From the June 10, 2008 Examiner
June 10, 2008
by Irwin Stelzer
Toss a barrel of $135 oil into the economy, and the ripples will swamp some of the boats trying to stay afloat in the current sea of economic troubles.
And planes. Airlines are grounding their least fuel-efficient planes in an attempt to cut costs. So fewer budget-priced seats will be available to prospective vacationers. Businessmen, too, are beginning to respond to the rising cost of company meetings by discovering the virtues of teleconferencing.
Of course, homebound consumers and deskbound businessmen could drive, but with gasoline prices being what they are, that, too, is an expensive undertaking. Which is why fewer tourists are visiting Washington, and traffic in the suburbs of Washington is dropping, and use of mass transit is on the rise.
All of which adds to the pressure on our politicians to do something. Not for them Ronald Reagan’s famous plea to his officials, “Don’t just do something, stand there.” Some new policies are badly needed, but that is not in the cards, because the inclination of politicians is to do precisely the opposite of what needs doing.
In their never-ending hunt for the quick fix, politicians want to ease the pain at the pump by lowering gasoline taxes. Never mind that prices would soon rise so that the net effect would be to lower the tax receipts of our treasury and increase the flow of funds to the House of Saud, Hugo Chávez, Vladimir Putin and others not kindly disposed to Western democracies.
Even if prices did fall, the result would be to encourage greater use of gasoline and to discourage the development of alternatives to the use of oil-based products.
The hard fact is that are no quick fixes, none that would have significant effect in, say, the next 10 years. Review the list:
n Even if nuclear power proves to be economically viable, which becomes less likely with each new estimate of their cost, new plants will not be online for 10 years.
n Coal is available in abundance here and in friendly nations, but more than 100 of the 151 coal-fired plants in the planning stages in America last year have either been denied permits, quietly abandoned or are being contested in the courts by environmental groups.
n Ethanol is in disrepute because the subsidies have caused a switch from food to fuel production, driving up food prices.
n The electric vehicle remains more a hope than a reality, as batteries that are quick-charging and long-lasting are too expensive, and lower-cost batteries take a long time to recharge and don’t get you very far down the road.
n Significant supplies of newly discovered oil might put downward pressure on prices, but the producing countries won’t allow exploration and development, our fields remain unexplored, and new fields in Brazil and elsewhere will take years to develop.
n Solar and wind generation remain heavily dependent on on-again, off-again subsidy programs and in any event are not significant substitutes for oil.
There’s more, but you get the idea — the cavalry is not just over the hill; it has yet to leave its base. Prices might come down a bit from time to time, or even by a lot now and then, but so long as China, India and other countries continue growing, enriching their bicycle-riding, rickshaw-pulling masses, oil prices will remain higher than they were before the current run-up.
So we will continue the shift that has left dealers with lots crammed with unsold SUVs and unable to meet the demand for more fuel-efficient vehicles. We will set thermostats higher in summer and lower in winter.
Insulation levels will increase, and lighting levels decrease. All because we have refused to tax gasoline so as to get the money into the U.S. treasury rather than let producing nations snatch it for themselves.
In short, economics works, if consumers are left free to adjust to higher prices in ways they find most agreeable and efficient. But politicians prefer “solutions” that not unsurprisingly confer more power on them and less on markets.
Both favor the cap-and-trade system that will do little to cut carbon emissions but will put multitrillions up for grabs by the K Street crowd.
Both have drunk deeply of Al Gore’s global warming potion while zooming around the country in private jets and racing to meetings in their SUVs.
No light carbon footprint for them.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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