Organized Confusion

Sometimes the average person wonders whether what passes for Government is really just organized confusion. Consider the current situation involving Russia, Ukraine, and U.S. energy policy.

The stated positions of the United States are:

1. Climate change is an existential threat. Fossil fuels must be eliminated, and the energy industry shrunk.
2. Russia is bad for invading Ukraine and must be sanctioned.
3. MBS, the leader of Saudi Arabia, is a murderer and our relationship must be cooled.
4. Iran is a state sponsor of terrorism and must be kept in check.
5. Venezuela is controlled by an evil dictator. The US strongly supports regime change.
6. Inflation is out of control and must be brought down, especially the price of energy.

Whether one agrees or not, those are clear policy positions. How are they being implemented?

With respect to Russia, we are sanctioning more and more, and urging our allies to do the same. China and Iran are ignoring us, and Germany, in its obsession with climate change, has gotten itself into a position of almost total dependence on Russia for energy.

To keep energy prices from spiking more than they already have, Biden is turning to Iran, Saudi Arabia, and Venezuela to pump more in order to offset the losses from sanctioning Russia. China, however, is allowed to keep buying Russian oil, which helps keep Russia afloat economically.

Why the Saudis would want to do Biden any favors is a mystery. Ditto for Venezuela, since their economy is kept afloat by Russian subsidies. Iran would love to pump more oil,  just as soon as Biden lifts the sanctions so they can go back to being the #1 state sponsor of terrorism.

Are there no better solutions? Actually, yes. The U.S. has the capacity to greatly expand oil and gas production and to export it to Europe, thus reducing Europe’s dependence on Russia.

So what is the problem? Answer: Biden. He is 100%+ committed to policy #1, above. He has banned drilling on Federal lands. He is making it virtually impossible to build pipelines outside of Texas. He canceled the Keystone XL pipeline, even though it had been given multiple environmental clearances by the Army Corps of Engineers. Regulations have been piled on regulations, primarily intended to hinder output growth. He has nominated to the Federal Reserve, as the person in charge of regulating banks, a woman who has publicly written that banks should be prevented from making loans to the energy industry.

Incredibly, he has tried to blame the greedy energy industry for charging too much and for refusing to increase output, even as his policies have made keeping output down the only prudent thing for energy executives to do. It is difficult to imagine that he does not realize that oil and gas prices are set by world markets, not by greedy executives.

To reverse positions now would infuriate his woke base. Instead, he goes begging our enemies to help him by taking steps that would go in the wrong direction if you are a climate change warrior. He seems to think it better to let countries that are his enemies reap the revenues and jobs than let American companies earn profits and American workers have high-paying energy jobs. Either way, he comes out looking like a hypocrite, but the election year calculus is such that the Democrats can’t afford to alienate the Progressive wing of their party.

His position is akin to that of Mitch McConnell. The Republicans can’t afford to alienate the Trumpkins, so they act as though they believe that Trump really won the last election. Biden’s preferred solution to the inflation problem is to increase subsidies to the lower rung of the economy, even though the cause of inflation is the excess liquidity resulting from excess Government spending. Is no one in touch with reality?

The media confidently predicts that Putin will lose his gamble in Ukraine. I am not so sure. We have a hard time understanding the ruthless. At the moment he is on his back legs. The Ukrainians are not caving. He did not expect Germany to defy him at all. He obviously saw Biden as a weakling. He expected more support from China than he is getting. He may be a cornered bully, but a ruthless one with few options and a stockpile of nuclear weapons is not to be written off. His domestic political capital is eroding rapidly. If he looks into the abyss and does not like what he sees, he may throw the dice regardless of how outrageous it seems to us. Historically, war has frequently been the only option left to tyrants who are flailing.

In the face of so much uncertainty and confusion, is it any wonder that financial markets are roiling?