Sunday, July 6, 2008

Running On Empty

Americans are feeling pain at the pump; gas prices going into the July 4th weekend hit a record high national average of $4.09 for regular unleaded, up $1.14 from a year ago and roughly triple what it was when Bush took office. Oil has topped $145 a barrel and high fuel costs are leading to price increases across a wide swath of products.

But in truth, U.S. gas prices are low by world standards. As this chart shows, there are many developed nations where the average price of a gallon of gas is between $7 and $10.

Most of these nations are not being hurt as much by the current oil price shock because their governments were smart and made gas expensive long ago. This created incentives for better public transit, more fuel-efficient vehicles and industrial processes, and shorter commutes. For decades, many U.S. economists have been urging higher gasoline taxes for exactly these reasons; unfortunately, their advice has fallen on deaf ears.

As the price of oil plummeted in the 1990s, the SUV craze took hold and Detroit automakers ignored the lessons of the 1970s and 80s. Not only did these behemoths lead to more urban sprawl and less automotive safety, America’s carbon footprint grew enormously. Politicians of both parties took the myopic, short-term view. They could have seized on this period of low gas prices as an opportunity to phase in a higher gasoline tax, and move towards a more fuel-efficient and less oil-dependent society. They didn’t.

Fast forward to September 12, 2001.

Of the 19 hijackers who changed the world the previous day, 15 came from Saudi Arabia. We knew then that Saudi oil money financed extremist groups. Iran and Iraq, two other nations that represented serious national security challenges also relied on oil money, as well as Russia and Venezuela.

Given the growing threat of global warming, any serious U.S. effort in 2001 to reduce its oil dependency would have been warmly greeted by the world community, especially the Europeans. The massive investments in technology required for such an endeavor would have helped reinvigorate manufacturing in the U.S. and the American auto industry.

Instead, an administration run by oilmen told us that conservation is for hippies and that all America needed to do was go shopping.

Fast forward to the present.

Virtually all of the worst-case scenarios of 2001 have come to pass. Rogue, terrorist-sponsoring oil states are awash in cash, which they are using to fund groups hostile to America. Here at home, there’s a long list of problems: the economy is teetering on recession, auto sales are slumping sharply, with GM and Chrysler headed toward bankruptcy, and the U.S. has recorded its sixth straight month of job losses; at the same time, not coincidentally, the threat of global warming continues to accelerate. And while Bush and Cheney continue to beg the Saudis to open the taps a little more, the Saudis are putting pressure on us to raise interest rates (in order to strengthen the dollar) at a time when the financial sector would be further weakened by such a move.

And we have no one but ourselves to blame.

All of these outcomes were both predictable and avoidable. In April of 1977 President Jimmy Carter put forth a comprehensive energy policy that is amazing in its detail and prescience. In the speech Carter calls for collective sacrifice and warns us not to get sidetracked by the sudden drop in oil prices because of the need to plan for the long-run. Carter was largely scoffed at and ignored and now we have to live with the results (Nixon also devoted some of his 1974 State of the Union speech to energy issues, although he did not offer nearly as comprehensive an assessment of both the problems and the solutions).

Unfortunately, when it comes to sound energy policy the U.S. has been running on empty for way too long, and we’re going to have to suffer for a while before things turn around.

Jason Scorse

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