With oil prices heading back up again, this article by Matthew Yglesias is well worth reading. The key point is that soon enough, "we’ll be right back where we were in the summer of 2008 where sky-high gas prices were clobbering everything." Even worse, "we haven’t really done anything over the past year to leave ourselves better-prepared for that situation." As the economy and oil demand recover from the recession, what could very well happen is that spare world oil production capacity will begin shrinking, as will oil inventories in terms of days forward consumption, and the price will be back above $100 per barrel before you can say "addicted to oil." What happens when oil goes back above $100, $120, $150 per barrel? Here's Matthew Yglesias on one possibility:...A spike in oil prices will put a stop to [rising real incomes for the "employed majority"] and further hammer consumption. And the ensuing rise in inflation, though it’ll be non-core inflation, will probably make the Fed queasy about expansionary monetary policy.To make matters even worse, we'll find ourselves once again in a position where ungodly amounts of money are going to petrodictatorships and other state and non-state actors who are NOT OUR FRIENDS. In other words, our oil addiction is a disaster both economically and strategically (not to mention environmentally). What should we be doing about this situation? First off, despite what know-nothing/pander-bear politicians like Bob McDonnell think, we can't "drill baby drill" our way out of this mess. That means we need to slash our oil consumption drastically and rapidly. How do we do that?
Which is to say that if the recession ends, then it seems likely that we’ll slip right back into a new recession...
1. Crank up fuel economy (CAFE) standards to 35, 40, 50, even 100 miles per gallon as rapidly as possible.
2. In order for people to actually want to BUY these fuel-efficient vehicles, slap on a steep, but completely revenue neutral, carbon tax. What this would do is to raise the price of energy while simultaneously returning the money to people -- particularly lower and middle-income people. The end result will not be any additional government revenue, since that isn't the goal. Instead, what we're trying to achieve is getting off of oil as rapidly as possible. The cool thing about a carbon tax is that it rewards those Americans who move most aggressively to slash their oil consumption (they'll end up actually MAKING money on this deal), while it simultaneously punishes laggards (who will lose money). It's the individual's choice, but within the context of energy prices that reflect the real price of the energy, including externalities. The bottom line is that - as Tom Friedman and many others on both the "left" and the "right" have pointed out - we've got to get the price signals right, or all else will fail.
3. As former Vice President Al Gore has proposed, convert the U.S. power generation sector to non-carbon-based energy and switch out - over a decade or so - the U.S. vehicle fleet from gasoline and diesel to electricity. Voila, no more dependence on Saudi oil, no more boom-and-bust economic cycles caused by fluctuating oil prices, no more petro-dollars countries and terrorist groups that don't like us.
4. Remove all subsidies that encourage the sprawl pattern of development. One of those, of course, is artificially low energy prices, which the revenue-neutral carbon tax will help deal with. Other than that, we should be pouring money into smart growth, not sprawl.
5. Once we stop subsidizing sprawl, we can use that money to build an ultra-modern, 21st-century network of high-speed rail, commuter trains, trolleys, bike paths and other mass transit options so that people have numerous alternatives to the automobile. This, along with the higher price of energy, will in turn make our urban areas far more attractive places for people to live and work, further reducing oil consumption.
No, this won't be easy. Yes, it will be disruptive. But I'm convinced that if we want to maintain our national security, our quality of life, and our planetary health for decades/centuries to come, this is the way we must go. The question is, do we have the will as a nation to do it? I'm dubious, but far less so with Barack Obama as President than with the two oil guys (Bush and Cheney) who preceded him.
