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Wednesday, April 6, 2011

The case for growth -- energy

A major ingredient necessary for higher economic growth is reasonable and steady energy prices. If Americans pay higher energy prices relative to other countries, goods made here will be more expensive and will be at a disadvantage in world markets. If American consumers pay higher prices for gasoline and home energy needs, they will have less money available for other consumption and demand will suffer, leading to lower sales and maybe even a recession rather than growth. Indeed, each time over the last 40 years that energy costs have spiked up, there has been a recession following shortly thereafter. So that explains reasonable prices, but steady prices for energy are also needed. Absent steady prices, most consumers will guide themselves as if prices were soaring. Think of it this way: if gasoline prices swing wildly back and forth between $2.50 a gallon and $4.50 a gallon, many car purchasers will opt to wait until things settle down before buying a car. If the transitions between the prices are slower, then some consumers will move back to larger cars during periods of low prices, while others will stick with the more fuel efficient. The car market will not dry up, however. Steady prices will allow consumers to operate in a manner consistent with the then existing prices; it allows the car manufacturers to set up their plants to produce the optimal mix. The costs of retooling for other models are reduced and the volume of production and sales increases.

Right now, the American government does not have a program to encourage either reasonable or steady energy prices. To the contrary, Obama and the Obamacrats have taken a series of actions that have led to soaring prices for oil, increase prices for electricity and a major lack of uncertainty in the energy markets that have led to fears of wide swings in prices. Think first of oil. The moratorium on offshore drilling will result in lower oil production in 2011 of about half a million barrels daily from this source. This lower production will only get worse in 2012 unless the obamacrats start issuing permits in a timely fashion. to put this in perspective, understand that the loss in national oil production is close to 10% of the total. So every day huge amounts of money is flowing overseas and out of the American economy to pay foreign sources for oil that easily could have been produced here.

There is also marked hostility to all other oil drilling from the Obama Administration. Areas of federal land that are estimated to hold billions of barrels of reserves have been kept from production. Had these been opened we would be seeing a large increase in domestic production from current levels.

The excursion into the world of cap and trade that Obama pushed for during his first two years also did serious damage to the energy sector even though it did not pass. I am sure that most Americans have seen the video in which candidate Obama says that under his plan anyone who opens a coal fired power plant will be bankrupted by his energy plans. So, even though the cap and trade bill did not pass, no utility company is likely to have invested the billions needed to build big new plants when the promise of bankruptcy for them has been made by the president. Even now, after the bill is dead, the same problem from Obama still exists. The EPA is threatening to use regulations to put into effect the restrictions that Congress refused to pass. No rational executive would invest billions with a clear and credible threat from the government that it will all be lost. Just wait, in a year or two when there are serious power shortages and the Obamacrats are out there blaming corporate greed for the lack of power, remember that it was the obamacrat in chief, president Obama, who put the forces into motion that resulted in the shortages.

Obama is also taking steps to thwart production of natural gas, an abundant and clean fuel source. Some of the more wacky environmentalists are bemoaning the use of hydrofacking to complete the shale gas wells that have opened up enormous new reserves of nat gas in the USA. Hydrofracking has been in use for about half a century with no ill effects. Now, however, it is denounced as a threat to the US water supply. The problem is not the wackos who push this view. The problem is that the EPA is now trying to get involved in "regulating" hydrofracking.

Then, of course, there is the push for wind and solar power. Obama is pumping billions of dollars into these renewable energy sources. the problem is that they are neither reliable nor cost effective. As a result, wind and solar cannot provide steady reasonable energy prices. No one would say that work on wind and solar power should stop, but people need to recognize that the USA is at least 50 years away from using renewables for a significant part of its power needs.

What is needed is what was called the "all of the above" approach during the 2008 campaign. The USA has to promote domestic oil exploration, both on and off shore. Alaska has to be opened to drilling. Before any further threats of EPA action to control carbon emissions are made, there has to be a major effort to produce a non-biased and open study of temperature histories of the last thousand years. Before we fight man-made global warming, we need to know that it actually exists and is not just the product of doctored data coming from fraudulent figures released by researchers. There was enough in the climategate e-mails to lead any rational observer to question the accuracy of the East Anglia numbers.

There should also be a major push for natural gas powered vehicles. Here at least is a fuel that is abundant domestically and for which the vehicle technology already exists. Such a push is much better than Obama's push for electric vehicles; natural gas is 40% cleaner than oil while the coal that produces the electricity is dirtier than oil. Each natural gas vehicle on the road means that much less need for imported oil. Natural gas is also much less expensive than oil; right now natural gas costs about 20% of what oil costs. By switching to a nat gas vehicle, a family will immediately get extra money in its pocket every week. Multiply this by millions of families and the boost to economic growth will be enormous.

It is imperative that the Republican presidential candidate, whoever he or she is, makes clear to the American people that our economic future is intertwined with the cost of the energy that we use and that the Obama energy program has done all it could to raise the cost of energy and hurt the economy.

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