Guest Post: The Way Forward for U.S. Energy

From John S. Boyd who blogs at

 There is a big debate in Congress now about another stimulus package as fears about another potential downturn in the economy via Bloomberg here (insert link) with an excerpt below.

“We will be proceeding with another stimulus package, and we once again hope we will work in a bipartisan way,” House Speaker Nancy Pelosi said after House Democratic leaders met with a group of economists to discuss the spreading housing crisis and rising gas prices.

Pelosi and other House Democrats said that in addition to more rebates a second stimulus package would probably include additional spending for roads and other infrastructure, expanded unemployment benefits, home-heating assistance for low-income families and aid for states struggling with budget deficits.

Plans for the stimulus legislation are taking shape as Democrats race to approve the Bush administration’s proposed rescue plan for Fannie Mae and Freddie Mac by early next week.  

We have spent almost $200 billion on the last package but what did it really buy us? 

Essentially, we borrowed the money to finance the stimulus from lenders in the Middle East and China for rebate checks to help consumers pay for higher prices for fuel and goods.  Of course, we are buying a lot of these higher priced oil and goods from China and the Middle East who we borrowed from in the first place.  It’s given us some nice upticks in retail spending but has it done anything to solve the long term lack of savings in the United States, make us a more competitive country, or to help American’s get their financial house in order?  A financial house that has been burdened by decades of over spending and lack of savings.  What happens to retail spending next quarter when an over leveraged consumer has to buy these things on their own again?   

At the same time, the US government seems slow to enact any kind of long term strategic plan to address the energy problem or our long term competitiveness.  The Congress seems paralyzed by extreme views from both sides of the isle and no attempt to find middle ground.  If we are going to spend a few hundred billion on a stimulus plan, or a few hundred billion to bail out Fannie and Freddie on top of that, why not spend at least that on a long term energy competitiveness plan to address some of these longer term issues.  

In the mean time, high oil prices persist, which hurts our trade deficit, increasing our borrowing, decreasing our currency further which in turn raises the price of oil and other imports.  It’s a bit of a nasty cycle and instead of looking to the Fed to solve the problem quickly with lower rates, we need some longer term solutions from the Congress.  Every time something goes wrong the first reaction seems to be what is the Fed going to do to bail us out? It’s funny, I wonder sometimes if people think the Fed is another branch of the government and forget we have a Congress or Executive branch.   

That said, here are a few somewhat moderate ideas to toss out for consideration.  I consider myself only radical in my own moderation and aside from maybe one of these ideas they hopefully fit within those parameters:

  • Invest in our long term energy infrastructure which includes a “Marshall Plan” for investments in solar, wind, natural gas, nuclear, geothermal, biomass and (please don’t shoot me) but even drilling.   We need to do a little bit of everything all at the same time to start to make a dent in this problem and do research on new technologies.  No one solution is going to help here folks.
  • Put a tax on imported oil above $80 dollars a barrel and forget about a windfall profits tax.   All a windfall profits tax on US producers will do is shift production overseas so we import even more oil, get a worse trade deficit and devalue the dollar even more.    Our taxes are way below Europe, Japan, and Canada.  Use the proceeds from the tax for a tax rebate to low income Americans and to fund this “Marshall Plan for Energy”.  In fact, we can make the cost of a fuel efficient car cost the same for consumers as regular cars do now with huge savings on fuel over the life of the car.
  • People hate the idea of drilling and the analogy people use is giving heroin to an addict.   If you want to use that analogy here sometimes you need to slowly wean people off a drug before they can be free of it entirely.   In the short term, we are using oil to fuel our economy and wishing it wasn’t true doesn’t change the reality of our addiction. Conservationists and those on the left should trade more drilling for a it return for a comprehensive and long term plan for energy independence.   We need compromise from both sides to make something work here.  Also, I never plan on going to Anwar and if we can drill there safely we should let Alaskans decide to do so.   
  • Raise fuel economy standards higher and more quickly.  There is a big court battle between the Federal Government and California because California wants the more aggressive standards.  California’s economy is so large, fuel standards there would quickly become a national standard.  We should let California win this battle sooner rather than latter and there are all sorts ways to offset the cost to consumers and auto makers for the transition costs required to make this happen.  
  • Provide tax credits to businesses that offer a four day work week.   We wouldn’t lower total fuel consumption by 20% by doing this, but it would be a dramatic reduction –say up to 5-10% which would make quite a difference on the $700 billion a year we import.
  • We need to bring back the 55mph speed limit.  I’ve already budgeted the money for speeding tickets I am bound to get as I try to adjust to this.
  • The US has been complaining for the last few decades that consumers in emerging economies save too much and don’t consume enough thus buying more of our own exports.   Be careful what you wish for because we have got 1.3 billion new consumers on the planet all eager to consumer better food, buy cars and technology gadgets.  It’s a great thing representing a huge opportunity to sell new goods, services and even American technology.   However, many of these consumers are purchasing gasoline at subsidized prices producing economic distortions that cause them to use fuel a lot less efficiently then they otherwise would.   Instead of asking these governments to eliminate the subsides, why not cut these consumers a general rebate check to buy goods generally as opposed to directly subsidizing energy prices.  This would at least let supply and demand take a more natural course and could possibly slow the dramatic growth we are seeing as these economies grow as much as 10% a year.   

While things seem a bit dour right now, I actually am really optimistic about what this country can do when we come out of this.  Long term competitiveness in technology and even manufacturing will provide great opportunities for America to sell to the 1.3 billion new consumers in the world.   However, there is no quick fix.   Rate cuts won’t solve this.   We need to stop looking to Bernake and start looking to our elected government to solve this.  Borrowing just so we can buy more consumer goods from China or gasoline from the Middle East makes no sense.  Borrowing from abroad to invest in our future does. 

A lack of a long term plan on energy is hurting not just our economy but world stability, and our national security.  We can’t wait for the next election to act.

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