Oil prices and Obama’s dilemma
posted at 10:20 am on October 15, 2008 by Ed Morrissey
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One of the few bright spots in the current financial debacle has been the rapid decline of oil prices. Earlier this year, oil hit an all-time high of $147 per barrel. As of this morning, however, oil dropped below $76 per barrel — almost half of what it cost just a few weeks ago:
Oil prices fell on Wednesday to their lowest level in 13 months, dragged down by expectations that economic weakness will cut further into demand for crude.
U.S. crude fell to $75.62 a barrel, the lowest price since September last year. By 1144 it had pared the loss and was trading $2.67 lower at $75.96. London Brent crude dropped by $2.58 cents to $71.95.
The drop reflects the lack of confidence in the economy, as traders have bet on a recession, and recessions use less energy as manufacturing and transportation decline. Low energy prices, though, will keep inflation in check and provide a key resource for a recovery. It’s a mix of bad and good news, and is operating as normally as anything is at the moment on the markets. OPEC supposedly was going to defend the $80 benchmark price, but thus far has done little to stop the slide of oil. It may fall even further in the days ahead, and could have a bottom closer to $50 per barrel.
However, one aspect of low oil prices has not received much attention. Barack Obama plans to spend hundreds of billions of dollars if elected President on a wide range of government initiatives. He claims to have the resources to spend that money responsibly, in part by imposing windfall-profits taxes on Big Oil:
- Enact a Windfall Profits Tax to Provide a $1,000 Emergency Energy Rebate to American Families:Barack Obama and Joe Biden will enact a windfall profits tax on excessive oil company profits to give American families an immediate $1,000 emergency energy rebate to help families pay rising bills. This relief would be a down payment on the Obama-Biden long-term plan to provide middle-class families with at least $1,000 per year in permanent tax relief.
- Provide $50 billion to Jumpstart the Economy and Prevent 1 Million Americans from Losing Their Jobs: This relief would include a $25 billion State Growth Fund to prevent state and local cuts in health, education, housing, and heating assistance or counterproductive increases in property taxes, tolls or fees. The Obama-Biden relief plan will also include $25 billion in a Jobs and Growth Fund to prevent cutbacks in road and bridge maintenance and fund school repair – all to save more than 1 million jobs in danger of being cut.
That option seems off the table now. The “windfall profits” tax — always a bit of a misnomer, since the average margin for American oil companies has been around a modest 8% — can’t get applied when the supposed windfall disappears. Obama can’t redistribute wealth that doesn’t exist.
So now how does Obama pay for all of these programs, if elected President? Taxing the rich won’t generate the kind of money he envisions in his ambitious, big-government spending spree. Even if a capital-gains tax-rate hike actually produced more revenue, one would have to have capital gains in order to pay the tax. After the debacle this year on the markets and in the real-estate industry, Obama won’t be seeing those kinds of revenues for years.
Either Obama will have to cancel these big-spending proposals, or he will have to impose big tax hikes on the middle class. Even if Obama closed the Department of Defense, he couldn’t pay for the bailout package and the massive new spending he’s proposed, especially not without the hundreds of billions he predicted he would get from a windfall-profits tax on oil companies.
Obama has another option. He could act in such a manner as to make the price of oil skyrocket again in order to claim those windfall-profits taxes. It would produce massive stagflation in the midst of a recession and would benefit the Russians and Iranians most, but it would produce on paper the conditions Obama would need to impose his taxes and his spending programs.
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Hey Arab countries! How’s that fall in prices grabbing you?
amerpundit on October 15, 2008 at 10:22 AM
Instead of a national lottery when Barry’s elected, the country can just rely on a new source of gambling revenue – Russian Roulette.
Because if the country elects an unqualified, unaccomplished, corrupt and incompetent criminal like Barry O’Bama to the White House, we’re playing Russian Roulette with the future of our country.
NoDonkey on October 15, 2008 at 10:22 AM
I would be SHOCKED if Obama did this for political gain!!!!!
(snicker)
tottoritodd on October 15, 2008 at 10:22 AM
the Russian part of this may well have Putin holding the gun
jp on October 15, 2008 at 10:25 AM
Another opportunity for Mccain to confront Obama.
promachus on October 15, 2008 at 10:26 AM
There is a real downside to low oil prices and that is that it makes alternative petroleum and alternative energy source development less attractive financially. Keeping the price around $100 a barrel is probably best for us in the mid-to-long term.
njcommuter on October 15, 2008 at 10:28 AM
I think the answer is obvious. He simply needs to tax “the rich” 100%! Problem solved.
Star20 on October 15, 2008 at 10:28 AM
1. He can say right after the election (like Clinton): “Sorry, I lied. Here’s your middle class tax increase.”
2. He already has plans to spike the price of oil. He is going to pull our troops out of Iraq, opening the field for Wahabbists to attack Saudi, and close the Straits.
Vashta.Nerada on October 15, 2008 at 10:28 AM
Hugo Chavez
How you like OUR(USA’s) cash now?!
Kevin43 on October 15, 2008 at 10:29 AM
He already does hold the gun, and he has proven he will not hesitate.
Marine_Bio on October 15, 2008 at 10:29 AM
What? Obama destroy our economy? No way. Country first, right?
Don’t worry. Oil prices again will rise simply by Obama being elected. The world becomes a substantially more dangerous place because the largest “keeper of the peace,” the United States, will have chosen to seriously weaken ourselves.
So, hey, problem solved, right? ugh!
Sugar Land on October 15, 2008 at 10:30 AM
Hm. An analysis to make me think.
I like that.
Bob's Kid on October 15, 2008 at 10:31 AM
Ed,
I was driving around town yesterday and I was thinking the drop in oil price is actually damaging for McCain. A few months ago we were all atwitter about how powerful as an issue energy was, and how American production and independence would resonate with the electorate because of soaring prices.
With oil at $2.99 it becomes one less issue that J Mac has going for him.
Lehosh on October 15, 2008 at 10:31 AM
The Obama could always invoke the Zimbabwe option; print money. It seems to work so well, ya know?
rockhauler on October 15, 2008 at 10:32 AM
The only bad thing about this drop in crude is what it means to our domestic production. Is there any incentive now for drilling of either coast or in ANWAR?
I remember the oil shale industry gearing up and collapsing in CO during the 80’s when gas went from a high cost per gallon in the late 70s/esrly 80’s to under a $1/gal in the mid 80s.
Rich on October 15, 2008 at 10:34 AM
I say it’s time to drive the final nail into the oil despot’s coffin and begin producing USOil.
See how far oil despots get with $30/barrel gas.
BKennedy on October 15, 2008 at 10:35 AM
Smart move, Odummy, hit us with the usual liberal regressive tax. Do you fools ever think or is everything simply reactive?
Bishop on October 15, 2008 at 10:35 AM
I disagree. The pain is still fresh, and I think most americans now understand that there is an inherent vulnerability of our economy to the volatility of the market price of oil.
I think all McCain has to do is slightly modify the mantra about energy to talk about keeping prices low by drilling here.
Marine_Bio on October 15, 2008 at 10:36 AM
No, Ed. It’s pure good news. Falling oil prices are good for the economy. The supposed reason for the fall isn’t important.
For the record, I truly believe that prices are falling because speculators are dumping their oil futures positions (margin calls, etc).
blink on October 15, 2008 at 10:38 AM
The only bad thing about this drop in crude is what it means to our domestic production. Is there any incentive now for drilling of either coast or in ANWAR?
Yes, along with building nuke plants, harvesting nat gas and mining like Moria-Dwarves for coal, drilling would create an employment bonanza which would make the post WWII labor surge seem like a blip.
Bishop on October 15, 2008 at 10:39 AM
Have no fear, oil prices will rebound as the economy begins to recover and after the Dems make drilling bans “permanent”.
My prediction is $120/bbl by late July.
DerKrieger on October 15, 2008 at 10:39 AM
OT – apologies in advance, Ed please delete if inappropriate -
As noted by Byron York at The Corner, Kos’ dream scenario from his Dear Leader Obama’s upcoming victory.
I recommend reading the comments at the Kos link York provides. Let’s just say that the term “thugocracy” now sounds far too mild for what these people so fervently desire.
Gilda on October 15, 2008 at 10:39 AM
I think all McCain has to do is slightly modify the mantra about energy to talk about keeping prices low by drilling here.
Marine_Bio on October 15, 2008 at 10:36 AM
Spot on. Remind Americans that a simple production cap by OPEC could drive the price right back up, and that we need to be able to withstand such an event by having our own supplies.
Bishop on October 15, 2008 at 10:41 AM
After all these decades Democrats still do not understand basic economics. Or else they do but know that most Americans don’t. Otherwise how do you explain their never ending calls for windfall profits taxes and higher corporate taxes which any thinking person knows will just be passed on to consumers via higher prices.
DerKrieger on October 15, 2008 at 10:41 AM
Ding ding ding ding ding!
This is what he’ll do, with the eager help of a Dem-led Congress.
aero on October 15, 2008 at 10:42 AM
Two excellent points.
I remember Clinton going on TV and saying, “I’ve worked harder than I ever have trying to keep my campaign promises…but I failed…oh well, sorry.”
blink on October 15, 2008 at 10:43 AM
At what point does Iran, Venezuela or Russia do something truly insane to push the price back up? Those three economies need something in the range of $130…
Watch our collective backs….
CC – BHO: “my Muslim faith”
CapedConservative on October 15, 2008 at 10:44 AM
George W. Bush got blamed for the recession that began during the Clinton administration and continued a bit longer despite his 2001 tax cuts due to 9/11. So, as ACORN did much to create the current financial crisis and Obama litigated for ACORN to intimigate banks into giving reparation loans, plus funded and trained ACORN to steal elections, will Obama get blamed for the coming recession/depression?
Nah. It’s all George Bush’s fault. What was I thinking?
Sergeant Tim on October 15, 2008 at 10:46 AM
I disagree. It would have to be done artificially. Never a good option. Alternative sources of energy will become viable when they can compete. Nuclear could do that if they weren’t demonized. And there is plenty of waste in others that go into some folks pockets.
Let ingenuity loose and the marketplace will will chose.
It will also show the hypocrisy of those who want to go green but are unwilling to pay more for it.
cozmo on October 15, 2008 at 10:47 AM
After Chuck Schumer jump-started the bank failure epidemic and Harry Reid tanked insurance stocks with rumors from the Senate floor, propping up the price of oil should be child’s play…
Surely there is something in the failed policies of the Bush Administration they can blame it on…
Anything to advance the cause
DJ Dubya on October 15, 2008 at 10:47 AM
I’m no expert on the bubble burst in Japan in the 1990′S, but I live here now, and teach some of the more educated and well off citizens. People here believe that they CAN’T change anything.
After just finishing the WSJ piece on the Dems’s (Pelosie’s) $300 billion simulus package, I am terrified of the future.
Seeing a small hole dug in a sidewalk (in Japan) that has one guy with a shovel and 5 guys with flags directing traffic, while at first kinda funny, just took on a whole new perspective.
So many people are dependent on the government here. There is no entrepeneurship at a local level because there is no hope.
The Dems’s talk about how much Iraq has cost but the new bailout and stimulus cost more then the entire war in a matter of DAYS!!!!!
Japan is a great country with wonderful, smart people. But they weren’t willing to take the short term pain to lead to continued growth. Now they have been in a recession for almost twenty years.
Combine the same situation in the US today, with a guy as ruthless as Obama, and it looks scary. I have faith in my fellow citizens. But this will be very, very hard to climb out of if the worst case happens. I hope that despite our differences we can still muster the support we need to avoid slipping down this slope now.
tottoritodd on October 15, 2008 at 10:48 AM
That’s always going to be a problem. Tax the productive companies, they go elsewhere. Tax the productive workers, they go (the term du jour) “John Galt” or look for their handout too. But, hey, let’s try the experiment for a little while, should be fun.
LastRick on October 15, 2008 at 10:48 AM
Whenever I hear windfall profits and how democrats want to tax the profiteers… I laugh because their next logical target or in fact original target would be Intel whose profits margins are almost always in the 50+% range..
Easier to scapegoat ‘big oil”…
theblacksheepwasright on October 15, 2008 at 10:51 AM
No.
No.
He will go with Option (C), which is to sell Alaska back to the Russians. Benefits his commie friends and pays for all his domestic spending at once, see?
RushBaby on October 15, 2008 at 10:52 AM
Modified!
Rovin on October 15, 2008 at 10:53 AM
How would he do that? I know he is Barnac the Magnificent, but still.
MB4 on October 15, 2008 at 11:00 AM
Pelosi wants a $300 billion
porkstimulus package. Where is that money coming from? I guess the last $700 billion was conjured up by Congress’ magic wand?obladioblada on October 15, 2008 at 11:00 AM
Stack on top of artificially causing oil prices to rise with a Pres. Obama’s drive to stifle domestic oil production and Jimmie Carter couldn’t be prouder.
Speakup on October 15, 2008 at 11:00 AM
How would he do that? Easy answer… get elected.
CC – BHO: “my Muslim faith”
CapedConservative on October 15, 2008 at 11:03 AM
Yes I showed that in Georgia didn’t I? Yes I sure did. Alabama is next.
PootyPoot on October 15, 2008 at 11:04 AM
Are you questioning Dear Leader? He’s the messiah… he can do anything. Where have you been?
Abby Adams on October 15, 2008 at 11:08 AM
So what are you saying? That on November 5, 2008 the price of a barrel of oil will go to $200? $300? I guess we all better put all our 401k’s in oil stocks. You first.
MB4 on October 15, 2008 at 11:08 AM
Someone in Congress needs to propose a Truth In Taxing Act that would require all spending proposals to be accompanied by law, every single time they are discussed by a candidate for Congress or the executive, to be accompanied by the phrase “taxes will be raised on the American people by $XXXXXXXXX dollars to pay for this initiative” (adding as many Xs as needed), or enumerate a list of existing government programs that will be cut to provide the funding. Failure to comply with this law should be punishable by the same kind of fines that McCain-Feingold throws at private citizens who dare to criticize the political class within a month of the election, or a severe beating by a group of Obama’s brownshirts, depending on how things go in November.
Doctor Zero on October 15, 2008 at 11:09 AM
…Obama…he suffers if the nation prospers…and, if it prospers, he’ll penalize their success with taxes….
…so, he pulls for America to suffer…how, then, is he different from any other enemy this nation’s ever faced?
Puritan1648 on October 15, 2008 at 11:09 AM
Let’s not give him any ideas…
Rick on October 15, 2008 at 11:11 AM
You’re missing two key components of Barry’s agenda.
First is that he WILL still raise taxes on oil companies making it less profitable to drill here.
He will also allow gas prices to rise, while subsidizing the “poor” because, as he has stated, he wants high gas prices so force us to use less oil.
His government mandated plan to get off of foreign oil in 10 years is IMPOSSIBLE… its just like the old Soviet Union Five year plans… all demand, with no plan…
Romeo13 on October 15, 2008 at 11:13 AM
Not enough revenue to support these proposals? Details. You’re being distracted by details. I’m confident the little squirrel can wriggle his way out of any serious accountability for the next three weeks. After that, Team Obama reasons, what difference does it make.
Remember, Obama’s mission is redistribution, not growth, truthfulness or stewardship.
My bet: he’ll do both. He’ll raise taxes on middle America and find a way to spike oil again. He lives in the pocket of the alternative energy industry.
With a veto-proof Senate, he may start executing Maxine Waters’ dream, nationalizing the energy sector.
petefrt on October 15, 2008 at 11:14 AM
Oh, and the Palin family and all the people in Alaska who contributed to her 80% approval rating get popped into the Gulag. Win-win-win for Barry!
RushBaby on October 15, 2008 at 11:18 AM
Forget Obama. McCain has promised to drill for oil when he is President, and build new nuclear facilities. Both options would greatly help America, and both options would be fought against by the Left…so let’s get McCain in there, and then hold his feet to the fire, so to speak. Let’s not just shrug our shoulders and say, “Campaign promises. They never work in the real world.”
We need oil and nuclear.
Also, I think that when McCain wins, our financials will improve, knowing that adults will be in charge for at least four years.
Doug on October 15, 2008 at 11:20 AM
Low oil prices = no windfall profit taxes.
A recession = no capital gains taxes.
You can’t redistribute wealth that does not exist.
McCain should bring this up in the debate tonight.
jellybelly on October 15, 2008 at 11:22 AM
“Gulag” is so passe, the new term is “Community Reinvestment Center.”
You get worked to death constructing facilities for the Collective, thereby reinvesting your labor in the community.
Your bones are ground-up for fertilizer; circle of life and all that.
Bishop on October 15, 2008 at 11:22 AM
Let’s start a pool. How many months into an Obama presidency until he says, “I am sorry but I have to raise everyone’s taxes because Bush left me with a mess.”
PattyJ on October 15, 2008 at 11:25 AM
3
petefrt on October 15, 2008 at 11:31 AM
When should we expect the One to change the stars on the flag to little hammers and sickles? All 57 of them.
Rick on October 15, 2008 at 11:33 AM
Left wing economic principles:
High Growth: Raise taxes
Moderate Growth: Raise taxes
Recession: Raise taxes
(The appeal of this theory is its simplicity.)
Farmer_Joe on October 15, 2008 at 11:35 AM
Remember Clinton? “I’ve worked harder than I ever have these past 3 weeks and I just can’t find a way to give you the tax cut I promised”
obladioblada on October 15, 2008 at 11:43 AM
Russian Roulette with an automatic…
DarkCurrent on October 15, 2008 at 11:49 AM
would this make Obama the Balrog?
MarkTheGreat on October 15, 2008 at 12:00 PM
Umm Ed.
You do realize this is taken from Sarah Palin’s energy rebate for Alaskans and her taxes on the oil companies.
At least the 1000 energy rebate you are speaking of.
How nice that Obama stole Sarah’s idea. What an Asshole!
upinak on October 15, 2008 at 12:02 PM
Did he really say that? Can you link the quote?
redshirt on October 15, 2008 at 12:06 PM
This was due the deficit being bigger than he he had expected. Funny thing is, during the campaign he had been telling people that the deficit was over $100Billion higher than the final number turned out to be.
Clinton lied about the tax cut.
Clinton lied about the reason why he had to do a tax increase rather than a tax cut.
The media never called him, rather they praised him for being a great statesman.
Why does anyone believe the media will do any less for Obama?
MarkTheGreat on October 15, 2008 at 12:12 PM
By Presidential Order… as for 401Ks… well that will be the covered by the Presidential Order that comes right before the oil price order. Anyone with a 401K is obviously part of “the rich”, so it will have to be confiscated for your own good and to share the wealth.
Actually, I doubt very seriously that Ms. Pelosi, Senator Reid and a President Obama will push hard on ANY drilling or alternative energy as long as Soros has $800 million plus invested in Petrobras. He won’t give them permission.
CC – BHO: “my Muslim faith”
CapedConservative on October 15, 2008 at 12:15 PM
I lived there during the height of the bubble and early stages of collapse. One big difference is the psychology. The vast majority of Japanese at the time thought Japan had pretty much achieved economic hegemony over the world and it would last forever. They just couldn’t comprehend any sort of reversal and were in denial for years, which greatly slowed down reaction. On the other hand, Americans always seem to feel the US economy is on the verge of collapse and seem to react more quickly to events. Unfortunately, like Japan, too much of that reaction is also to expect government to be the solution.
At least in the US we still don’t have traffic flag waving dummys protecting the guys watching the guy do the work…
DarkCurrent on October 15, 2008 at 12:16 PM
Couple of other countries are going to be hard hit with lower oil prices as well. Russia, Iran and Venezuela. Ol’ Hugo brought a lot of Russian military hardware with his ‘windfall oil profits’. With Russian oil income dropping from lower prices, I doubt they will look kindly on Hugo if he defaults. And the Iranians have been bolstering their flagging economy with the high oil prices as well.
GarandFan on October 15, 2008 at 12:17 PM
I forgot to add, here in China I usually only see 2 or 3 guys watching the guy who digs the holes, and they probably earn only a little more than the Japanese mannequins, while the guy digging earns less.
DarkCurrent on October 15, 2008 at 12:21 PM
Ive seen low-end projections of a $700 billion deficit this fiscal year.
Complete repeal of every single tax cut under Bush won’t cover even close to half of this- and Obama is (supposedly) only reverting the top 2 brackets.
So he’s going to have to go back on pretty much all of his campaign promises or take the honor from Bush as being the most fiscally irresponsible president in history.
I think the way things are going it will actually be both.
Chuck Schick on October 15, 2008 at 12:27 PM
Obama has another option. He could act in such a manner as to make the price of oil skyrocket again
How would he do that? I know he is Barnac the Magnificent, but still.
MB4 on October 15, 2008 at 11:00 AM
MB4, with a dem congress and house do you really need to think how obama could effect oil prices?
besides additional barriers he could implement towards oil exploration have you ever heard of KYOTO?
Sonosam on October 15, 2008 at 12:31 PM
That may be fine for enviro nuts, but the US economy cannot handle gas prices above $2.50 a gallon right now. If the prices had risen slowly we might have slowly adjusted our individual budgets to absorb it. Gas prices rose so fast and that drove up the prices of the staples people need(as opposed to wants) they couldn’t absorb the increases into their budgets. The majority of people don’t have a lot of room for error in their budgets(they spend everything they earn). Much of the mortgage mess was caused by people having to spend more on the basics, and having no reserve, couldn’t afford their mortgage payments. Combine this with the adjustable rate mortgages going up, and the actual fraudulent mortgages and you have the current mess. But for most of the adjustable rate mortgages, even if you froze the rates, the people couldn’t afford the mortgages because they need to buy gas and food.
The quickest way out of the current recession/depression is lower energy costs. Unless we can find cheaper alternatives, not just alternatives, we need to have oil prices around $50.00 a barrel for a short period, then if prices go back up, they need to go up slowly so we can slowly adjust to it ourselves.
The oil cartel brought this on themselves when they allowed oil to go above $100.00 a barrel and had $’s in their eyes. Now the US needs to drill our way out of the problem no matter what the oil prices are because we now see what our enemies can do to us with the oil squeeze. Second step is find alternatives(and use the alternatives we have now – nuclear,coal, even expensive wind) but until we get a better alternative for our cars, the reduction of use in electrical production will help.
Corsair on October 15, 2008 at 12:36 PM
I
thinkhope you are right about the attitude. But I think we many Americans, including myself at times, feel pretty confident about our economy as long as we embrace FREE MARKET principles and self responsiblity.LOL but a little sad…what are you doing in China? I am visiting for the first time in December. Any suggestions for an 8 day stay based in Beijing?
tottoritodd on October 15, 2008 at 12:38 PM
Are you kidding me? You should see the IKE cleanup crews at work here. They have one guy driving the truck, one guy driving the little crane to pick up the debris, one guy carrying a rake around but not using it, one guy carrying a flag to direct traffic, one guy sitting in a car following behind to watch(probably supervisor) and then another car will stop by every so often to check on the crew. Then the truck gets full and heads off to dump the debris, and what does the crew do? sit around and wait for the truck to get back. If it weren’t costing the taxpayer so much money it would be laughable.
Corsair on October 15, 2008 at 12:46 PM
Obama has another problem. He’s been running around complaining that we spend $10B per month in Iraq while the Iraqis have an $80B surplus. The problem is that the surplus was dependent on oil staying above $80bbl. The further oil drops below $80, the more the Iraqi surplus dries up.
I hope McCain is aware of this fact and smacks Obama with it tonight.
Kafir on October 15, 2008 at 12:49 PM
hillbillyjim on October 15, 2008 at 1:26 PM
Let’s start a pool. How many months into an Obama presidency until he says, “I am sorry but I have to raise everyone’s taxes because Bush left me with a mess.”
PattyJ on October 15, 2008 at 11:25 AM
Months??? Yeah right, two weeks max.
N4646W on October 15, 2008 at 1:34 PM
I think oil’s going to stay pretty high. How can it NOT with India & China now competing for the stuff? They weren’t part of the game in the 70s & 80s.
*Sigh* I still remember the price of regular unleaded in Laramie WY in the summer of ‘99: 79 cents a gallon.
Badger40 on October 15, 2008 at 1:37 PM
I think we should increase the gas tax if it falls below $2.00 per gallon. It would nurture the new technologies in the pipeline like the Chevy Volt, depress the demand somewhat with the added benefit of depressing the worldwide price for crude, which hurts Iran and Russia.
silverfox on October 15, 2008 at 3:47 PM
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