Friday, May 05, 2006

Pulitzer winner versus hobby columnist -- Thomas Friedman on gas prices

Posted by Craig Westover | 8:38 AM |  

The Pioneer Press dead tree version runs an editorial by Thomas Friedman today (not on its site, but you can read it here) that starts out --

What would OPEC do if it wanted to keep America addicted to oil? That's easy. OPEC would urge the U.S. Congress to deal with the current spike in gasoline prices either by adopting the Republican proposal to give American drivers $100 each, so they could continue driving gas-guzzling cars and buy gasoline at the current $3.50 a gallon, or by adopting the Democrats' [and Mark Kennedy's, ed. note.] proposal for a 60-day lifting of the federal gasoline tax of 18.4 cents a gallon. Either one would be fine with OPEC.

So, to summarize, we now have a Congress proposing to do exactly what our worst enemies would like us to do -- subsidize our addiction to gasoline by breaking into our kids' piggybanks to make it easier for us to pay the prices demanded by our oil pushers, so that we will remain addicted and they will remain awash in dollars.

With a Congress like this, who needs Al Qaeda?

Seriously, there is something really disturbing about the utterly shameless, utterly over-the-top Republican pandering and Democratic point-scoring that have been masquerading as governing in response to this energy crisis. The Republicans are worse, because they control all the levers of power and could move the country if they proposed a serious energy policy -- but won't.
Up to that point, I’m pretty much with the guy -- even the part about the Republicans being worse because they won’t act. Friedman, however, goes on to turn the article into the call for a third party that would face up to the challenge of satisfying “our long-term energy needs, at reasonable prices, while decreasing our dependence on oil and the bad governments that export it.” Such action, says Friedman, “requires sacrifice today for gain tomorrow.”

That’s some dangerous rhetoric because while it correctly defines the problem, it makes two implications that lead to bad policy. First, it necessarily equates oil with dependence and bad (as in "evil") governments. Second, it implies sacrifice is an answer in and of itself -- that a sacrificial solution is the best or first choice. Neither is necessarily true.

America is not “addicted to oil.” America is addicted to utilizing the least expensive form of energy production. That is not a bad thing. That an oil economy gives power to regimes that are run by people you wouldn’t invite to a party at your house is. Friedman imples the problem is oil; it’s not. The problem is diversity of sources. More exploration, more emphasis on technologies that allow recovery of oil previously too expensive to harvest are more viable courses of action than the non-speciifc "cut or dependence on oil."

Second, sacrifice is not necessarily good policy, but that’s the conclusion that people are quick to jump to. Sorry, but telling someone else to change his lifestyle is not a policy -- nor is it likely to be effective in making any meaningful reduction in oil consumption.

Friedman himself falls victim to his own implications when he mixes rhetoric with policy.

Energy really is key to American renewal -- from stimulating more young people to study math and science, to bringing down the trade deficit by decreasing our dependence on imported oil, to bringing down the fiscal deficit by raising gasoline taxes, to improving U.S. competitiveness by making us leaders in clean technologies, to restoring U.S. global respect by leading the fight against climate change, to advancing democracy by finding alternatives to oil and thereby weakening some of the world's worst regimes, who are using their oil windfalls to halt the spread of freedom. . . .

The only way Americans are ever going to enjoy relatively cheap gasoline again is if we raise the price now with a gasoline tax -- and fix it at that higher level for several years --so investors know that it is not coming down, and therefore it makes economic sense for them to make the long-term investments in alternative, renewable sources of energy. That is the only way to break our oil addiction and ultimately bring down the price.
Raising the gas tax as Friedman describes is a simplistic sacrificial model that removes money from the market where it will flow to its most efficient use and puts it in the hands of government that can do naught else but distribute it badly. Raising the tax doesn’t just raise the price of gasoline -- it ripples through the economy. It’s not just paid by consumers at the pump. Producers suffer as well, which reduces their ability to tap new resources and technologies.

Further, investors may indeed switch their investments to other areas, but these are second choice investments before the tax. In other words, they will produce less return, which means as an economy we are are devaluing the labor and capital that goes into these industries -- essentially spending more to produce the same or less.

The tax will also change people’s behavior. Some think that’s good, but they usually don’t look beyond the simplistic “people will buy smaller cars.” Okay. So automobile manufacturers sell less high margin vehicles. How do they make up the loss? They charge more for lower-cost cars. Whom does that hurt? Higher prices mean people hang on to their cars longer. Fewer cars are sold. Jobs are cut. Whom does that hurt? And that’s just one example that could be taken a lot further.

Yes, there is a need for an energy policy, but it should be a policy that moves away from regulation, subsidy, and using the tax code to motivate consumer behavior. It means those on the political left are simply going to have to deal with the economic reality that politicians can’t do a whole lot about gas prices (as David Strom writes) and government shouldn’t be picking winners and losers in the energy business. On the political right, it’s time we took a good hard look at tax treatments for the oil industry, not so we can impose new windfall profit taxes or taxes at the pump, but to determine what government protections are camouflaging the true market price of gasoline.

As is usually the case -- less, not more government involvement in the market is the answer. The only sacrifice we need to make is the egos of politicians and others that think they can outguess the market.