Do-Over

With the meltdown in foreign hydrocarbon prices, the panic gripping Detroit, and the rise of Obama and Waxman, we are in a Great Do-Over. This summer, we saw how out-of-sync the world can get through an exclusive focus on economic growth. We let parasites like Russia grow unchecked in power, and we did not have the infrastructure we needed to free ourselves of them.

Supposedly serious analysts announced an end to peace, and urged us to accept the reality that oil- and natural-gas- rich nations would be invading their neighbors as they like from now on. Accept it, we were told.

Fortunately, we no longer live in that world.

Now, while oil and natural gas prices are low, we have the opportunity to act. We should raise the national gas tax to at least $1/gallon more, but refund it through the tax code so it does not hurt the poor. We should build light rail in and between our cities. We should mandate flex-fuel vehicles, both to lower the structural demand for gas and to allow us to quickly move off it in the event we have to for national security reasons.

For the second time in two generations, the hydrocarbon-rich states were given the power of high commodity prices. Of course, they blew it again, maximizing their short-term profit and helping drive the world economy into a global recession.

We were fortunate that most of them (Russia excluded, of course) were just greedy, and not irredentist.

We may not be so lucky the third time.

6 thoughts on “Do-Over”

  1. Oil prices are down for one reason: we are in the midst of a global economic meltdown. It won’t last forever. It will be impossible for there to be global economic growth without vigorously increasing oil prices. The oil states will do just fine, and they will be huge winners when this downturn resolves. Even with vigorously escalating prices, oil will remain the cheapest form of energy, and the most profitable to have and sell.

    Iran will not be injured by this downturn. Nor will Russia. Nor will Venezuela.

  2. Even with vigorously escalating prices, oil will remain the cheapest form of energy…

    I doubt this is true.

    If it was, it would seem to be irrational for any coal, natural gas, etc., plants to be built, when it would be more cost effective to have oil-fired power plants. I am not aware of any oil-fired power plants being built.

    Do you have any reference for your claim?

  3. son
    When oil prices were high there was a great deal of debate between economists as to whether record high prices were the result of increased oil demand or increased speculation. [1]

    While I do agree that part of the drop in oil prices is the result of decreased economic growth, an implosion in the speculation markets also has something to with it. An economic recovery would drive demand up, but while the price of a barrel of oil will not drop forever, it probably won’t sky rocket to its petrol state empowering highs for a few years.

    Also, I wouldn’t bet on the three amigos (Putin, Chavez and Ahmedenajad) all making it through the plunge unscathed. This article claims that Venezula needs $102 per barrel and Iran needs $83 per barrel to balance internal and external accounts [2].

    Oil closed yesterday at $52.

    [1] http://tpmcafe.talkingpointsmemo.com/2008/05/14/speculation_oil_prices/

    [2] http://uk.reuters.com/article/businessNews/idUKTRE4AJ44420081120

  4. Needs $102 a barrel?

    The average barrel price to date in 2008 is around $105. What they are claiming is simply impossible.

  5. Dan – cheapest for transportation – gasoline, diesel, jet fuel, etc.

    If some sort of giant step in technology should arise, that would change. Short of that, it’s not going to change.

    Brent – looking at the article again, it appears to be saying Venezuela needs 102 in 2010. Even that, I think, is farfetched and typical of the distort US media take on Venezuela.

  6. Recently, the news was talking about Iran’s need for $60/barrel oil. [1] Likewise, Russia’s currency and foreign reserve are under some stress [2]. I’m assuming most of these petro states are closed off enough that an honest accounting of all this would be hard to do.

    Dan – cheapest for transportation – gasoline, diesel, jet fuel, etc.

    If some sort of giant step in technology should arise, that would change. Short of that, it’s not going to change.

    I’m not sure what a “giant step in technology” would be here. Certainly we’ve had a subsidy structure that made gasoline appear artificially cheap for many years as a fuel for transportation. A different subsidy structure would lead to different outcomes.

    Infrastructure choices matter, and if Obama seizes the opportunity, we can create a transportation energy infrastructure that’s appropriate for a post 8/8/08 world [3].

    [1] http://www.iranfocus.com/en/iran-general-/iran-says-oil-under-60-dollars-troubling-for-economy-16603.html
    [2] http://www.guardian.co.uk/business/feedarticle/8057250
    [3] http://www.tdaxp.com/archive/2008/08/10/8808-like-8290-and-91101.html

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