Thursday, June 26, 2008

Energy Gimmicks

I agree with Barrack Obama. McCain's program to give the company a $200 million award for inventing a better battery, fuel cell (or whatever) is a gimmick. The market already will award all of the best in category solutions. There may be some need for government in research investment, but not in the final reward.

Unfortunately, Obama's counter proposal of spending $150B on an energy initiative is even worse.

The primary problem in our country is that we waste energy. The solution to this problem will come by individuals figuring out how to waste less energy.

A massive government energy program won't cut back on energy consumption. It will institutionalize energy consumption.

Putting this another way … our resource intensive lifestyles has us consuming way too much energy. Because energy was cheap, we fell into patterns where we opted for energy intensive products over labor intensive products. The challenge for the market is to find ways to reverse this trend and to replace resource intensive products and services with labor intensive products and services.

When prices reflect reality, the market does this on its own. Products that consume a great deal of energy go up relative to other goods and services.

Barrack's program to slam onerous taxes on all of aspects of lives to pay for a big energy program will simply institutionalize the current imbalance. Spending $150B on energy does not address the fundamental problem that we aren't using our energy sources well.

High energy prices do this. The leadership we need is one that directs us from energy intensive solutions of our problems to labor intensive solutions.

There is a lot of hatred directed at speculators of late. The great crime of the speculators is that they made prices higher at the moment than they might be if our economy ran on a strict cash and carry basis.

Speculators are driving up prices because they believe that energy prices will continue to rise through the next presidency which, barring a miracle between now and November, will be Barrack Obama in the Whitehouse and a Democratic supermajority in the House and Senate. It is a good bet that energy will cost more. Since Barrack wants $150B to subsidize energy consumption, it is a good bet demand won't drop.

I've seen reports showing a very small (1 percent or so) drop in US oil consumption. The big problem is world demand. The US would do well if it increased oil production. The problem we've always faced in the past is that our government tends to thrash from underproduction to overproduction.

I doubt we will ever see anything but gimmickery and overreaction by the political class.

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