Comments by Deron Lovaas Subscribe

On How CBO Got it Wrong on Fuel Consumption and the Highway Trust Fund

Geoffrey,

Thanks. I respectfully disagree.

First, if this was the intention, I wish the analysts had made that more apparent and up-front than a footnote.

Even with a more prominent caveat, however, I don't think the graph showing a theoretical shortfall due to fuel economy standards was very responsible or helpful. It is likely to be replicated over and over without a footnote, distracting policymakers at worst and muddling the issues at best.

Fuel economy standards may exacerbate the huge and growing transrpotation finance problem in the out-years, but the bigger and more immediate issue by far is policymaker inability to confront and remedy what President Reagan called the need for "revenue enhancement." Our transportation program is hostage to virulent  and wrongheaded anti-tax ideology that has overtaken Washington and helped trump anincrease in the federal gas tax for almost 20 years (meanwhile, inflation certainly doesn't stand still). That's the big issue here.

The responsible thing for CBO to do rather than throwing a potential red herring into an already dysfunctional debate is to issue analyses, reports, statements, you name it, about the chronic and growing insolvency of the national transprotation program due to revenue shortfalls, and the tools that can be most effective in addressing it.

Happy to loan CBO, and any other responsible economists, a soapbox if it helps.

Deron

On Promising to Slash Gas Prices is "Economic Nonsense"

Paul O -- I concede your last item, at least as it relates to a global oil price, although it's trivial.

I also concede that our balance of trade would be positively affected by increased domestic production, I've said that before when noting that there are benefits even if lower prices is not one of them.

However, your claim that bringing production up would somehow "buffer" us from a global oil price changes is hard to swallow. How exactly is that the case? Unless you are somehow advocating domestic price controls or subsidies for energy; that would indeed have an effect on prices but experience with those tools is not positive as far as I know.

No, the burden of proof is on drilling advocates. Prices rise, and the drumbeat starts for new domestic production as the cure-all.

Drill now, drill here, pay less? Empty, deceptive rhetoric -- unless you can prove it.

On Worst. Transportation Bill. Ever.

The House bill isn't a serious attempt at legislating. The Speaker, and the Committee Chairman, have put a partisan scheme together with chewing gum and paper clips (revenue from drilling has long time lag, and is a fraction of what they claim to deliver to transportation). The Senate bill may have warts, but it's been put together on a bipartisan basis and by spanning two years the funding level is less daunting.

On Telling the Simple, Hard Truth About Domestic Oil Drilling: It Doesn't Matter

Thanks for the comments.

First of all, the key word about possible effects on price is "could" since unpredictable geopolitical and/or economic factors could easily trump such relatively modest changes.

Having said that, our hand is stronger on the demand moderation front. We simply have more clout as a buyer (where our unmatched 19-million-barrel-a-day habit gives us monoposonistic leverage) than as a seller (since domestic production has pretty much peaked despite unparalleled exploration and development and while we are #3 on the production list OPEC controls a monopolistic 40 percent of production capacity).

Second, as my colleague Brian Siu has written regarding spare capacity in the U.S.: "Oil production decisions are based on long-term expectations, not short-term volatility. Producers evaluate the costs and benefits of potential projects including drilling costs, the volume of oil that might be produced, infrastructure, long term energy price assumptions and so forth. If the potential returns justify it, the producer will consider moving ahead with the project. But it will not invest in infrastructure, only to idle it for an unknown duration. That would incur all of the costs but none of the revenues, yet that’s what is required for drilling to conceivably dampen the market volatility that drilling advocates use to justify their agenda." Now, matters might be different if we nationalized the oil industry as several other nations have, but I assume no one advocates that.

Therefore I stand by this and other blog entries I've written on this topic recently.