Congress approves Amtrak funding by veto-proof margin

[Paul Milenkovic]

People spouting that oil company rationalization always quote the price AFTER the last explosive price increase. How does it compare to the price in 1970? You know, BEFORE OPEC got mad at us for supporting Israel and their seizure of Gaza and the West Bank and shut off our supply from the middle east.

Didn't the Tom Cruise character in "Top Gun" have a line about "a target-rich environment"? 

If Samantha is "spouting" any kind of "oil company rationalization" regarding the high price of oil and the high price of gasoline, it should be noted that what are regarded as the "big oil companies" are responsible for a minority share of world oil supply, the majority share of which is in the hands of various governmental authorities, ranging from Medvedev's Russia to Chavez' Venezuala to Pemex to the Saudis.  The Exxons may be making money hand over fist at everyone elses expense, but the Exxons are hardly the reason oil is so expensive.

As to the Middle Eastern situation, Gaza, the historical Judea and Samaria known as "West Bank", along with Sinai and Golan, were territories of established sovereign states of Egypt, Syria, and Jordan, where "West Bank" earlier on was a land grab by Transjordan, which renamed itself simply Jordan.  Israel occupied Gaza, Sinai, Judea and Samaria, and Golan in the aftermath of a preemptive war waged by Israel against Egypt, Syria, and Jordan, one in which Israel had intelligence that those countries were poised to wage war to wipe Israel out but one in which Israel "got the drop" on them by some accounts.  Those actions happened in 1967.

OPEC put the squeeze on oil supplies in 1973, but it was mainly a coalition of Arab states, OPEC being much broader than the Arab states, that embargoed the US in the aftermath of the October, 1973 Middle Eastern war.  In that war, Syria and Egypt invaded Israeli-held territory -- in this case Israel did not attack preemptively and this situation was regarded as grave failure of Israeli intelligence that they did not read the warning signs.  Using new types of Soviet-supplied anti-tank and anti-aircraft rockets, the Egyptians and Syrians inflicted heavy losses on the IDF, and were poised not only to recover the territories lost in the 1967 war but to conquer Israel itself.  Had the IDF collapsed, no reasonable person believes that the Egyptian and Syrian armies would have stopped at the "pre-1967 borders."

Israel prevailed in the 1973 war, in part because of massive US resupply of critical arms, in part because the IDF was able to adapt its tactics to the new Soviet anti-tank and anti-aircraft rockets.  A coalition of Arab states responded with the oil embargo; the Soviets responded to the Israeli encirclement and impending capture of the Egyptian invasion army with thinly-veiled threats of nuclear war.

In the aftermath of this, oil and gasoline went up in price in the US, but not up in price enough to stave off shortages -- the long gas lines many of us remember.  Some economic historians question whether the Arab Oil Embargo was effective in that oil is "fungible", meaning that one barrel of oil, apart from differences in grade in sulfer content, is pretty much like any other barrel of oil on the world market, and that the gas lines were something we did to ourselves with the continuation of Wage and Price Controls on oil.

These events were followed by a couple years of plentiful oil and lower prices in inflation-adjusted terms, although the entire 1970s were a time of vigorous inflation.

In 1978, Iran saw the overthrow of the Shah Pahlevi and the Iranian Revolution.  To my knowledge, there was no specific embargo of the US by Arabs or Persians or anybody else -- the political turmoil in Iran was enough to drive prices up and supply down.  Not only were the prices high, but gas lines returned.  These were the times of the inflation-adjusted $3.20/gallon gas.

The point is well-taken that the time of inflation-adjusted $3.20/gallon gas was not a Golden Age, rather, it was a time of high inflation and high unemployment.  On the other hand, I don't remember gas as sticking me that hard in the pocket book.  At the time I was driving a Ford Fiesta -- 35 MPG highway, 25 MPG in town in my usage.  A lot of other people may have switched back to bigger cars, but I bought the thing just prior to the Iranian Revolution because I believed what I read in "serious" writings that oil was intrinsically in short supply.  These days I drive a Ford Taurus -- 31 MPG highway, 21 MPG in town for me -- but for some reason the current gas prices feel a lot more painful.  Part of it was that the $1.50/gallon gas prices of the intervening 20 years had me part with a 45 MPG highway, 33 MPG 1986 Chevy Nova for the bigger car Taurus with better crash-safety ratings.

What is going to happen is that the $140+/barrel oil is going to first put the squeeze on consumption.  If that kind of price level is getting people in the US to cut back on gas usage, think of what it will do to other parts of the world.  China, I am told, subsidizes its oil price, and how long do you think they can keep that up, especially when that subsidy and the energy content of all the stuff they make represents yet more money the Chinese are sending to the US for free.  I am also told that many oil producing countries don't pay the full export price for oil internally, and one wonders how long those places can be lax about consuming their own oil for cheap when they can export it for big bucks.

In parallel with finally getting a cut in consumption, there will be new supplies "put online" in response to the big price increases.  We will go through yet another cycle of a cutback in demand, a lagging increase in supply, another collapse in prices, followed by a slow buildup in oil consumption followed by another 20 years of people not doing anything to develop alternative energy or alternative transportation.

Why am I so confident that the "cycle" will repeat, that we are not at the "Hubbert Peak"?  It could be that we are at a kind of Hubbert Peak, but the theory assumes a smooth Bell Curve build up and build down of oil consumption, which is not going to happen in the post 1973 world.  What was different pre-1973 is that the Big Oil Companies indeed ran things, but increasingly oil supplies are nationalized.  You have "rent seeking" behavior from various governmental entities, who think that the Big Oil companies, the folks with the expertise to explore, drill, ship, and refine oil are out to rip them off.  Hence you have cycles of underdevelopment of the resource, a zoom in prices, greed will kick in to get the Oil Companies back in, a lag to put the supply on line, a collapse in demand, and the whole business all over again.

What this has to do with trains is that in my opinion, the advocacy community needs to take a longer view.  To some, this is the long-awaited Hubbert Peak of oil which will drive the public into our arms demanding trains, but again, that we feel this way about the present crisis suggests that trains are a solution that we desire for other reasons, but we are going around looking for the Big Transportation Problem to get the rest of everybody to agree on that solution.  Well, it might be the end of oil as we know it, or it might not be, but my advice is not to expend credibility forcasting that this is the end only to see the price of oil come down and people reverting to the old ways.  As I said, we need to take a longer view and realize that these things go in cycles.

The other thing, it is my view that as passenger train advocates we need to tone down the presentation a bit -- our local advocacy group is big on the all-caps banners and the exclamation points and the scolding tone that trains are going to save us from whatever the problem is.  I think we need to take a longer view, see beyond the present crisis, accept the proposed increase in Amtrak spending as a gift to the cause, and focus advocacy that the new money be spent ever so wisely.