Chuck Schumer’s Fabrications

I have never cared for Chuck Schumer. In my opinion he is a classic example of a demagogue. He tells half-truths, or sometimes untruths, in order to push his agenda. And he did so again yesterday with a letter to the Washington Post. In response to an editorial by Robert J. Samuelson – “A Full Tank of Hypocrisy” – Senator Schumer responded in his standard style by omitting key facts and providing misleading information.

Here are some excerpts from the Samuelson editorial, followed by Senator Schumer’s response and my comments:

It’s one of those delicious moments when Washington’s hypocrisy is on full and unembarrassed display. On the one hand, some of America’s leading politicians condemn high gasoline prices and contend that they stem from “gouging” by oil companies. On the other, many of the same politicians warn against global warming and implore us to curb our use of fossil fuels that emit carbon dioxide, the main greenhouse gas. Guess what: These crowd-pleasing proclamations are contradictory.

In late May, gasoline prices hit a national average of $3.22 a gallon, which, after correcting for inflation, is roughly as high as in early 1981, the recent peak. This elicited the usual expressions of outrage. Sen. Charles E. Schumer (D-N.Y.) suggested breaking up big oil companies that he says may be to blame for “the sky-high gas prices.”

Which would be a great idea if you want to buy your gasoline directly from Saudi Arabia and ship those refining jobs over there. Even ExxonMobil, as large as it is, is a fraction of the size of some of the national oil companies like Saudi Aramco. It takes many billions of dollars of capital to compete in this business. That’s why the mergers happened.

It’s always fun to blame unpopular occurrences on corporate greed. Schumer’s notion, for example, is that the wave of giant oil mergers (among others: BP/Arco, Exxon/Mobil, Chevron/Texaco) has so concentrated U.S. refinery capacity that companies can constrict supply and create artificial scarcities by refusing to build new refineries. It’s a plausible-sounding theory whose major defect is the absence of supporting evidence.

Whenever gasoline prices surge unexpectedly, Congress routinely vents its anger by ordering the Federal Trade Commission to investigate the oil industry for collusive practices. Invariably, the studies exonerate the industry.

But the evidence just has to be there. Doesn’t it? We just need more investigations. In fact, we should continue having investigations until someone, somewhere, uncovers something that indicates that someone from Shell once talked to someone from BP about gas prices, and we will never have to hold another investigation. It will be the proof we have been looking for over the past 30 years. And we can always point to that for the next 30 years, because now we know “the truth” – widespread collusion in the oil industry. In fact, I may run for office on that platform.

Testifying last week before the congressional Joint Economic Committee (JEC), Michael Salinger, an FTC economist, said that the industry’s concentration levels remain “low to moderate.” According to JEC figures, ConocoPhillips is the biggest U.S. refiner, with 13 percent of capacity; the six largest have 61 percent of capacity. The oil industry is less concentrated than the auto industry, which is considered intensely competitive. As for the absence of new refineries, that problem preceded the merger wave by many years; the last major U.S. refinery was constructed in 1976. There must be some other explanation (environmental restrictions, past low profitability).

Congressional Democrats especially have targeted global warming. “We hold our children’s future in our hands,” Pelosi said early this year. “As the most adaptable creatures on the planet, it is time for us to adapt.”

Energy prices apparently are the huge exception to this moral imperative. It is not necessary to adapt to them. The way that Pelosi and others navigate around this illogic is to assume painless improvements in energy efficiency.

Or the painless massive scale-up of biofuels. I agree with Samuelson that the positions that some are taking on global warming – “we need to reduce greenhouse gas emissions” – and on gas prices – “we need to reduce gas prices so people can afford to drive more” – are completely contradictory. This is about demagoguery, which brings us to some choice excerpts from Senator Schumer’s response:

According to a Government Accountability Office report, there is a direct link between oil company mergers and higher gas prices.

And how much did they say it contributed, Chuck? Do you remember? 1 cent. That was their estimate, although they said that due to the margin of error in their model, it might be as high as 7 cents. Surely this explains the run up in gas prices.

The high gas prices that Mr. Samuelson cheered have not curtailed Americans’ driving. Nor have they spurred U.S. oil companies to expand production or invest in sustainable energy solutions that would create jobs and help drivers save — they’ve merely induced Big Oil to buy back stock.

Here is one of those half-truths. Yes, oil companies have been buying back stock. If I am a CEO and I believe the market is undervaluing my company, buying back stock is a way to rectify that. It is amazing that people have started associating this with some sort of shady practice. Lots of companies buy back their own stock.

But the untruth is the suggesting that oil companies have not been expanding production. Leave it to another illustrious senator – formulating our energy policy for crying out loud – to get his facts wrong.

The five largest oil companies reported almost $120 billion in profits last year alone but invested only $1.2 billion in renewable energy sources from 2000 to 2005, according to the American Petroleum Institute.

Glaring omission. Well, 2. He left off 2006 on the renewables investments, which saw a huge spike from the oil industry (that mirrored the cash that flowed into the sector last year from many sources). But he also failed to point out that oil companies have been busy spending $50 billion to meet new environmental regulations. Senator Schumer, like several politicians who have been recently in the news, needn’t wonder where that money went, because their policies dictated where many billions went. (Again, I have no issue with these regulations. Just pointing out that politicians always seem to overlook their own influence in redirecting oil company capital).

Mr. Samuelson’s comparison of the oil and auto industries is equally misleading. They are two fundamentally different industries. U.S. and foreign carmakers compete vigorously to sell a wide variety of vehicles of all sizes and prices, but there is virtually no substitute for the gas that 99 percent of cars need to run.

Ah yes, the always popular excuse: But I have to buy gasoline! Do you have to buy so much? Do you have to drive a Yukon? Do you have to live 40 miles from work? The choices that have been made leading up to this point have resulted in the supply/demand imbalance. Now people want to say “I made poor choices. Help me, Senator Schumer and punish the oil companies for profiting from my poor choices.” And Senator Schumer always responds in a way befitting of a demagogue.