“Coulda, Woulda, Shoulda” – Friedman 11/14/07

Today’s column by Friedman on energy policy should be mandatory reading for all political candidates. The basic premise of the opinion is that America has failed to act in a coherent manner with regards to energy (i.e. oil) policy. Specifically, Friedman points out the drastic increase in oil prices from September 2001 through November 2007 (350%), which can largely be attributed to the increased global demand for oil. This increased global demand is significantly related to America’s failure to reduce its’ demand and developing nations (e.g. China and India) adopting the American developmental model with respect to energy policy (see 11/9 post). The real underlying issue Friedman has with the current policy is that America has blindly relied on market forces to guide energy policy, but in a situation as complicated as energy policy the market fails to consider all the costs and benefits of a transaction. In a completely free market there is no obvious incentive to the individual driver or company to reduce oil reliance because the benefits that accrue from such decreased reliance are to the nation-state and society at-large and not the discreet economic unit. The societal costs of additional pollution is not part of the transaction, nor are the implications on geopolitical stability and sustainability calculated (directly) into the spot price of West Texas sweet crude.

The question is how do we get these costs considered in each transaction? One method would be to get individual consumers to price in these costs on their individual consumption behavior. Though laudable, the aggregate effects of this change will likely be nominal due to the overwhelming costs of an educational drive and also due to the low participation rate in such a program. The low participation rate is economically understandable, because there is no rational economic disincentive to the behavior in question. This is where a second method of regulating the market comes in: taxes. Of course using taxes to modify behavior is never very politically palatable, but this is when a truth telling politician (don't laugh) is needed. Friedman argues we need a candidate (a Democrat in his mind, and probably the only hope at all) to speak to this issue in a clear and truthful manner.

“DEMOCRATIC CANDIDATE: “Yes, my opponent is right. I do favor a gasoline tax phased in over 12 months. But let’s get one thing straight: My opponent and I are both for a tax. I just prefer that my taxes go to the U.S. Treasury, and he’s ready to see his go to the Russian, Venezuelan, Saudi and Iranian treasuries. His tax finances people who hate us. Mine would offset some of our payroll taxes, pay down our deficit, strengthen our dollar, stimulate energy efficiency and shore up Social Security. It’s called win-win-win-win-win for America. My opponent’s strategy is sit back, let the market work and watch America lose-lose-lose-lose-lose.” If you can’t win that debate, you don’t belong in politics.”

The likelihood of any serious candidate making this kind of statement is slim, but just because the current political actors aren’t willing to say it does not mean it is without value (an argument could be made that precisely for this reason it has value) Americans need to realize that continued (over) consumption of oil has a number of negative externalities coming to bear on each additional barrel of oil imported from abroad. It is my opinion that the best method to address these concerns is through a fuel tax. I understand that this tax would be inherently regressive, but this could be addressed through a phase-in and/or a temporary (I know this is hard to do) fuel tax income tax credit. Taxes have their place, and though modifying individual behavior may be the most desirable, sometimes a little government intervention can get the ball rolling.

Take this as my personal call to arms for a Geopolitical Social Cost Benefit Analysis of US Energy Policy. There has already been an outcry for including a tax on oil that would incorporate the social costs of pollution, but I argue here that we must consider the geopolitical consequences of continue reliance on foreign oil from unstable regions. An extension of the current policy, leads to America in a showdown of increasing demand with China and/or India for a stagnating world oil supply.

"Did We Do That?" - Friedman 10/28/07

Today, Friedman penned a column on global warming and climate change that focuses on the question as to if certain cataclysmic events that are occuring (e.g. Southern California fires) are directly the fault of mankind. The idea that a specific event is atrributable to global warming is a stretch, to say it is specifically attributable to human action is even more difficult. It is, however, important in my mind that these types of anecdotal connnections be made in the general imagination of the populace. The thing that I find resonates most for people is when they think about the things they or their loved ones have seemingly noticed changing over time -- Be it the later freeze or the earlier thaw of farmers or the ability to golf in November in the suburbs of Chicago. These discreet events are what powers our imagination, which can lead to a collective consciousness that realizes there is a cost to our actions.

There is no completely conclusive evidence that a catastrophic and tumultuous weather period lies in wait, but as Friedman and his interviewees point out -- Weather change is occuring and if these disastourous events do continue to come in higher than expected frequencies, we are severely lacking in our infrastructure to handle these issues:

"Getting society focused on meeting these new infrastructure needs is huge. Our creaky power grid or leaky water pipes really matter in prolonged, record-shattering droughts like the one Georgia is now experiencing. “Some scientists have suggested giving droughts names, like we do hurricanes,” Ms. Cullen noted. “If we did, this Southeast drought would be called Katrina, and it would be about to hit Atlanta."

The failure of the world (with the likely exception of the Dutch-- they've been ready for years) to address how we will handle a 3 inch rise in ocean levels and the inablility to recongize the critical importance of having a water distrubution system that can handle and accommodate a severe drought are two (there are many) examples of how we are not preparing for what may not be certain but is becoming more and more likely.... and you just don't build flood walls overnight (just ask the Dutch)!