With Oil, It’s Deja Vu All Over Again
It’s March, 1980. You are 19 years old and sitting at the wheel of your lime-green AMC Gremlin. Normally, you’d feel pretty cool. But you just left the gas station and it cost a fortune to fill up. Apparently, there was a revolution in the Middle East or something. Stupid Middle Easterners.
Ah, but who are you kidding? You can’t afford gas at any price because you lost your job bagging groceries. The price of food and lots of other things is also going up like crazy. People are cutting back. They have to. This recession is brutal. And everybody says it will only get worse. They’re scared.
You’re scared, too. How will you score with the ladies if you can’t take the Gremlin out of your parents’ driveway?
Anxious and distracted, you miss a stop sign and T-bone a cement mixer. The Gremlin is totalled. You’re in a coma.
For 31 years.
It’s now March, 2011. You’re 50 years old and you’ve had a miraculous recovery. Your hospital room was filled with excited doctors and TV crews but now, after everyone has left, a psychologist sits down. He warns you that adjusting to the future won’t be easy. The world has changed, he says. He hands you a newspaper.
With trembling hands, you open it and start reading. High unemployment. Inflation fears. Revolution in the Middle East. Worries that soaring oil prices might tip economies back into recession.
You feel strangely comforted. “Pain at the pumps,” the headline says. A smile lights up your face. Even the clichés are the same!
You wonder what a Gremlin costs these days.
This is indeed a ludicrous story but it seemed appropriate given the absurdity of the situation we face today.
In 1973, the Arab oil embargo revealed how dangerous it is for economies to be fuelled primarily by a substance whose largest deposits are located in the world’s most volatile region. In 1979, the Iranian revolution gave everyone a sharp reminder. In the years since, some things did change. Cars today are much more efficient than Gremlins. But fundamentally, the situation is – as David Byrne sang long ago – same as it ever was.
Oil is still by far the most important form of energy in the world and the Middle East is still by far the biggest source. Price spikes still push economies into recession. Immense sums are still spent on the military forces that secure the flow of oil from the Persian Gulf. And oil sales continue to transfer wealth from the developed world to petro-tyrannies like Iran, Saudi Arabia, and Libya – which is the sole reason why a lunatic like Moammar Gadhafi has been able to turn his country into a prison camp for decades, fund terrorism, buy influence, and arm soldiers who are, even as you read this, trying to beat the people of Libya back into submission.
The only really basic change between 1980 and today is that we now know the consumption of oil contributes to anthropogenic climate change.
So why has so little been done? A big reason is the cyclical nature of oil concerns.
It goes like this: Oil prices soar for one reason or another, economies tank, and everyone agrees that something’s got to be done about our dangerous addiction to oil. But economic recession reduces demand and new production comes on line. Prices fall and people are delighted. No more pain at the pumps!
Consumer demand for improved efficiency ebbs, so the private sector abandons research and development. Citizen demand for government action also dwindles, so funding for conservation programs and alternative energy research dwindles.
And so we swing from panic to complacency and back again without ever doing what needs to be done.
Some pundits like to say talk of getting off oil is utopian nonsense. It would take decades and be fantastically expensive, they say. But what they don’t mention is that the status quo is also fantastically expensive (literally trillions of dollars have been spent securing the Persian Gulf, to name but one cost) and the job could have been done by now if we had ignored pundits like them in the past. “It would appear that the oil importers would probably need 30 years or more to create an energy economy based overwhelmingly on sources other than oil,” concluded a paper published in Foreign Affairs … 31 years ago.
Gloomier pundits also contribute to inaction by insisting that the price of oil is never going to come down again. It follows from this that new policies aren’t needed. Private investment will pour into conservation and energy research and we’ll kick our addiction, whether we want to or not.
But people have been saying that, too, for decades. And they’ve been wrong. Maybe that will change this time. But why chance it?
The solution is a “floor” on the price of oil. Yes, it’s a tax. But it wouldn’t kick in now. Only if the price of oil fell below the “floor” would it start, and its bite would depend on how far the price of oil fell. If it went only a little below the floor, the tax would be small. If oil fell far below, the tax would grow – with revenues used to cut income or other taxes.
Analysts started talking about a price floor in the 1970s. We didn’t do it and so, in 2011, we are facing the same dilemma we faced in 1980.
It would be nice if we finally learned from our mistakes.