse, my dad a teacher. Years before it was common for both parents to work, both my parents worked. They had to. If you want to have a large family, you have to make some sacrifices in other areas. Hearing someone complain about gas prices with large families……well, what did you think was going to happen> It’s not like gas prices tend to go down over time in a world where more and more folks are driving and competing for resources. Sometimes I am surprised at the lack of thought many people put into such big-outcome decisions. I have chosen not to have kids because I don’t want to contribute to over-population, etc. But it’s going to happen anyways.
Thank you for your comment, but you mistake my meaning.
I am a free-market conservative. I do not want the government to keep prices artificially low. I want the government to stop mandating politically motivated and arbitrary standards that result in tiny vehicles that can’t carry a normal (at least by the standards of history until the last 30 years in this country) sized family, such that the only option is overpriced and gas guzzling.
Your accusation that the large families I’m talking about don’t want to make sacrifices is laughable. Every large family I know drives old cars, eats lots of beans and rice and other cheap foods, doesn’t take expensive vacations, et al.
Your claim that large families contribute to overpopulation is based on a myth. See the facts here: “Overpopulation is a myth”. The fact is that by 2050 most of the world will be suffering from an underpopulation problem, not overpopulation.
As for large families using up resources, the fact is that on a per-capita basis, large families use fewer resources than singles or married couples without children or even 1 child. They don’t buy new cars every few years, don’t buy as many consumer goods, consume less food and less resource-intensive food, have smaller homes by square foot per person and so on.
Nevertheless, my primary point was that the president’s comment showed him to be out of touch and either uneducated about the economics of oil or just plain lying. None of those is a very palatable conclusion.