Oil prices are dropping to below $115 a barrel, so I guess the imperative to reduce our consumption soon will go away as well. That is what happened after the previous price spikes for oil in 1973, 1979, 1991, and 2004.
So we probably won’t do anything to prevent the next price spike: Congress recessed for August when prices were much higher than today without acting on consensus legislation that would have provided moderate-term tax incentives for energy efficiency in homes, appliances, and offices — incentives that would start us on the road to saving 4 times as much energy in the form of gas alone as the oil industry thinks could be found in the Alaska National Wildlife Refuge. These incentives, packaged with tax credits for renewable energy, had strong bipartisan support and were also backed by a broad coalition of business as well as environmental interests.
It seems that we can’t fix the leaky roof when it’s raining, but we don’t want to bother when it’s sunny.
We are especially lax on fixing it when the fix is invisible — when it is based on energy efficiency measures that literally cannot be seen.
Maybe we can take the right steps on energy by realizing that fixing our energy problems will also fix most of what’s wrong with the economy this summer.
And energy efficiency — the invisible but largest energy resource — is at the heart of the economic solution.
I will be blogging about this in the coming weeks. Some of the material in these blogs will appear in my new book, tentatively titled, Invisible Energy: How Efficiency Can Stabilize Global Climate and Fix the Economy, forthcoming from Bay Tree Publishing, which also brought out Saving Energy, Growing Jobs.
The fundamental problems facing the American economy are not broadly based concerns that can be addressed easily through conventional government interventions. Many economic slowdowns were due to broad problems such as weakening consumer demand or increasing general inflation. These could be dealt with by adjustments in fiscal and monetary policy. But most of the problems facing the American economy today relate to the weaknesses of specific sectors of the economy. These weaknesses are not random or accidental, but rather are the result, to a greater or lesser degree, of the failure to address the sorts of energy policies that I have described.
Conventional economic stimulus won’t work to address these problems, because it will worsen some of the problems at the same time that it helps solve some others. Because of faulty energy polices, the economic situation is like driving your car with the brakes on. Pressing harder on the gas pedal won’t solve the problem, it will just overheat the brakes.
This is an apt metaphor, because the brakes are the high cost of energy, much of which results in a flow of dollars away from the United States, and the failures of markets that thwart competition and innovation. I will show in Chapter 2 how energy is at the heart of several of the most important economic problems of the late decade of the 2000s.
But in brief, these problems are:
1. The risk of inflation
2. The large trade deficit
3. The mortgage crisis
4. The low savings rate
5. Productivity increases that are too low
6. Government deficits
7. Weak consumer spending
8. Too few jobs
All of these problems are created or exacerbated by inefficient uses of energy, and by the policy choices that enable inefficiency. So all of them can be ameliorated by reformed policy choices.
Perhaps you are wondering what the mortgage default crisis has to do with energy. Here’s the connection:
The mortgage credit crisis is not only due to subprime lending: even the giant government-sponsored enterprises Fannie Mae and Freddy Mac are seeing their portfolio values decimated by defaults. But these defaults are not random: they have a very clear pattern that has mysteriously been overlooked by the financial services sector. Mortgage defaults occur in places where the need to drive is very high — strolling suburbs with little or no transit service. Urban areas with compact, walkable neighborhoods and good transit services have been largely immune from the credit crisis. What date we have suggests that the lower the auto transportation cost associated with living in a certain neighborhood, the lower the probability of default. A rational energy policy would consider transportation expenses in underwriting loans, and could have avoided a substantial if not dominant portion of the risk that is now afflicting the economy. Concerning the low savings rate, for the past 35 years, since the energy crisis of 1973, median incomes of Americans have hardly changed, yet the trend of ever-increasing need to drive cars has continued unabated. At the same time, cities and suburbs were growing in ways that reduced compactness, walkability and transit access, apparently leading to this increased need to drive to maintain the same quality of life. Driving is expensive — it was 18% of household expenditures even when gas was $1.50/gallon. This compares to only 21% for housing itself (considering only paying for the house, not the utilities or furniture, etc.). So if expenses go up, it’s not surprising that savings would go down.
This problem could have been avoided — and a repeat of it could be avoided without crushing new housing construction — if the lending industry started to consider transportation and energy costs along with the mortgage payments in deciding if a borrower can afford the house. This is not hard to do: there have already been small scale testing of Energy Efficient Mortgages and Location Efficient™ mortgages. The Location Efficient™ mortgage test was a complete success — not a single borrower has defaulted.