0:00

What’s up, guys?

Rachel into here and I am teaming up with your favorite ringer podcasters to deliver the Bravo drama and news that you’ve been craving on morally corrupt, the show about all things, Bravo from the housewives, the summerhouse at everything in between, we’ll be mentioning it all every week, check it out on Spotify and the ringer.com.

0:27

Today’s episode is about skyrocketing oil and gas prices, and an ingenious plan to bring them down, average gas prices in the US have hovered around $5 for the last few weeks.

Nominally, that is an all-time high and even if you adjust for inflation, gas prices could still break the all-time record if they rise, just another 34 cents.

0:51

So energy is really expensive right now and at risk of stating, the absolutely obvious expensive energy Is very, very, very important.

It is important economically because higher oil and gas prices.

Make it more expensive to do or move anything, not just cars and people, but your family on a road trip Goods that are trucked across the country.

1:12

Diapers medicine, steel furniture.

Everything expensive energy is also important psychologically in part because gas prices are the only price printed in size, 10 and font on the side of the highway and finally expensive.

Gas is important politically in 2016.

1:30

The researchers harborage, cause neck and Woolridge.

Looked into the question of how high gas prices affected presidential approval ratings, and they came to the conclusion that quote, an increase in gas prices led to a decline in approval independent of the volume of news media coverage of gas prices.

1:49

And quote, you got that, this is not a news media affect people.

Just really, really, really hate high gas prices and they Get out on the president every single time, like I’m above a pretty even-keeled guy but I do get really pissed off when people push back against this point.

2:06

There have been a bunch of liberals.

Not going to say names who have been arguing over the last few months years that Americans just need to sort of get over inflation.

That the media shouldn’t cover high, gas prices, not expensive, energy is not a news, media psyop, it is an economic psychological and political problem that we should be Separately curious to solve.

2:30

And solving, it is what this episode is all about.

So you’ve got to buy the ministration out there talking about a gas tax holiday or gas card rebates you know relief for consumers cash.

Now cash is a demand-side solution but expensive energy is not just a demand-side problem.

2:52

It’s a supply problem.

There isn’t enough oil in global markets to satisfy demand so rather than try to fix this crisis with more cash.

I think we ought to try to solve it.

With more capacity, that brings us to our guests skanda.

3:10

Amar Nath, it’s kinda is the executive editor at employ America, which has very quickly become one of my favorite sources of research and commentary on economics, and he is the co-author of what I think, is a pretty ingenious plan to increase oil capacity, in a way that could reasonably bring down gas prices.

3:29

Within a few months.

Now warning, this episode gets kind of deep into the weeds.

Of policy and oil markets, but I loved it.

It was one of the most educational conversations I’ve had in this show and I hope you find it.

Similarly stimulating.

3:45

I’m Derek Thompson.

This is plain English.

4:11

It’s kinda welcome to the podcast, thanks for having me really happy to be here.

So, I just did this whole thing in the open about why I think gas prices are a real problem and not just a tolerable inconvenience, but I’m really curious to hear from you.

Before we go into your plan, let’s say you’re talking to someone who believes climate.

4:30

Change is incredibly serious and important someone who generally thinks oil and gas companies are, you know, evil and someone who would prefer not to think about inflation.

Because it makes the by demonstration look.

Like what do you say to someone who wants to know, why is expensive energy important in the first place?

4:48

So energy is to my mind incredibly important because the essential input within our existing economic structure, how we produce things, how we distribute goods and services, how we actually consume as a society.

5:05

It is true that we would like to be able to shift our consumption patterns away from fossil.

Fuels crude oil natural gas.

These are fundamental to how we transport Goods, how we transport people, how we rely on electricity.

5:20

It’s the sort of fundamental power source for electricity in America, and that is relevant to the production of everything.

It’s also incredibly relevant to the standard of living of everyone in America.

That doesn’t mean we should be dependent on it forever, but it does mean we need to think seriously about how we manage.

5:42

Our current standard of living, considerations against the future, we want to build and that’s a great answer and it’s very much in keeping with my own philosophy, which is that energy prices are a line item on every receipt.

You should care.

If you care about the price of things, you should care about the price of energy and it’s why energy inflation.

5:59

Like we’re seeing today is such a economic psychological and political problem.

So let’s talk about oil, markets, oil markets are really weird like in most markets when a price goes up.

It sends a very clear signal to producers to make more stuff or sell more stuff.

6:14

It’s like a really obvious example.

If it’s simplistic example is like uber, Uber needs more cars in the road, the prices surged?

The more drivers come online but one of the really interesting and big problems with the oil market right now is that this Dynamic is not playing out or oil prices are up, and you have the body ministration, literally like begging oil companies to increase output, but oil companies have been slow to respond.

6:37

And a huge part of this is that there once bitten and twice shy or maybe, Fitting in three times shot like oil, prices, have crashed several times in the last eight, fifteen years and so a lot of executives are afraid that another crash will come.

If they start to plow all this money into drilling up more oil, right?

6:55

That’s a huge part of the reason.

While oil rigs have not increased as fast as oil prices have increased.

Is that right?

That’s exactly right.

So, we saw in the, a little bit of potted history here.

The early 2010’s is the fracking Revolution.

7:11

Where the u.s. became this, very elastic supplier of oil when Prices rose, and as I stayed, High us production us investment, was brought online with the six to nine month lag or so, there’s a response time that actually allowed us production to fill the gaps that existed.

7:31

And that was pretty critical to not just supplying markets, but also over supplying them.

So, Marcus became oversupplied and we had a big crash from 2014 to 16.

Where we had oil prices were in triple digits.

In 2014, they fell to 25 bucks a barrel by early 2016.

7:48

We had a sort of mini crash in 2018 19 where again us production was ramping up ramping up and that also changes how OPEC behaves and we got a mother of all crashes in 2020 when we had - oil prices, which is itself, a kind of a weird thing that I’m not such.

8:07

I’m sure some people remember this, but the price of oil for maybe One two, three weeks, maybe just a handful of days went - in 2020.

So if you’re an oil company and you’re thinking about bringing on new production, digging a drilling new wells, bringing more oil online, you are thinking, wait, what?

8:24

Just happened two years ago, the price of oil collapse, what happened?

Four years ago, the price of oil collapsed, what happened?

Six years ago, seven years ago, the price of oil collapse.

So they’re afraid that if they build all this production to bring more oil online that the price of oil will collapse and they will Lose a lot of money because financing these rigs is really expensive and it might turn out that the price of all that they’re digging up, is going to be nowhere.

8:49

Close to the price of oil.

That selling today, that’s a huge part of the fear of oil companies right now.

Yeah, yes.

And you see it in their actual performance in terms of shareholder return, they’re actually ability to deliver return on Capital.

Yes, profits are really high for the oil and gas companies right now they were terrible for 78 years.

9:11

Especially from 2014 onwards where you had really negative returns for the energy industry.

And it was precisely because it was actually ironically, speaking very relatively easy to be able to scale up investment.

Everyone wanted to do it.

9:27

And so and everyone there and there was enough actors who were able to scale up investment.

And so you were left with these release of oversupplied markets very easily and that ended up in a situation where the industry takes a lot of price risk, right?

So whenever prices Down profits go down and prices.

9:43

Go up price profits, go up.

It’s a very cyclical industry.

Looking at one year’s profits is not actually very representative of what’s going on in terms of how they’re thinking about their decisions.

Because for a lot of companies, they lost so much money.

This is the period when they’re actually starting to break even on a more holistic basis.

10:03

And I think that’s just a context that’s worth keeping in mind, when sort of assessing their decision-making, why they invest or why they don’t want to invest.

I’m reminded of the fact that in a previous episode, we had an investment analyst talk about the fact that at one point during the pandemic Zoom, which we are now using to talk about oil prices was worth more than Exxon today.

10:25

Exxon is worth ten times more than Zoom, so like that little factoid.

Actually explains a lot of why gas prices are so expensive right now, right?

That factoid is a great explainer of how gas prices or oil prices collapsed during the pandemic.

10:41

Crude oil prices crashed but now they’re soaring Exxon is worth 300 billion dollars but oil producers are still afraid of opening new wells because they remember that the price keeps crashing.

So you have a plan to solve the problem of undersupply and under investment in oil capacity.

10:58

This is a plan that you hatched, with our nav data, who is a friend of the podcast and Alex Williams at employee America.

It’s a plan designed to give oil and gas companies, the certainty to drill, What is your plan?

Sure.

So our three-part plan rests on certainty around, first call it demand and pricing.

11:22

Second is certainty around financing and third, which probably not as important as the first two but still relevant as cost sir tea.

Okay, let’s kick it off with demand and price certainty, where should we start?

So it starts with the Strategic petroleum Reserve, which is how the Government is able to store crude oil for the long term.

11:46

So it actually sticks it in these salt Caverns deep underground and we can store a lot of crude oil.

We typically stored more than we have right now, but we are trying to release as much as we can to meet current Demand, right?

12:01

So current demand either has to come from existing inventories or current production.

Current production isn’t enough.

You want you draw down from your existing inventory.

The body ministration.

Is already released some oil from the Strategic Reserve.

I know you don’t think this is sufficient because it doesn’t increase productive capacity in the future but it’s still helpful, right?

12:21

That’s a helpful sign.

That’s helpful but it’s rarely enough when you think about the future trajectory of demand and supply and so there’s actually more to be done in terms of providing the demand in the future.

That helps give producers more confidence, right.

12:39

So producers have seen this.

Boom bust.

Moment for the last seven, eight years and they are understandably concerned about what’s the evolution of that market is going to look like.

And if I produce, how am I going to make sure that I don’t I’m not left holding the bag and tell us how we would do that.

12:57

What’s our our policy tool, to convince oil and gas companies that it’s not hopeless to open new wells.

Sure.

So how do you think about how we’re going to avoid leaving?

Producers holding the bag.

Bag with in terms of their decisions.

13:14

Now to invest in future production and to make sure that the future production actually be is economical.

It actually checks out that’s where the government’s unique abilities to store crude oil.

Long-term can be very helpful can serve as an insurance, a demand Insurance function.

13:31

So if the government is a buyer of crude oil and if the government contractually agrees right now, to be able to buy crude oil in the future, From us producers there you have the kind of arrangement that actually gives a lot more certainty for a producer to invest today.

13:50

Let me try to reframe what you’re saying.

I think I understand it.

We’ve released all this oil from the Strategic Reserve.

That’s good.

That’s step one.

But the problem is we need to bring more oil online.

So how do we encourage that?

How do we encourage the oil and gas companies to finance the exploration of more oil wells?

14:06

If they’re afraid the price of oil will keep crashing?

Well you’re saying is the government can come along and be like We will promise to buy future oil from you, the gas companies, oil and gas companies, we promised to buy oil from you at this price at no lower than this price and that will overcome the uncertainty that these companies feel about the possibility of oil markets.

14:25

Collapsing, when circumstances change, when the Russian war ends are OPEC changes its mind.

Right?

Is, is this the idea that a price floor is critical in terms of encouraging more exploration and drilling right now?

I think that’s critical that us One step further, the government doesn’t even have to be forcing The Producers to sell to the government at a specific floor price.

14:48

It just has to offer the option, right?

So if you have the option to sell at a floor price, but let’s say, let’s say a global oil markets could be tight for multiple years right now.

Given what’s going on in Russia.

And because of that prices could say, hi if prices stay high and producers want to take advantage of that, by selling, in a tight Market, prioritized to selling to the highest bidder If that option can still be left to them, right?

15:13

You’ve called this price certainty, you’ve called it Insurance.

Others might call it a put option, whatever word, whatever phrase you want to use.

The point is the US government can guarantee that oil companies can help us right now.

Can come to the rescue of energy markets today and they’ll be rewarded with the certainty that someone will buy their stuff for a minimum price.

15:32

That’s exactly right.

That you could actually create the kind of price certainty and that price guarantee is huge.

In this market, I can’t underestimate Jack under Understand just how important it is to have some kind of downside protection.

How valuable that is to the industry.

Because this is a hyper cyclical Market, hyper cyclical business.

15:52

And if you can provide that kind of downside protection and the option to sell to the government, in a time of call it oversupply time of oversupply Crisis, that’s just incredibly important to be able to make the financial math work.

16:07

In terms of, how am I gonna actually get a return on my investment?

I’m just to draw a sharp contrast.

Here, you’ve got Biden out there begging the oil, and gas companies to pump more oil because it’s our patriotic Duty.

And the oil companies are like, nope.

So you’re saying is like, don’t beg, don’t appeal to like the Airy virtue of patriotism.

16:26

If you want them to put more oil set a price floor guarantee return on investment so that’s part one demand and price.

Certainty, part two is financing certainty.

What is that?

So the first plan for dealing with This is the Strategic petroleum Reserve serving as a buyer of Last Resort.

16:45

That’s the kind of demand certainty.

And again probably demand certainty at a certain price.

The second is the exchange stabilization fund from the treasury Department.

Providing financing certainty.

They could do loan guarantees, they could really change the proposition for shareholders, in terms of their willingness to engage in accelerated investment.

17:04

Let me stop you right there.

What is the exchange stabilization fund?

So The Exchange stabilization fund is a I guess for lack of a better term of pot of money, the treasury.

The treasury Department has, it is devoted to sort of the conditions that make exchange rate stability possible and making sure stable exchange rates across countries possible in the past.

17:30

It has been used outside legitimately but in pretty strained ways.

So in 2008 it was used to guarantee money market funds that were subject Uncertainty.

So just kind of critical Plumbing after Lehman collapsed.

17:46

And so that guarantee was justified under the guise of it is important to financial stability, and financial stability is important to exchange rate, stability.

I think that is correct, but it is like more.

It’s pretty intense.

You waited because money market, stability.

18:02

And exchange rate.

Stability, don’t always go hand in hand.

All right, so we’ve got a pot of money at the treasury Department.

That is earmarked for exchange rate stability.

T, but we can basically use it for all sorts of Economic, and commodities, shocks.

And this is a shock.

So we can use this money for things, like loan, guarantees and I want to do a quick plain English e, glossary on that loan guarantees.

18:24

Everyone knows it alone is with a loan.

Guarantee that basically means if the borrower defaults, the lender is still taken care of in some way.

So quick, quirky example, let’s say I want to open a cookie store.

I want ten thousand dollars.

I say it’s kinda.

Will you lend me ten thousand dollars you’re like no.

18:40

I’m not optimistic about your baking skills at all, but then our mutual friend aren’t Hub comes along and he’s like it’s kinda if Derek go goes belly-up, I’ll still pay you a portion of the day right now suddenly give me ten thousand dollars is much less risky to you and you can make the loan.

18:57

So in this way you can see the loan guarantee stimulates economic activity, it creates alone that otherwise wouldn’t exist without our knob.

And so in this case in the oil markets, rather than the cookie Market and if the US government offers loan, guarantees for oil and gas companies and exploration firms that makes all sorts of economic activity here, likely that otherwise wouldn’t occur, right?

19:21

Is that a big part of why it’s so significant?

I think it’s incredibly important significant because of that certainty that find that those who are actually in the private sector doing the financing have that kind of certainty we do this for residential for mortgages right?

19:36

We do we do this in terms of the government provides some kind of backstop Because otherwise housing activity is also very cyclical and so typically, private Bankers made mortgages very expensive in the absence of some kind of government support that they would be a guarantor in periods when procession default emerge.

19:57

We had this problem of the Great Depression.

Similar problems are analogous here, right?

That we have a super cyclical industry.

Bankers are rightfully skeptical about Turn prospects in this industry because their performance has been very poor.

20:15

It’s been hyper cyclical and how do I know that?

You know, exactly when to invest and where not to invest well, right now socially, there’s just say there’s a misalignment in terms of investment, we’re not getting the kind of the scale of investment that’s going to be needed to sort of cushion against some of these risks and shocks are facing right?

20:34

So, quick review, we’ve released oil from the Strategic Reserve.

We have replenished it by setting a price.

Floor for Oil, we’re increasing Finance investment and Exploration with these loan guarantees, backstopped by The Exchange stabilization fund at the treasury Department.

20:49

What is the third part of your plan?

Again, third is call certainty.

There’s probably limited room to do this aggressively, but there’s room to work with industry on particular, bottlenecks that are actually important steel pipe fracking sand, Machinery Parts.

21:07

These have all been in shortage over the last few months.

For reasons that the government could likely play a constructive role in coordinating working with suppliers again.

There are probably some fun this funding issues.

We’re back stopping their own inputs and production and capital expenditures would be very helpful.

21:27

This could be done to the defense production Act of the defense production act has been the news, probably a little bit over glamorized but these it still has some helpful tools here for cough certainty.

Yeah so connect that dot for me.

A lot of The talking about the defense production act.

And here you have this problem of cost certainty for the oil and gas companies how would what is the defense production ACT?

21:48

First of all give me a one sentence, explanation of that and then what are two sentence explanation of that and then tell me how it could help to resolve some of the cost uncertainties.

Yeah, so the defense production act, the latest iteration of it came out of the Korean War.

22:03

We’re sort of trying to deal with.

We have certain production needs for the war.

We need to make sure that’s prioritized.

How do we prioritize it?

We’ve used It using the pandemic for vaccine development.

So we’ve managed to just to expand how it’s used in this case we’re doing something that’s not quite a performer war in terms of u.s. going to war with anyone directly.

22:23

But at the same time, it’s actually a little bit closer than maybe the pandemic was used very successfully in the pandemic to actually give a lot of certainty and commitments around individual suppliers for actually, distribution of vaccines involves incredibly large amount of input space not just about even the sort of All companies that are design designing and developing the vaccines, but also all sorts of Manufacturers and suppliers and some suppliers.

22:48

So we use it pretty liberally, then I think there’s room to use it.

Precisely for that kind of constructive coordinating role in how we go about providing the kind of inputs that are needed.

Because if you hear what also what along with a lot of the CEOs own words about how they’re reluctant to invest and how they are trying to constrain investment, Actively and constrain production actively to only a certain amount of growth.

23:14

They’re also worried about costs costs going up and they always worried that if costs are going up this is probably not a great time for us to invest because it means that our margins are under threat.

And then what we, what we, what we plan on delivering back to shareholders, doesn’t quite materialize because of some cost Spike here or their costs.

23:30

Have been going up on a few key categories.

It’s a steel products are pretty important one, there are some things around the inputs are like fracking sand.

There’s a lot of Machinery that used to Used specifically for its parts but now you actually need more Machinery with all of its parts that actually produce to actually a built-in that Ray’s rig counts and produce more from more Wells.

23:56

So let’s say we get lucky and your entire plan comes to fruition.

We open the Strategic Reserve, by the way, we’ve already done that divide administration’s done that, but we do your plan.

We set a price floor, we stimulate investment, we use the defense production act to get more steel pipes and fracking sand.

24:15

When would this help?

When would we realistically see this having an effect on oil prices?

Yeah, so there’s a the time you stick a drill bit of the ground to when you actually get production out of a well, that timeline would have been six to nine months, prior to the pandemic, something like that.

24:36

Now, it’s sort of these supply chain bottlenecks with some of the frictions that have emerged post, pandemic, around some things around labor shortage, it’s probably better to assume things around like 9 to 12 months.

Actually see that kind of response time to actually specifically from one and I give you the sort of assurances and certainty to when you’re able to find the units, to actually be able to put a Reagan, get a rig online.

25:01

So there isn’t really going to be like, wait, that’s sucks.

Wait, like I’m not going to see lower prices for 9 months. 12 months.

Is there any way that the prices might come down before that oil actually comes online but that’s precisely the point, right?

That you actually see prices.

You have a forward-looking component to him and as you get closer in time too, When Supply can come online typically Market participants are not like there’s a lot of stupidity and financial markets and crude oil markets, but they’re not that stupid that they can see when Supply is actually emerging in the likelihood of Supply as it emerges in time.

25:36

So it’s the, the actual price effects are sooner.

I think that’s how soon depends on the market conditions.

But I think if you’re looking some like, six, six months to eight months is like, very, I don’t think I’m stretching their, I think I could, I could try to stretch more and say that It’s a shorter response time for crude oil prices, but what you want is confident about investment, right?

25:57

Yeah.

Prices reflect present conditions, but also future conditions.

And so if everyone is convinced that the bottom of the station, the US government is going to do absolutely everything possible to increase investment in oil supply.

Then prices might come down.

Now, even before that Supply actually comes online, One question that I feel like some people have to be sort of screaming at the back of their head, is what about climate change?

26:21

Like, how why are we investing in crude oil?

If what we want is for wind and solar and geothermal and nuclear to take over the entire grid.

So like what if I, what if I told you like, look, man, it’s a great strategy to increase capacity.

It’s very interesting plan to bring down the price of oil in the next, maybe six months, maybe nine months, but in the long run, climate change is a much more important phenomenon than high gas.

26:45

Isis in 2022.

So why not just swallow the pain encourage people to buy electric cars, carpool, work from home, put solar panels on your roof, do anything, except what you’re saying, do anything except dig more oil out of the ground?

27:02

Why isn’t that the better strategy for the world?

What do you say to that?

Yeah, so I am very sympathetic to the general goals of building out, the infrastructure, physical capacity around.

IMA change mitigation reducing emissions.

27:20

There’s a lot of things we can do, we should do.

But let’s be clear about a couple things one.

There’s a lurking risk of significantly higher oil prices that’s $150 a barrel. $200, a barrel.

These are not implausible given where inventories are and the potential for production to collapse and it’s a global market.

27:42

So think about that first our And consumption structures are very tied to crude oil for some key things that really that production structure is one in which even as me person who lives in Jersey City, who does not own a car who actually use public transit and Bike, Share and lives in dense housing and all walkable.

28:04

I still rely on diesel to move all my goods around like that’s a, that’s a reality.

I should expect accept that reality, at least for the time being.

And so we’re going to have to like be clear-eyed about.

Like these are, this is the way we consume less.

Try to change the way you can zoom the way we’re going to change it.

We consumed it’s gonna require a ton of infrastructure is going to acquire some additional technological development is going to require us to scale up and commercialize things like, electric vehicles.

28:27

And so that’s that’s going to take time in that time.

There’s a whole set of things inputs that we need, even for the energy transition, for which oil is relevant and we should be very, very clear about that.

Particular challenge being a consumption Challenge and not equivalent To a production challenge because what we’re actually saying about the price floor, aspect is really important.

28:49

It’s saying that will take your excess production offline.

So that oil prices don’t crash and then consumers don’t go back to consuming gas, guzzlers and SUVs in the in the quantities that they did from 2014 to 2020, because we actually were getting lot more economical about our usage of motor fuel from call 2007 to 2014 auto companies.

29:11

Automakers actually grew a lot more interested in fuel-efficient vehicles were more willing.

To go along with higher fuel efficiency, standards.

It just seemed like that was a natural progression of how we’re going to deal with higher oil prices.

So consumers made a lot of progress and then we saw a lot of black backslide from 2014 2020 by keeping prices higher and providing that kind of certainty so that the industry is not good for oil prices to crash.

29:34

Either for the climate or for the industry itself, that’s a strange.

Bedfellows Coalition that I don’t think people quite realize but it’s actually true that like it’s not good for either of us.

In terms of, we can be trying After consumption as fast as possible, but we do need to be realistic about what that timeline is going to look like.

29:49

And you also have to recognize that like oil is a, it’s a pretty big part of our standard of living as currently stands.

I think it’s such an interesting answer.

I never would have thought about this, but it seems totally right.

That price volatility in oil is bad for climate change, because when the price of oil plummets, then, you know, maybe you have all these people who are like, oh, I’m forget electric vehicles.

30:13

I’m going back to my, non-electric Ford. 50 pickup truck.

But at the government’s coming in and saying we are setting a price floor for oil at $80 or whatever.

They’re buying all that excess oil.

They’re keeping it in the Strategic Reserve.

That is a mechanism that helps to keep oil prices stable and not collapse.

30:31

It’s a force for stability.

It’s a force for keeping prices from going below there like environmentally unsustainable price.

Now I want to talk about what the Biden Administration is doing and not doing right.

The Administration has already released reserves from the Strategic, petroleum Reserve.

30:50

They’ve done that part of part 1 in your plan, but now the tone of the body ministration seems like it’s kind of the opposite of the rest of your plan.

They’re not talking about Supply capacity, they’re talking about like giving people more money right there talking about a gas tax holiday or getting people checks or rebate cards to, you know, buy more gas from Exxon.

31:15

What do you think about this idea of just basically giving people money until oil prices come down?

I find this incredibly frustrating to hear because it’s a way of subsidizing, the very commodity that scarce, the very common commodity that.

I think it’s fair to say, Russia has some leverage over sort of the West on because it is sort of a bit of pivotal producer of oil.

31:37

And that’s why there’s no oil embargo taking place right now.

So, this is a critical commodity and we’re trying to subsidize consumption of it.

I We can be honest and realistic and judicious about.

Hey, we’re going to need certain amount of oil.

It’s just that is that is a reality of current US economic production structures and consumption patterns.

31:56

But why are we trying to gratuitously subsidize it when we could, when in general that subsidy is generally a cross subsidy.

So it’s generally a way to that comes up.

And consumers will spend more on oil because the the price is lower in terms of tax that’s generally going to accrue actually to the producers itself, just very inefficiently, it’s a way to say okay, We’re to the producers.

32:16

What does that mean?

It’s like you’re going to raise demand for for gasoline, encourage people to drive more the margins, that demand still has to be supplied from somewhere.

So then if there is a scarcity prices adjust, and who gets the winnings of that of that tax cut a test kit is actually a tax cut for producers.

32:36

It’s just very is intermediated through all of these different sort of lenses and intermedium mechanisms that make it in.

Again, efficient if we could both manage our demand and try to be a little bit more judicious on the demand side, for those, who can I want to say this?

32:52

Also, like people in the US, there are plenty of people who are just auto attendant and dependent on their internal combustion vehicle.

Can’t afford an EV can’t afford, sort of to be able to make that switch so easily or drive.

Less, they may be driving the minimum.

So those people are obviously hurt by this and that’s not fair to them.

33:10

At the same time, there are people who clearly could manage how many vehicle miles.

I traveled how much they rely on their internal-combustion vehicle and they could be reducing demand.

We’re taking that away.

When we start to say let’s just like give it gas cards out, let’s subsidized consumption.

33:26

We could be trying to be judicious about consumption and also be realistic about the production realities in front of us that we should be trying to scale production to get a healthier balance of supply and demand.

There’s like that that we’re effectively taking the demand side clearly aware and we’re subsidizing.

33:42

Production through the back door which is very inefficient because it just feels icky to say let’s work with industry because somehow like the industry is evil.

And I think I find that to be a just is incredibly incoherent.

I’ve had a very frustrating and also very confusing.

I thought that people in the body ministration and people associated with about Administration, we’re talking about greed fashion and how all these companies like Chevron and Exxon were so incredibly greedy.

34:05

And I were talking about a plan that’s essentially a direct 100 billion dollar subsidy of Exxon.

Like, if you give people, you know, gas rate Bait cars or you know checks they can only be used on gasoline or that we expect to be used on gasoline.

We’re just basically giving the money that we know they’re going to give to Exxon even though we’re doing nothing to fix the supply side here it just doesn’t seem very coherent at all to me and it makes me think about the sort of the difference between trying to solve these problems on the demand side by getting out cash.

34:32

And fixing these problems on the capacity Side by increasing Supply.

Like I see your approach these issues on gas prices to very much in line with an idea that I’ve written.

That a lot called the abundance agenda.

This is close to, as reclines concept of supply-side progressivism, my abundance agenda idea, is this this notion that like an industry is whether its energy or housing or health care, a lot of the major crises that we’re facing a crisis of scarcity, we don’t have enough homes, we don’t have enough doctors.

35:01

We don’t have enough clean energy.

We don’t have enough oil supply the moment and most of those shortages are designed.

They are the predictable result of public policies to Strict home, building and medical residency, slots and oil investment.

And so this is a topic that I haven’t talked about a lot yet on the podcast, the abundance agenda.

35:20

But I’m going to talk about it more and this is a good time I think to do.

So like I would love to know what you think as a liberal.

Why do you think there is this subtle and important shift undergoing from sort of demand side, progressivism to supply side progressivism?

35:39

I think, for the longest time, we have not been Particularly descriptive about the supply side.

You’re not actually said a lot of things like it’s very tempting for a lot of people to say my favorite policies are supply-side policies actually because it’s actually great it’s like oh it’s going to lead to more output and lower prices.

Right?

That’s it.

Everyone likes that.

35:56

But in what does that mean in the nitty-gritty, right?

Like what does it actually mean by industry by industry?

Why is it the case that microchip bottlenecks have materialized?

And what’s the reason what’s what made that happen?

And why is it actually had a pretty outsized effect on at least earn certain subsets of sort of the Inflation picture that part of the mix.

36:15

I would just say the longest time, there’s been so much Sort of easy thinking naive thinking about how Industries.

It’s either corporate greed is like one one aspect of it that can lead to, like, sort of a lack of descriptiveness.

I mean, you can say, shareholders are being greedy in one sense, but Cheryl just one composition for the returns, and sometimes that’s just a very rational thing.

36:35

So we should be able to describe that part.

Well, we should also describe how these things are connected to each other.

Well and I’ll just say there’s generally a lot more eagerness to talk about things that a hyper aggregated level.

There’s aggregates.

Why something I do that?

I like is Raising aggregate supply.

36:51

Something that you do is either like hurting aggregate supply or somehow is just like, sort of cheaply demand related.

But if we look at these industries, what stops them from investing?

What stops them from, actually want to do more be able to really parse through the reasons like the oil industry, gives you plenty of reasons for why they’re not gonna invest environmental regulation and like there are versions of it that are more true than one less true.

37:14

It’s gonna require like liberals and people on the left I can actually engage in these Discussions and actually pay attention.

And I will just say in general, I don’t see a lot of that.

Yeah, I think it’s a really interesting way of putting it.

I don’t think I’ve ever thought of it quite like that.

That in order to be a true sort of abundance agenda person in order to be a true supply-side Progressive.

37:34

You really do have to understand, not just the virtue of supply-side, abundance.

Not just a virtue of more stuff, but exactly how these industries work, because the answers and housing are very different.

And the details in say energy or Health Care like in housing, the easiest answer to the question.

37:55

Why aren’t there enough homes in America have to do with local regulations, environmental regulations, and citizen voice?

That is very little to do with, like, why are small oil?

Exploration companies, not drilling right now.

Like it’s not, the answer isn’t nimbyism.

The answer isn’t citizen voice.

38:12

The answer is in part.

Enormous price volatility over the last eight years has made Extremely risky to invest heavily in building, out the capacity to drill new oil.

And that is very different than question of why does America have so few Physicians.

38:29

Well, that’s actually because of like medical residency slots, which has nothing to do with citizen voice and nothing to do with nimbyism and nothing to do with the price of oil, its own bottleneck.

And so to be a good abundance, agenda, representative.

You actually have to be a kind of bottleneck, detective and you’ve to go industry by industry to see what’s the bottom.

38:48

Here in health care, which the bottleneck here and energy, which the bottleneck here, and housing, and that’s fucking hard.

It’s actually it’s really annoying.

If you want a really easy answer to everything to draft yourself as a supply-side capacity, bottleneck detective, I cosine all of that.

39:06

And I think that that is, it does make it really hard when you start to get more granular and you’re sort of going into the micro economics and how it feeds up to the macroeconomics of all these industries and they’re all relevant on some level.

Healthcare is relevant housing for like what’s how people standard of living?

39:22

Sarah’s of living evolve?

So we need to I think the values of being a bottleneck detective is like that.

I think that’s part.

That’s got a part of it, right?

I think that’s where everyone should be eager to be accurately descriptive and that means like some lower tolerance for BS, lower tolerance, and Bs from other people who are making politically convenient claims and also that can be people who are interested partisan politics.

39:48

And also people who are like from these industries, who sometimes put forward certain lines because they like, look, they are oil industry.

Has said, a lot of things that are the cause of their woes and somehow they always seem to be the same things even as conditions change.

So there’s good reason to take them skeptically, but at the same time they’re also good ways to identify useful information about what’s constraining.

40:09

Their behavior and not to cast everything in these kind of like everyone’s acting for nefarious reasons.

It’s the you don’t have to Leave everyone’s rational actor but you can say that like there are certain motivations that are clearly going to be prioritized, especially Financial motivations and like, let’s just take them.

40:27

Let’s try to be descriptive about why these industries have the problems.

They do what, maybe the incentives that are distorting things, what are the institutional frictions?

That our flight here?

That’s, I think it has to be critical to this, right?

Like if we’re four, people are going to actually take this stuff seriously because otherwise, like look either what Republicans have long time for says, like supply-side conservatism.

40:48

And that just meant like, well, if I do any kind of tax cut, no matter how it is, how badly designed it’s actually supply side because it like makes people want to work more or invest more.

But it’s like where did like we find evidence that actually showed this.

To be the case like that.

We’re super careful about this, like know, but it’s like, I feel like it.

41:05

I feel like saying it supply side because it makes me feel good.

I think the first avoid those caricatures that kind of, I think plagues or a lot of the right views about supply-side economics on the right, if you want to avoid that, I think it’s for us.

It’s like, how do we, how do You actually keep this sort of descriptiveness really at the Forefront.

41:22

Yeah.

Fundamentally I think that the reason that I find your oil plan so ingenious is that it takes the oil companies seriously.

But not literally you’re listening and watching what they do in order to understand the kind of incentives that shape oil capacity without thinking that every single thing that the CEO of Exxon says, on every single earnings call is the absolute unalloyed truth, right?

41:48

You have Sort of disentangle, one of these companies lying.

And when are they actually being constrained by certain things that we should potentially unconstrained?

If what we’re interested?

In is energy, abundance any final thoughts here?

I think that this is an incredibly important issue for a variety of reasons.

42:08

If you want to thank coherently about energy transition and climate but also, if you want to think about standard of living, and how we’re going to actually maintain sort of lingering energy shocks.

So I think there’s like Like, there’s a high relevance on politics foreign policy economics.

There’s an important issue and there’s a lot of matters of substance that are going to be relevant for whole host of it.

42:26

Industries.

How do we manage and mitigate uncertainty constructively in other sectors?

What do we need a tailor?

So I hope your listeners can be excited and take something away from that, too.

I do too.

It’s kinda.

Thank you very much.

Thank you very much for listening.

42:42

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