Thursday, June 29, 2006

Boy, if this isn't scary enough ...

John, thanks for taking Steve out of the loop. Last thing I want in the office next door is a cranky Steve Chase.

I would agree that the marketplace is the solution, but you have to understand that ultimately governmental incentives are a large part of the American economy. As a theoretical Keynsian economist, I absolutely believe that in a perfectly competitive environment the marketplace will produce the most long-term efficient solution.

But we don't have that, and I'm not convinced that it is possible at all. The problem with the alternative fuel issues we have is the massive startup costs. The R&D that Bill so accurately pointed out is critical, but who has the deep pockets for that? And, more importantly, if we as a society believe that moving towards zero-emissions is a long-term good for society, why don't we create financial incentives for participants in the marketplace to make that investment?

Just to clarify, I don't think that negative incentives (also called taxes) are appropriate at this point. If there was a viable alternative, then I could see the argument, but right now I don't think it makes a lot of sense. I do think we can do some things on the margins (such as raise CAFE standards to 40 MPH, and end the ridiculous treatment of SUVs as trucks letting them skate on the mileage standards), but I don't think anything further than that would be worth the short-term economic cost to the economy.

Finally, on the Bush-bashing. Believe me, in general I am all for it, but I think it's important not to lose focus. I do think it's legitimate to point out that the current incentives advocated by the current administration are benefitting the biggest campaign contributors to the Bush team, at the detriment of alternative fuel sources. It's also legitimate to be a WEE bit cynical of the incentive of the current administration to take actions that might harm the status quo of Big Oil, for whom Bush and the Republicans have worked very hard.

But this is a bigger picture, and I would agree that we should remain focused on the larger issue.

2 comments:

Anonymous said...

Okay, first try here, so let’s see if it works!

Pat, to address your paragraphs in order (some of them.) I agree we don’t have, and in my lifetime surely won’t have, a perfect marketplace. I’d even agree that it isn’t really possible, in a society where people live together and agree to a government.

BUT . . . and CRITICALLY, you mention startup costs and deep pockets for alternative fuel possibilities – as a huge obstacle. Buddy, this isn’t any hindrance to major projects. How much does it cost, up front, to start drilling for oil or natural gas in the Arctic? Enough money to boggle the mind. But, due to the expected payout, and the willingness of investors to front the money (for a substantial return of course) the capital is available. Such projects do go forward all the time. Once the technology is even partially proven, the investment capital is sure to follow that possibility of a vast return. In point of fact, much of the investment capital is simply lost, because of poor decisions. But those who bet right, reap huge rewards.

On another note, you seem to say that a free market is ideal, yet accept that we don’t have one. Your “fix” is to tweak the CAFE standards, etc, to be more effective. This is simply wrong. Changing such standards to work “better” accepts the proposition that they have a right to exist in the first place. The best possible “fix” for such policy is to eliminate it altogether. (again I will, wearily, note that I don’t believe we are going to be rid of such crud in my lifetime. It will continue to eat at us for years. I am speaking in terms of what should be happening.) Doing things on the margins is simply rearranging deck chairs on the Titanic. No, it is adding more deck chairs (made of lead) to the Titanic. If this foolishness (Tax incentives/penalties, and as a free-market guy, the whole concept of CAFE standards and their ilk) is wrong to begin with, then trying to modify it to be as effective as possible is also wrong. The proper solution is to simply scrap this idiocy. If we are really going to fix this situation, even incrementally, then scrap the CAFE standards entirely, and do away with, bit-by-bit if needed, the corporate welfare that is now in place.

And “moving towards zero emissions” might (I think so) be a good policy. But the eventual realization of that goal will be with the economic cost/benefit analysis of the situation. Warm and fuzzy won’t do it. “Want it” won’t do it.

Finally, I’ll address again the Bush-Bashing and conspiracy theory gang. Look at the “Energy Policy” of the last several Presidential administrations. Look at the inflation adjusted dollars spent for “renewable energy” or “domestic production” and compare them with the “R” or “D” in the party column. Go back to Truman if you want. Then look at the amount of corporate welfare “big oil” got. Now tell me with a straight face that Bush is a tool of the oil interests, and must be replaced with a clean, straight-shooting Democrat. Good luck. I am NOT saying that Bush is a saint. I’m trying to point out that partisan politics is a hindrance to seeing the truth in this situation. The party of the current administration is irrelevant. Oil is cheap, and enjoys political perks. Deal with it and move on.

Note: Of course I provided no numbers to the above questions. Had I, they would not have been believed by those who needed them most. Check it for yourselves! That is the only way to be sure.

John

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