Priorities, Playboy, and Price of Gas

Now it is gas prices. Now we are all concerned with gas prices. Mom said, Larry, I told you not to shoot that BB gun. Now look and see what you did to the neighbor’s plate glass window. Yes it is true. I did NOT shoot my eye out but I did manage at the age of about 10 to shoot several holes in my neighbor’s very large and expensive window. Luckily the only one that got hurt was me as I dealt with no allowance through puberty.

This post is not about heeding warnings. It is too simple to tell a story whose theme is “I told you so.” The real story is priorities – and especially priorities during a time of crisis. When a hurricane is bearing down on your town you don’t decide this is a good time to mow the yard – even if it needs it.  It might be a better use of your time to be putting up your window shutters. When your girlfriend starts avoiding your phone calls is not the best time to fix the chain on your bicycle. You might want to test your deodorant instead. When your boss scolds you every day about your job performance is not the time to start taking afternoon naps at your desk. Instead put down the Playboy Magazine and start focusing on your customers. Mowing the yard, fixing your bicycle and naps may be very important things to do. In ordinary times you should do these things religiously. But when all hell is breaking lose around you it seems rational to decide exactly how you should be focusing your time and energy—focus on the essential!

You might call this a process of taking one step backwards so you can take two steps forward. That is, it goes without saying that emergency times sometimes require that you lose steam or willingly stop progress in some areas so that you can focus your efforts on the problem at hand. If there is one thing I see in Washington it is an inability to prioritize and in doing so we make no progress. Fear of taking a step backward is causing us to recede and fail.

This lack of prioritization is not just a problem with energy prices. But let’s take energy first. The press is filled with stories that keep coming to the same point. We have known for some time that energy prices can spike and that they often behave this way when political problems become extreme. We have known for some time that oil and gasoline prices are on a razor’s edge between demand and supply.  Whether you call it the Arab Spring or you focus on the nuclear ambitions of Iran, we know that the world is quite vulnerable to international tensions. That Iran burped and oil and petro prices galloped is no surprise to anyone. It was a known and high risk.

As a demand and supply addict, I cannot help but frame this problem logically in a market framework.  Fundamental demand for oil is strong and growing. Sometimes speculative demand adds much to the fundamental amount usually demanded. Supply never seems to catch up to this demand in a way that might return oil prices in a permanent way to more tolerable levels. An economist would look at this market situation and conclude that a solution with lower oil prices would either require a reduction in demand or an increase in supply. In the recent past, neither of these outcomes has occurred. Thus we are not only stuck with high oil prices but we are continuously exposed to the risk of much higher oil prices.

 

The President was on TV the other day making fun of his political adversaries as he gleefully and disdainfully uttered the words Drill Drill Drill. The policy of his political opponents, according to the President, is to drill for more oil. I will readily admit and agree with the president that there is no quick solution to the rising prices of oil and gasoline. But there are policies that could be enacted today that might make some difference in supply of oil and gas forthcoming in the near-term future. And it seems to me that a recognition that a real solution is coming would go a long way to reducing speculative demand and might have a nice remedial impact on gasoline prices today.

So why doesn’t the President forcefully move in that direction? Why doesn’t he push for drill drill drill? The answer relates to priorities in a crisis situation. We need a policy to bring about a lot of supply in a relatively short period of time. To me, that is goal #1. But I think that goal is being held hostage by other priorities. These other priorities are not bad. These other priorities are things that are important and during normal times should be given strong shrift. But let’s deal with first things first. If oil and gasoline prices stay at their heightened levels, there is no doubt they will threaten the US and global economic expansion. There is no doubt that progress with employment goals will be pushed even further into the future. This will further underscore growing consumer negativity and unleash a decline in confidence in the US and many other countries. The question to ask, then, is why we would not pull out all the stops to get oil and gasoline flowing in a sustainable way? The answer is other priorities. We want green energy. We do not want to pollute our ground water or our lakes and oceans. We also want to be a world leader in developing the renewable sources of future energy. Is the probability of worsening the world by taking one step backward on these laudable goals worth the sure thing that the economy will worsen substantially? Am I shouting?

Maybe some of you think I am being disingenuous. Old Lar is pretending to be for clean water and clean air and new technologies but he is really one of those people who want to create a dirty and unsafe planet so that rich people who run oil companies will get richer and richer. If you want to think that, I cannot stop you. But I will cling to the idea that there are ways to take our step backward and to move forward. We can rely on fossil-based fuels to help solve the very alarming energy situation we face today AND we can also make slower but defined real progress towards our long-term renewable and clean resources. 

These things go hand in hand and it might be helpful to think of what happens if we do not go in this direction. First, by not moving more quickly with fossil fuels we ensure the certainty of a deep loss of employment and growth today. We accept this negative reality so that we do not increase the small probability of a calamity from a major pipeline or deep-water drilling .  Second, given our current national financial position and the worsening of it by higher energy prices, we also will probably have to give up some of the subsidies and tax advantages for those who would bring us the cleaner renewable energy. As slow growth provides even stronger challenges for government budgeting no program will be spared.

Inasmuch, the prudent thing needs to be done now. We need to work on a plan that would put the world awash in energy supply. Whatever form of energy that is, it is worth the try. If it means slowing down other forms of energy supply for a time – that makes sense. Focus on what is most important and most possible – and then address it. Otherwise we are going to find ourselves with insufficient energy – of all kinds. And of course we will have lost our opportunity to finally do something fundamental about energy prices.

You might argue that a temporary movement way from longer-term social and energy goals is really an excuse to permanently avoid attention to environmental harm. And for some people, that might be their goal. But for most of us who want our cake and eat it too there must be some compromises in the process of policy that makes it very clear that whatever steps taken backward will be temporary. I realize this is a lot to expect from our leadership, but it does make an easy compromise for both sides. Environmentalists do not want to see another economic crisis. The latter would harm the progress of their goals. Those who want growth through less environmental regulation get their day in the sun too but would have to agree to a resumption of regulations in the future. Both sides have plenty to gain. But if the past behavior of these so-called leaders is a guide to the future, they would rather raise the pitch on their usual arguments than use a little common sense.  It will be interesting if not frustrating to see how this plays out in the next weeks.

One final point. It seems to me that the President and his party are already loudly on record with respect to prioritizing and taking steps backward when it comes to the area of policy known as stimulus policy. They recognize that too much government debt and too much money can harm an economy in the long-run. Yet they are ready to risk the future of our country so that they can focus on employment. Why then is energy policy not part of their plan? Why can’t they also put at risk very long-term green goals to improve the health of the economy today? I will leave the answer to that question to my dear friends who read this blog. Your constructive comments are always welcome!