Our Energy Crisis: Isolating the Problem

You may have taken note that I call this an energy crisis. This is for the reason that we have definitely entered an emergency state over energy. Our country (and the rest of the world) has very high energy demands and we are drawing on a finite, politically dangerous resource that is becoming increasingly problematic. Meanwhile, all the problematic points have converged to create an ever-inflating price of oil (and all the damage to our economies this implies).

Several camps have broken out in the United States over what to do about it. Items on the table include:

• Drill domestically for more oil, thus offsetting foreign supply.
• Reduce open-market speculation, thus reducing "speculative premium" in the price.
• Charge full-tilt into developing alternative, sustainable energy resources.

To be fair, many are of the mind that we need to do all of the above. Normally, I would agree. However, I have started noticing far too much attention - in fact, quite nearly all of it - paid to ideas that require short-term activity but will either harm the market or yield no long-term viability. This atmosphere persists in Congress and among the media talk mavens, thus it has permeated the American public once again with a dearth of terrible ideas and broken thinking. Americans need solid information and reasoning, not misdirected ideas that have nothing to do with the problem. Even less do we need outright ignorance and lies.

For instance, I submit Sen. Byron Dorgan (D-North Dakota), who recently said, "Nothing in supply and demand in the last year justifies the price of oil." Sen. Dorgan is either willfully ignorant or an outright liar. Why? Because either he's never heard of China and India, or he's ignoring them (and hoping everyone else will). China and India as a combined population represent 37% of the entire world. The rate at which they consume energy - OIL - began skyrocketing in the mid-90's. China's consumption is expected to rise 7.5% per year and India’s at 5.5% per year over the next decade or more. In other words, the force of market demand coming out of just these two nations (or, nearly 40% of humanity) is a major part of what is going on. Of course, Sen. Dorgan believes the China/India effect on demand is "nothing," and he clearly isn't aware of validtaions regarding Peak Oil (read: supply) coming about starting around 15 years ago.

Thus, like any large-scale project that must be completed successfully, I will isolate the problem. In fact, the immediate problem with all this intellectual laziness is in fact we have FAILED to isolate the real problem of the energy crisis.

One camp insists that the problem is that we are not taking advantage of the oil under our own ground, that if we did we could reduce price fluctuation by not being exposed to foreign affairs. This definitely makes surface sense, I'll give them that. However, this implies that the problem with our energy crisis is that we consume oil from foreign countries instead of our own. Is this the source of the energy crisis? No.

Another camp insists that the price of oil is artificially high, with as much as a 30% premium layered upon it by speculative trading in the open market. The theory here is to reduce/punish speculative trading on oil to control the price. This also makes some level of sense but only when accompanied by a willingness (and lack of fear) to interfere with open markets. Of equal note is that I wouldn't dare to pass this camp off as thinking this will solve the problem; rather, this camp feels this is an important step to take toward a grander solution.

Another camp believes "this is it." They believe this is time more than ever to transfer all available effort into developing the use of alternative, sustainable energy resources so that we can let our dependence on oil decline to a point of no concern. This is lauded as a permanent solution, and criticized as too long-term and too expensive a solution (but likely an eventuality). This camp says that dependence on oil itself is the reason for the energy crisis. Is this the source? Yes it is, we've found it.

But why is almost nobody talking about it, except for T. Boone Pickens (big-time oilman)? Because it is discouraging in it's size and scope and there are other ideas that would allow us to run around and shuffle papers and make us look like we're working RIGHT NOW.

Drilling domestically for oil is foolish and nothing else. First of all, the amount of money required to tap the reserve in Alaska is dumbfounding when you picture it being alternatively applied to developing sustainable resources. Second, the environment would take a (potentially permanent) punch to the gut and there's been more than enough of that for over a century. Third, by the time this oil reached the market in a meaningful enough way to affect price and importing, it will be 8-10 years later and the price will be outrageous. Further, our economy will take a one-two punch from a) pouring money into staid technologies (which develop less jobs) plus b) the outrageous price in ten years, instead of merely struggling with the price but pouring money into sustainable resource development (which involves FAR more jobs at all socio-economic levels).

The attempt to eliminate or quash open-market speculation of oil as a commodity will be a reckless and dangerous endeavor. First, government regulation and interference with open market dynamics is already as much as it can get before we can't honestly call ourselves a free capitalist market (we can barely call it such today). Second, this runs fully against open market mechanics and puts the decision of what is malicious speculation and what is not into the governments hands; in other words, the financial district's version of a Patriot Act debacle. Third, speculation is intrinsic to the dynamics of the market - interruption of which is poorly understood (i.e. artificially reduced speculatory forces on oil could spill over into natural gas, etc.). Fourth, the precedent that control of a commodity in the open market could establish would likely open doors that will be nearly impossible to shut for decades to come; how does one reverse this process and return it to a state of market normality/balance? Besides, this very force of speculation is precisely what woke us all up to the fact that something must be done and soon. How advisable is it to eliminate such a bellwether from our landscape?

The problem is our energy is derived from a finite resource with poor availability. Over many decades this has led to cartels and malicious controls, to warfare and political unrest, to injudicious foreign policies and unbeleivable American effort expended on things other than America. How do you solve this problem? Start using a different resource, one that is (seemingly) infinite and of inconsequential availabilty.

Does it seem like a good idea to poor vast amounts of effort and resources into obtaining more of something so problematic? Does it seem like a good idea to run roughshod over the inherent economic controls presented by the open market just to drop the price temporarily?

Just exactly how much time do we have to spend on ignorance and fool's errands?