THE BLOG

Featuring fresh takes and real-time analysis from HuffPost's signature lineup of contributors

Paul Abrams Headshot

Without Congress, President Obama Can Provide a "Tax Cut" That Really Will Spur Economic Growth

Posted: Updated:
AP
AP

Oil prices are rising. That is like a tax hike on the American people with the money going to oil company and speculators' coffers. That "tax increase" does nothing to spur economic growth such as building roads and bridges or investing in our children's education.

A large part of that increase is due to speculation on the futures market.

What is that?

Futures markets trade contracts to purchase a commodity, like oil, at a future date.

The futures markets were originally designed to enable producers and consumers to smooth the price of commodities so they would not be subject to seasonal (for agricultural products) or other supply variations. The expectation was that a purchaser of a futures contract would usually take delivery on the due date.

Those markets changed as futures contracts became used as vehicles for speculative profit-taking. Using mortgages for the same purpose was a much more recent phenomenon, and caused the economic meltdown.

Oil futures contracts entered that same realm some time ago. However, oil futures were not regulated. Today, only about 30% of the oil futures contract holders actually take delivery. The remaining 70% take their gains or losses from their speculative play.

In hearings before the Senate Commerce Committee on May 12, 2011, Rex Tillerson, the CEO of Exxon/Mobil estimated that the price per barrel of oil would be about $60-70, i.e., a 30% reduction in oil prices.

Senator Maria Cantwell (D-WA): "What do you think the price would be today if it were based on the fundamentals of supply and demand?"

Rex Tillerson (CEO, ExxonMobil): "If you were to use a pure economic approach, the economist would say it would be set at the price to develop the next marginal barrel... it's going to be somewhere in the $60-70 range".

President Obama can call upon the Commodity Futures Trading Commission, headed by his appointee, Gary Gensler, to regulate the oil futures markets. If Rex Tillerson is correct, and he is about as well-positioned to know as anyone, that should reduce oil, and thus gasoline, prices substantially.

Instead of the difference going to Goldman Sachs's bonus pool, the reduction in oil and gasoline prices would have a stimulatory effect on the economy. Any products that used oil would see their costs reduced, either improving profits and/or reducing costs to consumers, making our businesses more competitive.

Reduced price-at-the-pump would put more money in consumers' pockets and decrease the burdens on working families who spend a higher percentage of their incomes on fuel -- heating oil and transportation -- than do the 1%.

Reducing speculative bubbles in the oil market is even more important than ending subsidies to oil companies.

Goldman Sachs and their fellow travelers will squawk.

Who cares?