President Trump's possible deal with congressional Democrats on DACA and what Robert Mueller may be learning about Trump's business dealings, then, news from NIH on gene editing, regenerative medicine, and immunotherapy.
Guest Host: Tom Gjelten
The average price of a gallon of gas nationwide stands at $3.72, rising by 19 cents in the past two weeks, and up now for 21 days in a row. Gas prices have never been this high in February. One big reason: tension around Iran is driving up the price of oil. Forecasters say U.S. gas prices could reach four dollars a gallon by July. President Obama could tap the Strategic Petroleum Reserve to bring prices down a bit but his Republican opponents want more domestic drilling. Guest host Tom Gjelten and a panel of experts discuss the economic and political impact of rising gas prices and what it means for consumers.
- Dean Baker Co-director of the Center for Economic and Policy Research and author of, "The End of Loser Liberalism: Making Markets Progressive." Blog is called "Beat the Press"
- Coral Davenport Energy and environment correspondent, National Journal.
- J. Robinson West Chairman of PFC Energy, an energy consulting firm
- John Ydstie Economics correspondent, NPR
MR. TOM GJELTENThanks for joining us. I'm Tom Gjelten of NPR, sitting in for Diane Rehm. As tensions increase in the Middle East, gas prices in the U.S. keep going up, and there's no end in sight. President Obama says there's no silver bullet to bring prices down, but high gas prices could derail an already sluggish recovery. Joining us in the studio to talk about the causes and implications of higher gas prices: Dean Baker of the Center for Economic and Policy Research, John Ydstie, my colleague at NPR, Coral Davenport of National Journal and J. Robinson West of PFC Energy.
MR. TOM GJELTENYou can join the conversation. I have no doubt many of you have thoughts about the high gas prices. You can call us. We'll be taking calls throughout the hour at 1-800-433-8850. Send us an email, firstname.lastname@example.org. Join us on Facebook or send us a tweet. Good morning, everyone.
MR. DEAN BAKERGood morning.
MR. J. ROBINSON WESTHi, Tom.
MR. JOHN YDSTIEGood morning.
MS. CORAL DAVENPORTGood to be here.
GJELTENRobin, can I begin with you? Explain why gas prices are going up.
WESTGas prices are going up because crude prices are going up. And crude prices are going up because there is part instability in the Middle East, and the markets are concerned about that. But there's something else also that's going on that people haven't paid attention to, and that is oil's produced all over the world. And in some places like South Sudan, Yemen, and even in the North Sea, some production is shut in. And so there's another -- oh, we estimate about 600,000 barrels that happens to be off the market that coincides with this, so it's creating tighter markets for upward pressure.
GJELTENCoral, what about the refinery situation because, of course, there's a lot of oil being produced, and yet, again, prices are not going up. What do the -- what does refinery capacity have to -- how does that play a role here?
DAVENPORTIt does play some role. There are some refineries on the East Coast that have shut down, so that's going to slow some of that crude oil being turned into gasoline and getting to the market. And it does look like we will see higher gas prices, especially in the East Coast because of that lower refinery capacity.
GJELTENAnd, John, is there a pattern to the way gas prices are going up? Do we see differences in different parts of the country, in part, because of this issue that Coral mentioned?
YDSTIEYeah, there's a -- certainly, there's -- the average price of gas right now across the U.S. is $3.72 a barrel, (sic) but many people pay much more than that. People on the West Coast, on the East Coast, people in the Midwest probably pay a little bit less than that. There is a glut of oil in the Midwest. So there are, you know, patterns around the country that are very different, but the average price continues to be $3.72 a gallon. Did I say...
YDSTIE…a barrel? A gallon.
GJELTENThank you, Robin.
YDSTIEThat would be cheap.
DAVENPORTBe a great price, yeah.
WESTThat was a few years ago.
GJELTENAnd so we have a glut of oil in the Midwest that is not, apparently, reaching the market, in part, because of some bottlenecks right, Dean? And now, yesterday, we have a new development, TransCanada, which is -- wants to build a pipeline, has announced that it will go ahead and build part of the so-called Keystone pipeline from Oklahoma to refineries on the Gulf Coast. Is that going to make any difference? Can you explain what the significance of that is?
BAKERWell, it certainly won't make any difference anytime soon. I mean, you're talking about a pipeline, best-case scenario, is going to be operating somewhere 2013. It's not going to be this year, and maybe not even have an impact next year. But that's -- we're just talking about regional differences in prices, and what that's going to do is help to reduce those regional differences. So it's not as though we're all going to see a decline in prices. What that might mean is you could get more oil out of the Midwest where, relatively speaking, we have a glut.
BAKERYou know, that means higher prices in the Midwest, and then maybe somewhat lower prices in the Northeast where, you know, we do have more of, again, a shortage, if you want to use that term. So it's going to even out prices a little bit. Its net effect on prices in aggregate is going to be pretty much zero 'cause you're just taking oil from one part of the country and moving it to another.
GJELTENRobin, do you agree with that?
WESTWell, I agree that there are some important disconnections in the market right now, that there's a surge of oil, largely from shale, which is pouring out of places like North Dakota. And the oil logistic system, the pipeline system isn't designed to get this oil out. And so you have oil in the Midwest, in the mid-continent, it's really appreciably cheaper.
WESTAnd one of the problems -- Coral talked about the East Coast refineries -- is the logistical system isn't designed to take this cheap oil to the East Coast. The production patterns in America have changed completely. And what's happening is that the -- these East Coast refineries have to compete for more expensive international crude.
WESTAnd one of the things is the price of oil in the North Sea, Brent crude, as opposed to West Texas Intermediate, which is the quoted price in America, Brent crude is about $15 higher than it is in the United States.
WESTSo this is quite a remarkable situation, this huge disconnect in prices.
GJELTENAnd is it something that can be dealt with through pipeline construction? I mean, what -- is this just sort of inevitable in the oil market that you have these disconnections?
WESTThere's never been anything like this before, at least in recent times. But what it's going to take is infrastructure. There's this huge energy boom in both natural gas and oil. And the only way the public can really benefit from it is a whole new set of logistics, and that's part of the debate over Keystone.
GJELTENWell, speaking of the debate over Keystone, Coral, this rise in gas prices is happening in the context of a very hot political campaign. Presidential politics are entering here. What are the political issues involved to the extent they are involved in this issue?
DAVENPORTAs soon as gas prices started to go up, they became absolutely the center of the political debate. And this came just at the moment where, you know, the issue that everyone had pointed out as being the number one issue of this election -- the economy -- started to get a little bit better. You know, unemployment is down. Consumer confidence is up. Republicans can't quite attack President Obama on the economy as much as they had expected to, but they can attack the president on gasoline prices. And they are leaping. They're just pouncing all over that.
DAVENPORTHistorically, both President Obama and Republicans know voters have tended to place the blame for high gasoline prices on the sitting president. It's probably not fair. There's not really anything a president can do about the price of gas. As Robin pointed out, the price of oil is set on a global market, determined by many complex forces over which the president has no control. Nonetheless, this is the association that the voters make.
DAVENPORTAnd, therefore, we've immediately seen candidates, the Republican candidates, tie President Obama and President Obama's energy policies to these gas prices that are hurting American consumers, that could slow economic growth. And what I thought was fascinating is Newt Gingrich has just made this amazing pivot. He kind of abandoned the economy as his platform for his campaign and has built this new platform that is, you know, completely based on energy and on gasoline prices. He filmed this 30-minute ad...
DAVENPORT...you know, attacking President Obama and blaming President Obama for high gasoline prices, even though Newt Gingrich knows full well -- he's actually -- Newt Gingrich is a smart, sophisticated policy guy. He knows that presidents can't control the price of gas, but he's claiming that, if elected, he would make the price of gas go down to $2.50.
DAVENPORTSo this is just absolutely inflaming the presidential politics. But there's a big gap between this political rhetoric and the reality of gasoline prices.
GJELTENWell, John, President Obama says he can't bring prices down, and, I think, our panel here agrees. There's probably nothing in the short run he can do to bring prices down. Nevertheless, there are some legitimate energy policy issues at play here. And this probably -- the increase in gas prices probably affords an opportunity to talk about some of those serious energy policy issues, right?
YDSTIEMm hmm. Well, it does. Although, I think, there are -- some of the people I talk to say there are some things that the president could do.
YDSTIEFor instance, one of the logistics problems is that there's gasoline on the Gulf Coast, and it can't get to the Eastern U.S. cheaply because of the Jones Act, which requires gasoline to be shipped on U.S. flagships. Now, I think, back -- during the Libyan crisis, the president waived the Jones Act so that oil could move in that way. And he could do that again, which could help out. The other thing he could do is something apparently Nicholas Sarkozy just did in France (unintelligible) a refinery shut down there. He went to the refiners, got them to reopen.
YDSTIEAs Coral said, several U.S. refineries -- Sunoco refinery, ConocoPhillips refinery, Hess refinery in the Caribbean -- shut down. The president could go to them and -- they shut down because they can't refine high-sulfur crude. And requirements have lowered the level of sulfur that can be in gasoline. So the president could waive that requirement and go to the companies and urge them to reopen these plants.
GJELTENDean Baker, does that sound -- are any of those options that John mentioned ones that this administration is likely to take? And we mentioned, of course, at the top, the issue of tapping the strategic petroleum reserve, and what about that one as well?
BAKERWell, I think, certainly, tapping the strategic petroleum reserve is something that may be done. It's been done in the past. Again, the oil -- these are both possibilities. I would be surprised if he goes that route, but they're both possibilities. I'll mention one other issue. I mean, clearly, there's a speculative element in oil prices. Whether it's $10 a barrel, $15, $20 a barrel, clearly, there's some speculative element. People are concerned obviously about the situation in the Middle East.
BAKERIf we had confidence that that situation -- and, here, I'm thinking of -- with Iran. If that -- we had confidence that that would be resolved peacefully, I think that by itself might lower the price of oil $10 to $15 a barrel because, again, people are concerned that, you know, in several worst-case scenario, if there's a war, an attack on Iran, both the Iranian production may be taken offline. But, again, there's a threat that they'd actually block the Straits of Hormuz at least for a period of time, which is, you know, tens of millions of barrels a day going through those straits.
BAKERSo, you know, in a worst-case scenario, you could see an awful lot of oil go offline in the event of a war with Iran.
GJELTENAnd, meanwhile, we have Iran already cutting off oil exports to Europe, and that is obviously going to have an effect on the oil market in the short run, even though European countries are themselves already committed to limiting or eliminating their imports of oil from Iran. Dean Baker, co-director of the Center for Economic and Policy Research and author of "The End of Loser Liberalism: Making Markets Progressive."
GJELTENWhen we come back, we were going to -- we're going to turn our attention to this issue that Dean just mentioned of whether speculation is part of the increase in oil prices. And we'll talk more about the situation around Iran and how that's contributing. And we'll take your calls. What do you think about the increase in oil prices? Stay with us. We'll be right back.
GJELTENWelcome back. I'm Tom Gjelten, sitting in today for Diane Rehm, and we're talking about the high gas prices -- 21 days and counting of gas price increases. Here in the studio with me are: Dean Baker from Center for Economic and Policy Research, John Ydstie from NPR, Coral Davenport, energy and environment correspondent at the National Journal, and J. Robinson West. We call him Robin. He's chairman of PFC Energy, which is an energy consulting firm.
GJELTENRobin, we just got a tweet from a listener named Larry, who's pointing out that gasoline is as high priced now as when a barrel of oil was near $150. Now, that's almost 50 percent more than it is now. Why is there this -- speaking of disconnects, why is there this disconnect between where we've seen oil prices before and where we see gas prices right now?
WESTWell, I think you probably have to ask our tweeter where he's from because, in different parts of the market and different parts of the country, prices are much lower, and on the Coast, prices tend to be much higher. But, again, it's a function of logistics. It's -- and there's regional tightness, and that's really big driver in this.
GJELTENAnd a lot of listeners are asking already about speculation, and this is an issue that Dean Baker raised just before the break. Do you have thought on that?
WESTYeah, I think that -- are there traders or investors in the market? Yes. Are they speculators? Yes. But I would point out that if you have a 401 (k) and you own one share of stock, you are a speculator, too. If you are investing in a market and prepared to take risk for the purpose of financial gain, that's a speculator. Where the difference is and what's wrong is not speculating. It's manipulating. And the question is: Are these people manipulating the market? And there was an investigation a couple of years ago, when oil prices where very high, from the CFTC.
WESTAnd they looked into this question in great detail, and they really couldn't find a situation where the oil traders were manipulating the market. Were they investing? Of course, billions and billions of dollars. But were they actually changing? No. It's important. Speculators have to follow the fundamentals of the market, or, otherwise, they have no basis on which they're committing money. They have to invest rationally.
GJELTENCoral, Leif writes us an email, also raising the issue of speculation, but Leif wants you to address how the deregulation of the energy sector has affected the volatility of fuel cost because, obviously, prices have been very volatile.
DAVENPORTWell, the oil market, it's -- I don't know. I might turn this to Robin and say the oil market still isn't subject to tremendous regulation.
WESTIt's a global commodity, which is basically the price is set by a number of...
WEST...by -- effectively, by supply and demand. And if the price goes up in Rotterdam, it goes up in Singapore and Houston. And the big difference is generally crude qualities.
GJELTENMm hmm. John, do you see environmental policies at play here, at issue here?
YDSTIEPardon me. Well, you know, it's hard to -- there are certainly some changes, such as this requirement for low sulfur in gasoline, that are causing these refineries that have just gone offline to go offline. So there's some element of that. And I would say -- I mean, I would ask Robin this as well. I mean, we've had 600,000 -- or barrels a day of gasoline come off the U.S. market as a result of this shutdown.
YDSTIEPlus, there's a refinery in Europe, another 600,000 gallons a day, which exports a lot of gasoline to the U.S. Europe doesn't use much gas these days. They use diesel. Don't you think that has something to do with the spread between the price of gasoline and relative price of crude oil? Isn't that a big part of it?
WESTOh, I think it's a factor, but, again, I go back. This goes back to crude qualities being run in certain refineries and the logistics and the cost of moving things. But it's not some big, speculative maneuver or, you know, evil forces in the market. There are practical reasons for this happening.
GJELTENDean Baker, do you get frustrated, as someone who writes seriously about these issues, over the way that they get tossed around in the political, you know, campaign season, in particular? I mean...
GJELTEN...we're talking about -- here are some very complex factors, and yet, as Coral mentioned, the minute gas prices go up, people have very strong opinions. We've got a full board of phone calls here from people. Do you get frustrated by that?
BAKERWell, sure. Let me just get back to the speculator point for a second. I wasn't saying speculators are evil. I mean, a simple point is that people are making a bet with some cause that we might see a conflagration in the Middle East, and that's going to pull oil off the market. That's the fundamental. So they're not just driving -- you know, it's not manipulation. They're just making a reasonable bet 'cause that way, it very well could happen. We all hope it doesn't, but it could. So I'm not accusing anyone of doing anything illicit. But, yeah, I mean, I think we have a debate that's very strange, you know?
BAKERSo you get this idea that somehow, you know, with the prices coming down from these bad guys, whether it's the oil companies or whether it's the environmentalist who prevented oil from preventing us from drilling everywhere -- and I think people, you know, have very little appreciation of, you know, when you look at the U.S. market, there's really relatively little we could do 'cause even if we get these refineries online, we waived the environmental restrictions. Whatever it might be, these are very, very marginal factors. We're not going to get Newt Gingrich's $2.50 a barrel.
BAKERWe get $2.50 a gallon. I mean, we could lower prices here or there, 10 or 15 or 20 cents a gallon. That's what we're talking about, and we're talking about it when we say we want to open up everything for drilling, you know, the drill, baby, drill crowds. We're going to drill everywhere. You know, we're a very -- we're kind of speck on the world market -- I mean, a little more than a speck. But, you know, U.S. production is less than 10 percent of world oil production.
BAKERIf you increase that by 20 percent, which would be huge -- certainly not something you could do overnight. You know, years and years of exploration and drilling, maybe we could increase production by 20 percent. That's just a drop in the bucket in the world market, so we're going to maybe lower world oil prices by 7, 8, 9 percent. That's not getting us $2.50 a gallon gas.
GJELTENRobin, let's put the speculation issue to rest for the rest of the hour. Is there a difference between, let's say, licit and illicit speculation or between legal speculation and market manipulation?
WESTI think that there are people who would like to be able to manipulate the market. The oil markets are so big and so powerful and so deep and so liquid, that's very, very difficult to do.
GJELTENMm-hmm. The -- John, the -- speaking of what Newt Gingrich said and speaking of the Republican politics here, Rick Santorum made the statement yesterday that high gas prices caused the recent recession. What's the -- what do we know about the link between gas prices and what has happened in the economy so far and, going forward, what the effect of higher gas prices will have on economic activity in this country?
YDSTIEWell, certainly, high gas prices did not cause the recent recession. Financial -- a collapse of our financial markets did, and the housing market was certainly much more to blame than the oil market. What we're seeing now is a rise in gas prices, nearing $4.00 a gallon, and a lot of economists think that that $4.00 a gallon level is a psychological level. And once the price goes over that, people began to lose confidence in the economy. Here's an interesting anecdote. I was driving down the street here in Washington a couple days ago with my mother-in-law in the car. She's from North Dakota.
YDSTIEAnd she was very interested in the price of gas, even though she's 85 years old and probably buys 100 gallons of gas a year at the most. But she was so fixated on the price of gasoline, and she wanted to call her friends back in North Dakota to compare prices. And this is the kind of effect that gas prices have. They're posted everywhere in the country. As people see them rise, they're very conscious of it. And, certainly, the price hikes are like a tax but on consumers. So it can hurt confidence. It can hurt spending on other things, and it can, you know, slow the economy.
GJELTENQuick comments now from Carol, and then Robin. First you, Carol -- Coral.
DAVENPORTIn terms of the impact on the economy and on consumer confidence, what's interesting is that there have been studies done showing that with every tick up of a dollar -- so when you go from $3.99 to $4 or $4.99 to $5 -- that does have a direct impact on lowering consumer confidence. As gas prices go up, consumer confidence goes down, and that's -- and it's an important psychological barometer. However, when you look at the actual economic indicators, the U.S. economy is actually a lot more insulated from spikes in gasoline prices than it was, say, at the end of the 1970s and in the 1980s.
DAVENPORTAnd the reason is that energy efficiency per GDP is a lot better. In other words, our -- the things that we use, the cars that we drive, the factories that we use get a lot more bang for the buck. We can produce a lot more economic output with less energy. We -- so, because we can do that, even as those gas prices go up, it slows economic growth. But we wouldn't be -- the U.S. economy would not be as kneecapped as it might have been 20 years ago, you know, or as it was in the late 1970s with these gas prices. So consumers don't like it. There's a psychological effect.
DAVENPORTBut the economic impact -- we're a little bit more insulated as those gas prices go up, so that's important to keep in mind.
GJELTENWell, adjusting for inflation, gas prices are basically where they were 30 years ago, right, Robin?
WESTYes. Yes. But what high gasoline prices, the impact they have is particularly on low-income individuals. And it reduces their discretionary income...
WEST...and particularly for people who live in suburban and urban areas, people who drive a lot, and they don't have much free cash. And these are the people it hit the hardest. And, by the way, these are some of the areas of the economy in the country that have been hit the hardest.
DAVENPORTThese -- those are also some of the people that President Obama is going to need -- you know, these are -- if you're talking about folks in the West, if you're talking about, you know, blue collar workers, these are some of the states and some of the independent voters that President Obama is really going to need in the fall, and if those folks are getting hurt with these high gas prices and they're blaming the president, that is something that can have an impact on the election.
GJELTENDean Baker, psychological or material effect on people's activity?
BAKERWell, it is -- a lot of it is psychological. And, obviously, at some point, there's a material effect. But I want to get back on Coral's point that we are more insulated. We have a much more fuel-efficient economy. Now, part of that story is long-term planning, and this is something that, I think, people have to think about when we're looking at the situation 'cause John was raising this issue, well, we could suspend environmental restrictions on refineries. We could do this and that. You could consider those things.
BAKERBut what's really important is that you do do some long-term planning so that -- and, further out, we are a more fuel-efficient economy, both to make us less sensitive to these issues. And, obviously, we do have a real problem of global warming that we have to be thinking about.
GJELTENWell, John, actually, the Conference Board just today has reported that consumer confidence in February rose dramatically to the highest level since a year ago. So, you know, we got a complicated picture out here.
GJELTENI mean, clearly, gas prices make people nervous, but, on the other hand, consumer confidence is going up.
YDSTIENo. I think there are things happening in the economy that -- now that are giving people more confidence. And, I think, one of the keys is the -- in the job market. We've seen initial claims for unemployment benefits down at levels that suggest a relatively healthy labor market, so people are feeling that. And the stock market is also rising. People are feeling a little more wealthy as a result of that.
YDSTIESo, I think, there's -- you know, actually, Phil Verleger, who is an energy economist -- who I'm sure everybody in the room is familiar with -- told me the other day he thinks that this may be the first time that he sees gas prices rise and the economy actually do better. I mean, he's looking at things like people buying high-mileage vehicles. And one of the things we haven't said yet in this program is the irony that demand for gasoline is actually down. This has got nothing to do with rising demand.
GJELTENWell, I'm Tom Gjelten. You're listening to "The Diane Rehm Show." You can join this conversation about high gas prices by calling 1-800-433-8850 or send an email to email@example.com. And I'm going to open the phones now, going first to Mary, who's calling us from Fort Worth, Texas. Good morning, Mary. Thanks for calling.
MARYI have a question about the Keystone pipeline.
MARYI live in Texas, of course, and we're getting mixed messages. One of them is that oil would come from Canada and go to the Gulf Coast and be sold to foreign countries. In our area, you know, we keep hearing that it would be a great way to lower prices for oil in -- you know, in our country. I would like clarification of exactly what Keystone would -- what impact it would have and where the oil would go.
GJELTENAnd, Mary, where are you getting these messages from?
GJELTENOK. Robin, do you want to explain how the media is getting the story right or wrong?
WESTWell, I think Mary's right in the sense, is that the more oil that comes down, it would not be oil being exported. But what would happen is there's a huge refining center in Houston, and that petroleum products would be exported. Most people don't realize now that petroleum products is now the largest export account in the United States of anything. It used to be the sale of aircraft, internationally. And now it's petroleum products. So, again, it's -- we're part of a world market, and this would be part of that.
GJELTENLet's go now to Lovell, (sp?) who's calling us from Atlanta, Ga. Good morning, Lovell. Thanks for calling "The Diane Rehm Show."
LOVELLThanks for taking my call.
LOVELLMy comment is we -- this country has enough oil to -- in the reserves to last six months without raising the prices. Why can't the houses work with this president to allow us to do that?
GJELTENYou mean from the strategic petroleum reserve.
GJELTENDean Baker, what's your thoughts about whether this would make sense or not to tap that reserve? As Lovell says, that certainly would have a moderating effect on gas prices, one would think.
BAKERWell, it would. But, I mean, the question is, are we looking at sort of a short-term story where we have a spike in prices that's going to come back down, or is this part of a longer term phenomena that we're going to be seeing rising prices going forward? And that's certainly not clear. And if it is the case that we are going to see rising prices going forward, you know, we could tap the reserves and bring prices down, you know, 30, 40, 50 cents a gallon now.
BAKERBut, you know, a few years from now, at some point, we don't have the reserves there, and we're back with higher prices. We haven't really done very much.
GJELTENRobin, you've been -- you've argued that that's not -- we don't -- we're not in an emergency situation. I mean, we're not at war yet, right? So...
WESTNo, it's -- you know, if there's a war with Iran or if there's an interruption of supply, I think it's very important that the market understand that that oil is ready to go to the market. But the other thing that's important to remember, that we're part of the International Energy Agency, and we have a treaty. And this isn't meant to be manipulated by American politicians. This is meant to be coordinated with European and Japanese and other companies --- countries so that it really is a global solution, not just -- a long-term global issue, not just a short-term domestic political issue.
YDSTIEAnd it -- and isn't it -- it's not a problem of crude supply in the U.S. at this point in any case.
YDSTIEIt's a problem of refinery capacity that's online.
YDSTIESo releasing oil from the petroleum reserve might not help at all. It might bring the world price of oil down a bit and affect things a bit, but it wouldn't get to the heart of the problem.
GJELTENI want to go quickly to Lisa, who's calling us from Clarkston, Mo. Lisa, what's your question this morning for our panel? Good morning.
LISAHi. Thanks for taking my call. You know, I just kind of get frustrated with all this talk, that I just wonder -- all the Americans, have we all lost our minds and lost the ability to think? Because I feel like there's so much continuous discussion about, should we drill more? You know, do we want to be involved in foreign oil? And I understand why we don't want to get off oil in general, and it's very obvious to me that we're all getting (word?). 'Cause everyone is so passionate about drilling, it seems like a lot of them are so financially -- and, obviously, they're making money off of it.
LISAAnd it's just like, man, if we could open up electric facilities, have the government help us with foreign -- you know, to get electric cars, we could just get us all together and stop polluting our oceans and...
GJELTENAll right. You know what? I'm going to put that question to our panel. But first I want to take a short break, and we'll be right back. This is "The Diane Rehm Show."
GJELTENWelcome back. I'm Tom Gjelten, sitting in for Diane Rehm today. And we're talking about the situation with gas prices, high gas prices. Our guests are Dean Baker from the Center for Economic and Policy Research, John Ydstie from NPR, Coral Davenport for -- from National Journal, and Robin West, the chairman of PFC Energy, which is an energy consulting firm. And, just before the break, Lisa, who was calling us from Michigan, (sic) wanted to know why everyone is talking about more drilling and more energy production instead of using more electric cars, for example.
GJELTENAnd Lisa is still on the line, so we can go back to her. But, first, anyone here on the panel want to take this issue? Coral Davenport.
DAVENPORTSure. I mean, this is something that energy economists say again and again. You know, as we said at the top of the hour, there's nothing the president can do about the price of gasoline or about the price of oil. The one thing -- the one policy that we can really pursue is using less of it and needing less of it. And that's really been, to date, the president's most successful energy policy. He has mandated an increase in gasoline mileage for vehicle fuel economy for 54 miles per gallon fuel economy average cars by 2025.
DAVENPORTAnd if you're driving a car that averages 55 miles per gallon, it matters a lot less what the price of gasoline is. If you -- you know, if gas is $4 or $5, $6 a gallon and you have a car that averages 25 or 30 miles per gallon, it's going to hurt a lot more. If you have a car that gets 55 miles per gallon, you're going to need a lot less gas. You're going to spend a lot less money. Even if that gas is much higher, it's going to take a lot less out of your pocketbook. It's going to hurt the economy less.
DAVENPORTAnd that's been the policy that this administration has tried to pursue. And, certainly, you know, economists have said this fuel efficiency mandate is forcing American auto companies to build these fuel efficient cars and these electric cars.
WESTJust to quickly jump on the other -- sorry to that.
WESTYou know, again, with the drilling, there's only so much we could do in terms of the U.S. market because we are in a world market.
WESTSo even if we did drill everywhere, increased production, that has very little impact on world prices, so, insofar as we want to help people out of this situation, we really have to look the route of fuel efficiency at least in the longer term.
GJELTENAnd we've made tremendous progress in that, haven't we?
GJELTENNow, Lisa, I'm sorry I had to cut you off before the break. You mentioned electric vehicles. Is -- are you sort of committed to electric vehicles? Or are you -- would you be satisfied if we just produced much more efficient gasoline cars?
LISAWell, I guess that I view it as an answer to -- it's a two part answer really quickly. But I can't believe -- the reason why I'm so gung -- just want to do the electric is because look at how quickly people are so willing to say, let's drill, let's (word?). Does no one have kids? Does no one enjoy going to the ocean for vacations? Has everyone lost their mind with how quickly it takes to destroy our ecosystem? I mean, that's no joke. And so I -- let's do electric. Let's do it. I mean, where else -- we've got wind power. We've got the sun.
LISAWe've got the ocean. I mean, have -- why can't people start thinking independently and realize we've just got to be efficient? It makes so much sense. I just (unintelligible).
GJELTENRight. OK, Lisa. Thanks very much. Alternative energy, renewable sources, John Ydstie, what's the story?
YDSTIEWell, I think that the big story right now, actually, is natural gas production in the United States and the impact that that might have on the environment. I know it's very controversial, the fracking that's going on to release natural gas from shale. But the potential for that to take the place of coal in generating electricity that might power electric cars is a real revolution in the country right now. And Robin has studied that to a great extent and can tell us more about it. But, you know, I think, obviously, we need to try to wean ourselves out of fossil fuels.
YDSTIEThe idea in the past was that maybe we'd go to nuclear or some other kind of alternative energies. Right now, the low-cost natural gas suggests that it's twice as clean as coal, and it might be a bridge to a renewable future.
GJELTENWell, Robin, this administration has been committed to subsidizing renewable sources. But how could the alternative energy sector do, in your judgment, without government help?
WESTWell, I think that the alternative energy sector would do very poorly, effectively be nonexistent, and that -- I think that listeners obviously cares a lot, but the problem with energy is energy involves things like resources, regulation, technology and things like that. And, often, when people talk about it in political and emotional terms, it doesn't really solve the problem. And, basically, if something isn't scalable, meaning can be very big, and if it isn't commercial, meaning people can afford it, it's irrelevant.
WESTAnd, for example, in electric cars, the ambition of the administration was to get a million electric cars on the road by 2015. The fact of the matter is they're not going to, A, get close. And, B, we have 280 million cars on the road in America. So it's not material, even if they succeeded, and they're not going to. And I think that my -- I think the government -- and this isn't a political or partisan comment because administrations, Republican and Democrat, have consistently failed in terms of picking technologies. Markets work. That's why the natural gas has come on the market.
WESTBut, by the same token, I think the government does have a role in terms of a basic research encouraging certain...
GJELTENBasic research into what?
WESTBasic energy research into certain kinds of technology that might be applied, but, in the end, it's going to -- the market's going to drive all this.
GJELTENCoral, it's hard to argue with those facts, isn't it?
DAVENPORTAbsolutely. I want to get to Robin's point, but also with Lisa's frustration about, you know, why can't we just change this now, make the switch right now to electric vehicles or even to much more fuel-efficient cars or to not needing drilling. And one of the biggest problem, both, you know, in terms of policy and politics of energy, is that implementing a meaningful energy strategy takes a long, long time. I mean, even this, you know, new fuel-efficient mandate that the Obama administration has put forth, we're not going to see that in place -- it's not going to be fully enacted until 2025.
DAVENPORTWe're not going to see major changes on how it impacts U.S. gasoline or oil demand until 2017 which, you know, is -- that's not going to happen until after whoever wins the election this fall is already out of office. So whoever is the president in 2017 is probably going to enjoy a period of decreased demand, increased fuel efficiency and all the benefits to the economy that that will convey. But even that's just a few years out.
DAVENPORTI mean -- and so the problem is energy policy, long term, big picture, you know, pay a lot now, invest a lot now, be willing to accept some failures in order to get a benefit in 10 or 15 or 20 years does not fit at all into today's short-term political cycle. There's absolutely -- you know, no policy that anyone can embrace or implement right now that will make a difference, not only before the election but even within the time period of, you know, 2, 4, 6 years, as long as U.S. elected officials are in office, so that's another significant disconnect in this debate.
GJELTENWell, I want to raise another issue here, talking about long-term approaches to this. We have an email from Dick, who, I believe, is a farmer. And he says -- he points out that: "Back in the 1980s when the price of soybeans went up to about $10 to $12, our export contracts to the Far East were canceled. We farmers could not sell to Japan and others because the government wished to keep the prices low here on this side."
GJELTENNow, he points out, Dean Baker, that the U.S. is a net exporter of oil, and I think he's wondering why couldn't the United States sort of manipulate trade, like it did with soybeans 30 years ago, in order to keep prices lower here.
BAKERI think he means a net exporter of refined products and not a net exporter of petroleum in general.
GJELTENRight. Yeah. Right.
BAKERWe could do that, but you get retaliation. I mean, it's not as though we're going to have some free lunch there. So, you know, we obviously could do this. And sometimes you will do that as a short-term measure, prohibit exports. I forget -- I don't know the exact circumstances of the soybean situation. In general, I don't think that's a good policy. Let me just very quickly jump back to the fracking 'cause there are a couple important points. First off, that technology was developed by the government.
BAKERSo, you know, if we would just want the market, that was developed with a lot of government support, but the other thing is it's not clear that that's very clean. Joe Nocera at The New York Times had a piece this morning implying that 20 percent of greenhouse gas submissions are resulting from the methane released in the fracking process. Now, I don't know if that's right, but if anything close to that is right, that suggests it's not a clean fuel. And, you know, I think there's a lot uncertainty about that.
GJELTENWell, I think the issue is whether it's cleaner than coal. And I know that this is a kind of a bugaboo for you, Robin, the role of the government in supporting or researching to fracking technology.
WESTYeah, I know. The government played some role 30 years ago, but it was really the commercial application of the independent oil companies that pushed this. Furthermore, the other thing that's important is that this huge -- the shale gale took place in spite of, not because of, the federal government. And, virtually, all of the activities, all the drilling has taken place in state and private land. The federal government has contributed nothing to this extraordinary transformation of the American energy situation.
GJELTENOK. Let's go now to Lisa, who's calling us from Williamsburg, Va. Good morning, Lisa. Thanks for calling. You're on "The Diane Rehm Show."
LISAYes. Good morning. Yeah, I was -- I don't know if I should say alarmed or amused when Newt Gingrich proposed that he was going to try and reduce the price of gas to $2.50. I don't know exactly how he would manage to accomplish that once he -- if he were to win the election. But it seems to me that that's not the sort of thing we want to do. I mean, you know, I'm not interested in paying more for gas than I have to, but, on the other hand, a higher price does kind of offer a restraint on usage.
LISAAnd I'm afraid that if we were to succeed in doing that, that it would reduce or further discourage conservation.
GJELTENJohn Ydstie, you have a thought on that?
YDSTIEWell, I think it's true. A reason -- one of the reasons we're selling so many high -- fuel-efficiency cars is because the price of gasoline is high. And so, you know, I don't think that the government ought to be in the business of trying to drive the price of gasoline down certainly, so, yeah.
GJELTENRobin, we have an email from Marge in Virginia. And, actually, there are a lot along this line who are interested in the oil companies, the profits they're making, the support, the subsidies they're getting. Marge wonders, "As oil companies receive substantial government support in the form of tax breaks and subsidies, it's hard to claim they're operating in a free market. There are oil companies that pay very little or no federal taxes." Are we going to go this whole hour without letting the oil companies off the hook here?
WESTWell, I -- it's always fun to demonize the oil companies, but the facts are not quite as people perceive. First thing, the big oil companies now don't receive any tax benefit that other large international companies get. They don't get any special treatment. The second thing is that what people don't understand about the oil industry, these companies are huge. They generate enormous profits, enormous cash flow, but they reinvest that money. That's the key thing in this business.
WESTAnd you might ask, why is it that Exxon or Chevron, which are enormous and very profitable companies, have, say, $20 billion in cash and Apple has $100 billion in cash? And the reason is, is that Apple doesn't have to reinvest. And, you know, a company like Chevron is investing $40 billion in a single liquefied natural gas project in Australia. I mean, this is an enormous industry. It's on a giant treadmill, in effect.
WESTThey have to make a lot of money, and they have to reinvest a lot of money. So I think, yeah, they're big. They should not be mistaken for the little sisters of charity. But, by the same token, they don't get extraordinary returns.
GJELTENI'm Tom Gjelten. You're listening to "The Diane Rehm Show." Dean Baker, is there anything that you -- that troubles you about the listener who wrote about support in the form of tax breaks and subsidies? Are there any issues there that we need be highlighting?
BAKERWell, there certainly are a lot of cases when you look at some of the tax issues. I mean, these are not first order in the sense that you won't be seeing their profits plummet, but there are a lot of aspects to the tax treatment of oil that you could question. You can question whether they're paying market value on all the public lands where they're drilling. You know, I can't pretend that would hugely change their profit situation, though.
BAKERBut, I think, it certainly makes sense to scrutinize, make sure that we're getting fair market value in all their leases and that, you know, there are certainly some tax breaks that, you know, are very questionable.
GJELTENAnd do you -- are you one of those who demonizes the oil companies or do you, as Robin points out, do you understand that, you know, that investment -- reinvestment is a really important priority for companies in the oil sector?
BAKERWell, I wouldn't necessarily say demonize, but I think there's an important point here. When you have a big run-up in oil prices, more than what we had now, say, going back to '08, where prices rose very quickly, clearly, there were windfall profits there. And there's certainly an issue as to whether it'd be appropriate to say, OK, maybe we're going to tax back some of those profits. And, you know, that's, you know, as it turned out, price, of course, subsequently plummeted. It's hard to see great harm that would have been done in that situation.
GJELTENLet's go now to Scott, who's calling us from Davie, Fla. Good morning, Scott.
SCOTTGood morning. I just want to address the point that Robin made several times that there's nothing the president can do to affect gasoline prices, and I...
GJELTENCoral -- everybody's made that point actually this morning.
SCOTTOK. And I recall, you know, in '07 and '08 when gasoline was higher than it is now, the administration issued an executive order lifting a moratorium on offshore drilling. And as if by magic, within months, the price was under $2 a gallon, so I was wondering if your guests could comment on that.
GJELTENWas it magic, Robin?
WESTIt was not magic. It was coincidence.
WESTAnd I used to run the offshore leasing program.
GJELTENI know you did.
WESTI can assure you that the one event was completely unconnected to the other.
BAKERA way to collapse the world economy.
GJELTENRight. You know, one issue that we have not talked about a lot -- and we're sort of running up against the end of the program -- is the prospect of disruption of the oil market due to what's going on around Iran. Robin, there is this concept, the risk premium in the oil price. How much of a risk premium -- how much of the price of oil right now is based just on jitters around Iran and not on objective empirical factors?
WESTThere -- that's kind of hard to answer because you don't know exactly, and there isn't -- it doesn't break under risk premium. Remember, as I said, there are other places in the world where production has fallen off, such as South Sudan and Yemen and in the North Sea for other reasons. And so, I mean, I think there is certainly a risk premium -- my guess would be in the order of $15 a barrel, something like that.
BAKERBut it's important to remember also that the most widely traded oil, most widely quoted oil price is what's called Brent, which is a North Sea oil price, and that's really the global price, not WTI, the American price. And Brent's $15 a barrel higher than us here, and that reflects a lot of the jitters in the world even more so.
GJELTENDean Baker, do you have any thoughts on that?
BAKERWell, I think that's pretty much in the ballpark. I mean, I don't have, you know, sort of, someone give me the exact number, but I think somewhere on $15 a barrel. You know, it could be a little higher, could be a little lower. And, you know, again, if there were something we could do to assure people that we could resolve that peacefully, that'd be a great thing, you know, both 'cause we don't want the war, I don't think, and great to get the price of oil down.
GJELTENOK. Dean Baker, he's the author of "The End of Loser Liberalism: Making Markets Progressive." He's co-director of the Center for Economic and Policy Research. I've also been joined this morning by John Ydstie, the economics correspondent at NPR, Coral Davenport, energy and environment correspondent for the National Journal, and J. Robinson West, chairman of PFC Energy, an energy consulting firm. I'm Tom Gjelten, sitting in today for Diane Rehm. Thanks for listening.
ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Denise Couture, Monique Nazareth, Nikki Jecks, Susan Nabors and Lisa Dunn, and the engineer is Tobey Schreiner. A.C. Valdez answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales. Call 202-885-1200 for more information.
Most Recent Shows
President Trump’s Surprise Deal With Congressional Democrats And Understanding The North Korean Threat
President Trump's surprise move to side with congressional Democrats on a short term fix for government funding and the debt ceiling raises new questions about other legislative agenda items: What's likely to get done and what's not, and then, understanding the threat from North Korea.
Trumps disparages his Attorney General, Senate Republicans try to overcome differences on healthcare, and Democratic leaders try to re-engage with voters: NY Times reporter Peter Baker on what's going on in Washington and Democrat Jason Kander on how the Democratic Party can grab the momentum.
CNN senior congressional reporter, Manu Raju, on healthcare, meetings with Russians and other Washington news stories, then, how smart phones could be used to help treat diagnose and treat mental illness