Yesterday I catalogued a list of policy failures that I think are instrumental in putting us into the economic straits in which we find ourselves. At Business Insider Gregor MacDonald takes note of something I left out of my list, the consequences of our lousy environmental and energy policies:
Only an economist could wonder in their leisure now, whether energy played a significant role in our current crisis. Indeed the public remarks of Ben Bernanke on the matter of energy, during the 2005-2010 period, were at least as clueless as his embarrassing commentary on the historic bubble in housing and credit. As the nation’s chief economist, Bernanke saw no problem with credit, with derivatives, with the fast inflation in housing prices, or with energy prices. And as an American economist, he was not alone.
As state’s see their budgets collapse and start a new round of layoffs, we should consider the fact that house price inflation masked the lack of wage growth in the United States. And now that house prices continue their descent for a 5th year, American workers are more fully exposed to the decade-long march higher in energy costs. They can experience this individually through energy prices, or more generally through the overall energy cost to the economy.
After healthcare costs one of the most telling increases in costs across American businesses and units of government is the rise in energy costs. According to the article cited above in 1999 energy costs represented less than 6% of GDP. Now they represent nearly 10%. That can’t be explained by flagging GDP—it clearly demonstrates rising costs of energy.
As with the other policy areas I’ve highlighted, it’s less that we need to do more or do less but that we’ve got to do differently. Drop subsidies on things that are inefficient or that we don’t want. Encourage the efficient distribution and use of energy. Stop putting roadblocks in front of technologies that are available now.
” Encourage the efficient distribution and use of energy. ”
How? The market solution will be to stick with oil until it costs more than the alternatives.
Steve
Hmm. Oil is only the preferred solution in transportation because of its compactness and portability. Most electricity in the U. S. is generated by burning coal, natural gas, hydroelectric, or (where I live) nuclear.
Oil is only economical for transport because of a century of bad policy. We’ve screwed up our rail system, subsidized road building, and refuse to charge back the actual costs of keeping oil flowing from its sources around the world or remediating the effects of burning oil. If you jigger the market long enough and hard enough, it will come up with awful solutions.
I’ve covered this territory before here, Steve. Although I’m opposed to most bread-and-butter type federal projects, I’m in favor of federally supported mass engineering projects, e.g. the Manhattan Project, the space program, and, in its own small way, the Internet. Stuff that the states or the private sector just won’t tackle either for reasons of scale or lack of interest.
One of those areas would be a major project to modernize our power grid whatever you might call it. Such a project should take its inspiration from the Internet: redundant, de-centralized, resilient, adaptivized.
Think globally. Every country did the same things as far as I can tell.
Steve
OECD countries have done nearly the opposite in energy policy of what we’ve done over the last 30 years. Check Europe’s “Green Revolution”, which really got underway about that time.
They’ve taxed gasoline, engaged in serious energy efficiency moves, and did the experimenting with alternatives we’re just starting to do now. France has made a major move toward nuclear power—it gets almost 80% of its electricity from nuclear.