First, in the course of opening comments and questions, the co-anchors pressed Pickens on his views for oil and other energy prices in the coming year. Noting that he had correctly predicted $100+/bbl oil, Boone gave a rough forecast of softening prices from now until mid-year, followed by higher prices after that. He said the same for natural gas.
The CNBC staff immediately asked if he was now short oil and natural gas. After a moment's thought, in which he obviously considered being coy, Boone said "yes" to each question.
Within moments, futures on both commodities were trading down. It was reported that the major newswires immediately published Boone's remarks on his pricing views and short positions.
But that's not what this post is about. Instead, it's about a topic related to this post of a few days ago.
Pickens remarked that he had lain awake in bed the night before thinking about the topic, it was so important. He reinforced that, saying it was bigger than being long or short oil, or making money in his fund by his prescient energy price calls.
What Boone Pickens worries about is the $500B per year that the US now pays foreign oil producers to import the precious commodity. Half a trillion dollars. That's how Boone put it.
More than $1B per day.
This morning on CNBC, AutoNation CEO Mike Jackson reiterated Boone's concerns, citing the need for higher oil and gasoline prices, if the US is ever to reverse this trend.
Boone went on to extol the benefits and practicality, feasibility, of wind power across the Midwest and Southwest US, and solar energy development in the latter region, mentioning Sweetwater, Texas by name as a model for economic redevelopment in concert with clean, domestically-produced energy.
Boone went on to cite, as I noted in that prior post, the continuing trend toward nationalization of oil reserves. He pointed out that Exxon pumps only 3% of the world's current 85B bbls pumped per day. He then cited a statistic that the US has 5% of the world's population, but consumes 25% of its oil production. That this "isn't fair."
Maybe, maybe not.
So here's my question: what if Boone, though well-intentioned, is wrong?
Could he be overlooking Ricardian economics?
How much do we export? Is our oil usage for our 300MM population, or our 25% of global GDP? on the latter basis, it seems actually fair.
Don't we effectively produce for export, as well? Can you actually align US oil consumption purely with domestic consumption, or is it, in a value-added-chain manner, an input into GDP, too? Don't our exports of intellectual property-based value-added goods and services represent a usage of imported oil? Just like we import aluminum, steel, titanium, diamonds, and a dozen other important, necessary commodities for manufacture of US-sourced goods?
I'm reminded of the pre-Ricardian economic comments of one of the men we honor on President's Day. It's the wrong one for today, unfortunately, it being the birthday of our country's first President, George Washington. But Abraham Lincoln is remembered, and occasionally quoted, a la Boone Pickens' remarks yesterday, for this quote, contained in remarks by former Fed Bank President Bob McTeer, in this piece,
"For example, Abraham Lincoln was a very good amateur economist, as I will show later. But he wasn't good enough to get international trade right. Here's what he is supposed to have said about tariffs: "I don't know much about the tariff, but I know this. If I buy a coat in England, I get the coat and England gets the money. If I buy a coat in America, I get the coat and America gets the money." "
That's how I remember the quote as well. And I was born in Illinois- does that count?
By extension, Pickens' and Lincoln's views become one of zero trade. Anything that sends our currency overseas, creating external liabilities, is to be shunned.
But where do you draw the line? Can Boone, or any of us, really know just how much of the $500B annually that we send overseas for oil is 'too much,' given that we use that energy, rather than other, assumedly less efficient domestic sources, to create value?
If we could stop buying foreign oil tomorrow, and, instead, use the $500B to buy onshore energy, would we accidentally reduce our resource productivity, make our exports more expensive, lower our domestic standard of living and, in the end, actually damage our long term economic prospects?
So long as we create value with the imported oil, and the dollars we pay for it are not being used with malicious intent toward us, what's the problem?
I think it's that second clause that is the issue. It was in the prior post, where I noted that the desire of other, oil reserve-owning nations to effectively withdraw from tradeable energy spot markets, makes the whole game different.
But it's not about trade balances, per se. It's about the motives of our putative trading partners, isn't it?
In effect, it's less about economics and productivity than it is about long term national security. And again, as I wrote in this post,
"Rather than global warming or clean air, I think the Journal piece reveals what's really going to drive new energy technologies in the West."
And that was the Saudi plans to consume more of their own oil, eventually changing the economics of many things- aluminum and other basic materials' production economics, oil pricing and supply.
That said, I think Boone is right to simply call attention to the outflow of half a trillion dollars annually for oil. But while he's at it, why don't we tote up the bill for various other commodities, in order to understand just how much we pay, and for what, in order to drive our current economy?
In the end, it's not about oil, is it? It's about creating dollar liabilities in the hands of those who don't wish to merely use them to trade, but, potentially, use them for purposes calculated to undermine our country's long term welfare.
And that's a different issue entirely.
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