The Renewable Stimulus

Think of this as Volume 15, Number 28 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

Why has this recession been so intractable?

Partly because both Democrats and Republicans are wrong about what it takes to get out of it.

Democrats are wrong to think mere Keynesian stimulus will create growth. Such a stimulus is designed to increase aggregate demand. Aggregate demand is not the problem. In the 1930s demand was stalled everywhere, but today there is growing demand throughout Asia, Africa, Latin America and northern Europe.

Republicans are also wrong to think we can get our debt down by cutting government spending. Banks are never made whole when they treat customers this way. The only real way out is through growth, and cutting spending reduces both the supply and demand for goods, leading to a “circling the drain” effect.

No, the answer to this recession is not to be found in monetary or fiscal policy. It lies in ending the stranglehold our artificial scarcity of energy has on us. We need to stop thinking of energy as something we burn, start thinking of it as something we harvest, and create policies that fit this way of thinking.

We've seen the pattern several times. The economy starts to grow, oil prices start to rise, the economy starts to contract and oil prices go down again. Growth is impossible so long as it is tied to a commodity whose owners can soak up all growth's profits.

A renewable stimulus is called for.

Think about all the economic benefits you get when you replace a gallon of oil demand. You get the jobs made in creating the resource. You get the extra energy. You also take a gallon of demand out of the system, permanently.

Because America consumes one-quarter of the world's oil while having just 4% of the world's people, we have more of this “free energy” available to us than any other nation. If our industry and lifestyles were as efficient as those of Europe, oil might be half the price it is now, because supply-and-demand in that market are on a knife edge.

The problem in both reducing demand for oil and increasing supply for alternatives is that it requires capital, and by definition capital is in short supply during recessions. The obvious answer is to re-deploy capital, through incentives that make investing in reduced energy use more profitable and investing in fossil fuels less profitable.

We can start by equalizing prices.

Oil lobbyists have succeeded, with the connivance of people like Al Gore, of scuttling this by calling it a “carbon tax.” It's not. The fossil fuel industries already have their infrastructure in place, while the renewable industries do not. The fossil fuel industries routinely ignore the external costs of what they do, while the renewable industries must.

The amount of government subsidy going to fossil fuels is actually quite staggering. Lease rates on federal land are incredibly small. Environmental regulation is incredibly lax. There is no tax paid on the pollution these industries spew out at every stage of their process. We've fought numerous wars to guarantee access to the resource.

Do I really need to go on?

Charging these costs back to the industry, making the price we pay for fossil fuels fit the cost of fossil fuel development, will generate enormous amounts of capital for both the saving of existing energy and the creation of renewable energy. But we can't even have that discussion as long as it's called a “carbon tax.”

So call it what it really is, price equalization. We can eliminate all current government incentives to renewable industries if we just charge fossil fuel industries the full cost of what they are doing.

Obviously these increases have to be phased-in, but phasing-in is easy. In exchange eliminate all renewable incentives. Charge people the full price for all the energy they consume and renewable energy becomes cheap, while technology that saves energy becomes dirt cheap.

We waste fossil fuel energy routinely. Most homes and businesses aren't insulated as they should be. People drive many miles back-and-forth to work, alone in SUVs. Many of our appliances waste energy when they're plugged-in to the wall, and turned off. Our suburbs are designed strictly for the use of cars, and many people have to get into cars to go anywhere thanks to deliberately inefficient urban design.

We know all this is true. But we don't even think about it because fossil fuel energy has been kept artificially cheap. Change that and you will get a stimulus.

Every gallon of oil we burn generates merely the cost imposed on the buyer of that energy, which is subsidized by our refusal to deal with the external costs of that oil. Every gallon of oil we save creates work, creates energy, and lowers demand for fossil fuels. So does every gallon of oil we create harvesting the energy abundance around us.

The Sun shines. The wind blows. The tides roll. We live on a molten rock. There is no energy shortage. We just need a renewable stimulus to start growing again.