On the Soapbox

As expected, there was not anything really new in the State of the Union address, as it was more or less a rehash of policies that the public has been hearing about for quite some time (which, to be fair, is typical of modern State of the Union addresses from Presidents of both parties). There was one thing that stood out, and that was Bush's remark about our addiction to oil, and indeed, it is quite an addiction, with an extraordinary inelasticity of demand. I must applaud him for finally acknowledging that this is a problem, but beyond that, there is little worthy of praise.

First, cutting 75% of our reliance on Middle Eastern oil by 2025 is hardly a monumental endeavor, especially since only 20% of our oil comes from that region. Most of our oil supplies come from much closer sources, such as Canada and Latin America. A 15% reduction in oil consumption in the course of nearly two decades is hardly remarkable, especially since this does not necessitate any reduction in energy consumption, and I would even venture a guess that the natural maturing of technologies such as hybrid engines or ethanol algae farming would have brought about modest changes of comparable scale without the help of a Presidential speech. One does not inspire with such restrained numbers. Additionally, it is projected that the production rate of Middle Eastern oil has reached its apogee (or is close to it) and that rates of oil production will fall as existing wells are tapped out and the remaining reserves become increasingly difficult to extract at current rates. Companies are now looking at places such as Africa for oil supplies, so a reduction in the Middle East's share of the global oil market over the course of the next two decades is an inevitability that is more or less written in stone.

Second, Bush's call for a reduction on Middle Eastern oil imports suggests a defective understanding of economics. Reducing dependence on imported Middle Eastern oil will not insulate us from the effects of a Middle Eastern oil supply shock. As a global commodity, oil from Canada or from Latin America is by no means priced independently from Middle Eastern oil, and a sudden collapse of Middle Eastern oil supplies will raise oil prices and crimp supplies for the United States even if the United States did not depend on even a single drop of Middle Eastern oil: the effect of an oil shock would be identical regardless of whether 100% of our imports were from the Middle East or if 0% of our imports were from the Middle East. The only real solution would be to cut our dependence of oil, regardless of origin.

Finally, his remark about our "addiction" is in contrast to previous positions taken by the administration that put strong emphasis on expanding oil capacity. That this comes so late and bears such contrast suggests to me that he was more or less forced by circumstances to make this admission. Criminals seem more willing to renounce their ways after hearing the gavel of a judge than before. Without the help of a couple of hurricanes and Iran's President (and to a lesser extent, Venezuela's President), would this initiative have found its way into the State of the Union?

In short, while I do like the public direction that Bush has taken, it would seem that this initiative is deceptively hollow: they are, in my opinion, well-crafted words to calm the masses and nothing more.