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Oil Spill Speech
Jun. 16th, 2010 11:23 amI watched Obama's Oval Office address via DVR-delay last night. It wasn't quite the rousing battle cry that the talking heads on the TV-machine were looking for, but it said what needed to be said. Considering how frequently those same talking heads were wrong about Obama, I'm willing to cut the man some slack.
Over at Simberg's Flying Circus, I'm being told that our dependence on foreign oil is a problem not amenable to government action. I call bullshit. It's nothing I haven't said before, but here is my more formal reply.
A large part of the problem with energy independence is in fact economics, and consists of two factors. First, in the short term, energy costs fluctuate wildly. If an alternative fuel plant is profitable at say, $3/gallon gas, the risk that gas will be $2.50/gallon will greatly discourage investment.
Second, in the long term, making fuel (which is what all alternative fuel schemes boil down to) will always be more expensive than just pumping it out of the ground. As alternative fuels become more common, the price of fossil fuels will fall. This will set up a vicious cycle of boom and bust.
Government can offer a solution to both those problems. The simplest and cleanest solution is to simply set a price floor on the undesired fuels via taxes. The somewhat more complicated solution is a carbon tax / cap-and-trade. Either way will work.
Just letting the free market run won’t. What will happen in that case is an asset crash. Prices will fluctuate and, as supplies finally run out, climb rapidly. But because the price fluctuations will have discouraged development of alternatives, there will be a very limited supply, leading to an energy crisis.
Over at Simberg's Flying Circus, I'm being told that our dependence on foreign oil is a problem not amenable to government action. I call bullshit. It's nothing I haven't said before, but here is my more formal reply.
A large part of the problem with energy independence is in fact economics, and consists of two factors. First, in the short term, energy costs fluctuate wildly. If an alternative fuel plant is profitable at say, $3/gallon gas, the risk that gas will be $2.50/gallon will greatly discourage investment.
Second, in the long term, making fuel (which is what all alternative fuel schemes boil down to) will always be more expensive than just pumping it out of the ground. As alternative fuels become more common, the price of fossil fuels will fall. This will set up a vicious cycle of boom and bust.
Government can offer a solution to both those problems. The simplest and cleanest solution is to simply set a price floor on the undesired fuels via taxes. The somewhat more complicated solution is a carbon tax / cap-and-trade. Either way will work.
Just letting the free market run won’t. What will happen in that case is an asset crash. Prices will fluctuate and, as supplies finally run out, climb rapidly. But because the price fluctuations will have discouraged development of alternatives, there will be a very limited supply, leading to an energy crisis.
