|
Edited on Sat Jul-15-06 08:11 AM by recidivist
Before bashing Bodman, pay attention to what he actually said. He is expressing some surprise that the economy has held up as well as it has in the face of the oil price escalation. That surprise is shared, I imagine, by just about everyone who remembers the 1970's. I would also guess that most economists, five or ten years ago, would have unhesitatingly predicted a deep recession by now.
We may get a recession yet, but "surprisingly resilient" is a fair characterization of the economy's performance so far.
Some random thoughts:
1. The U.S. economy is twice as energy efficient today as it was in 1973 (in terms of energy per unit of GDP). Most of this improvement has occurred in industry.
2. Consumers continue to be profligate. That will change if prices stay high. In the short term, people can easily reduce discretionary driving. Over a period of 3-5 years, the vehicle fleet can largely turn over. The McMansion crowd has a tougher adjustment in store -- the extreme commuters are the ones who will really pay the price.
3. At $3.00 a gallon, gasoline in the U.S. is still cheaper than it has been for many years in Europe and Japan, where high gasoline taxes have been the norm. As a general rule, I think taxes in the U.S. are too high (above the revenue maximizing level over a reasonable planning horizon), but I can easily make the case for a major increase in gasoline taxes here. If dependence on oil imports is a threat, our first target should be discretionary driving.
4. There is a good case to be made for putting a floor under the price of oil. There are many new energy sources popping up on the periphery. These are viable at various price points, but at an oil price from roughly $35/barrel on up, various of the alternatives are competitive. One of the big issues now, however, is uncertainty about the long term price of oil. How many billions of dollars are you willing to put into new plants if a drop in oil back to $25 puts you out of business? Correlatively, how long do oil prices have to stay high before you are convinced that $50 or $70 a barrel is here to stay? A price floor could resolve those uncertainties.
5. I wish I had invested a bundle in ethanol three or four years ago.
6. The politics of this could be dangerous. In the '70's, we aggravated and prolonged the pain with price controls and comprehensive regulation. The price bubble broke within months of President Reagan decontrolling oil -- lo and behold, it turned out that markets work. There seems to be a much greater maturity this time around. The danger, however, is that we will go overboard on subsidies -- not because they will accomplish anything but because politicians will feel they must "do something" and will get into a bidding war to one-up the other guy. That's not the way to make policy.
Hybrids, for example, are already flying off the lots as fast as the automakers can build them. We don't need to increase the already-existing subsidies. Ethanol and biodiesel, both of which already receive producer tax credits, are going gangbusters. We don't need to increase the subsidies. Wind energy, which also receives a tax credit, is surging.
The point is, at current oil price and subsidy levels, the market is already bringing new energy sources into play. I wouldn't remove the existing subsidies until things calm down -- there is too much uncertainty in the mix already -- but a couple of years down the road, if the price of oil stays high, we should be thinking about whittling them back, not increasing them.
What we need now is intensified research on the next generation of power sources: cellulosic ethanol, battery technology, plug-in hybrids, hydrogen, and fuel cells. These things are not ready for commercialization yet. A couple of them are getting close. All of these are high priorities right now for the Department of Energy. The Administration has packaged most of this under the rubric of the "Advanced Energy Initiative," which is worth a read if you are interested.
There's a lot of interesting stuff going on, but it won't happen overnight. I am very glad I am not a suburban cowby with a two hour commute. My gasoline bill has already gone up from $40-60 a month to around $100. I can afford that without much noticing the difference, but we live more sensibly than a lot of people (car- and house-wise, at least).
|
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
