It seems like every day there’s a new headline about the dominance of America’s petroleum sector. Read more
Congress just left town for recess. Should we feel relieved that it can do no (or at least minimal) harm while it’s out of town, or should we feel bad that it went on vacation without enacting several important bills or making a real dent in establishing the ground rules for a fair and effective budget for next year?
We live in the world’s second-largest democracy, and a democracy whose political leaders frequently claim that we are an exceptional people and nation. Yet, can we and they really look in the mirror and say we and they are exceptional, particularly with respect to Congressional behavior itself? One of the three institutional pillars of our democracy – Congress – is almost dysfunctional. Ideology often substitutes for intellect and thinking; the urging of lobbies replaces study and analysis; and shouting and name-calling replace debate and dialogue. What a model for an exceptional nation to provide other countries looking to the supposed nation on the shining hill and yearning for the democratic way!
In this context, I found myself laughing and crying simultaneously after reading a recent Bloomberg article, “Congress Looks Underground for Cash.” Unwilling to face the possibility of new taxes for legitimate programs aimed at speeding drug development and medical research or funding the nation’s infrastructure needs (or finding consensus on budget cuts), a number of House and Senate members have proposed to use the Strategic Petroleum Reserve for part of each program’s costs. Good objectives but bad policy!
Now, as you let the idea of using the Strategic Petroleum Reserve for domestic purposes, unrelated to oil and energy needs, sink in, remember, if you’re old enough, that the Reserve grew out of the Arab oil boycott in the early seventies. Its purpose, at the time, was to allow the nation to survive future supply shocks and to grant the U.S. a tool to withstand tension in the Middle East and elsewhere.
Maybe it’s time to look at and possibly amend the initial objectives of the Reserve. But for the safety and security of the U.S., this reevaluation should be done reasonably and rationally. The Strategic Petroleum Reserve shouldn’t become a grab bag to avoid hard budget choices.
Think of it in terms of numbers: The Reserve has close to 700 million barrels in it now. America uses about 19 million barrels every day and still is dependent on foreign oil for 25-30 percent of its oil consumption. Put another way, we have, in theory, around a five-month supply of oil if an international oil crisis emerges and imports are reduced to zero.
You might say that, because there are so many complex variables, this theory is likely never to be converted to practice. Really! Again, remember the five-month Arab oil boycott in 1973!
The U.S. might be able to negate major economic and consumer impacts for a longer period by relying on increased shale oil development. Oil companies could respond by producing more oil, assuming a significant decline in imports was telegraphed well before they occur. Well, before any foreign boycott, global prices for oil would have to move to much higher levels than they are now to stimulate new wells and production. Refining and distribution capacity would have to exist and result in increased efficiency as well as now-absent policy consensus concerning environmental issues among citizens and federal, state and local governments.
But magic probably won’t occur. Despite American ingenuity, past experience tells us there will be a time gap between positive market signals, if they exist, and positive oil-company responses. International oil prices – not patriotism – will govern behavior, and it is conceivable that U.S. production, minus export numbers, will not measure up to U.S. needs.
The proposed withdrawals by Congress are just under one-third of the reserves – not a trivial amount – and this is only for two programs! Gosh, why not include housing or early childhood education programs? What about agricultural initiatives? Maybe job training? I know a few college presidents who are pleading for more money to hire faculty or engage in research. I am surprised that no one thought of funding the Export-Import Bank through petroleum reserves. Remember Puff the Magic Dragon and Lucy in the Sky with Diamonds?
Maintenance of the integrity of the Strategic Petroleum Reserve seems still important for security reasons – its original purpose. We may need the leverage and the strategic edge the reserve provides some day.
To assure its ability to withstand dependence on foreign oil, the nation should also be looking at options to supplement or complement the reserve. Vehicles in the United States now use nearly 45 percent of oil consumed in this nation every day.
What if, as the president has proposed, the nation begins to wean itself off oil and moves toward expanded use of ethanol as well as other alternative fuels, such as methanol, electricity, a range of biofuels and natural gas, when they are ready for prime time? Increased market share for alternative fuels would reduce reliance on or extend the efficacy of the Reserve, as well as the need for oil imports. It would help lessen the importance of oil as a critical defining element of U.S. Middle East foreign and defense (or offense) policies. In this context, it would also permit the nation to become a leader internationally with respect to curbing GHG emissions and other health- and environmental-related pollutants.
Paraphrasing George Bernard Shaw and Robert Kennedy, some people ask why and I say, “why not?”
I just finished a recent Forbes article by Jude Clemente, “Canada is North America’s Great Oil Security Blanket.” Gosh, it’s good to know that Canada can supply 10 million barrels a day for the next 675 years. Just think of the biblical proportions of Canada’s reserves. Methuselah lived only 969 years! I feel safer already.
I am (fairly) comfortable that the French won’t take over Quebec and act out residual imperial desires and that the British won’t try to recapture their former colonies. So, sleep easy and leave a note in the morning to your children, their children and their children’s children, ad nauseam. Future generations of U.S. residents won’t have to worry about the definitions of peak oil or real oil shortages, and we will always have fossil fuel in our future. Our very valued friend to the north can and will produce whatever oil the U.S. requires for centuries.
Aren’t we lucky?! Our decedents will be able to depend on what the author calls “ethical Canadian oil.” Why? He argues that “Canada is a democracy and a free market sought by investors that desire less risk.” Wow…freedom to choose and capitalism; John Rawls and Adam Smith. I am crying with joy. But my emotional high lasts for only a few minutes.
Do we need to substitute Middle East imports for Canadian imports, even though Canada is a trusted ally? Are Canadian oil reserves a real, long-term, strategic benefit to the U.S. and are they ethical (a funny term used in the context of big oil’s historical behavior, speculation with respect to investment in oil and the perils of surface mining)? According to many analysts, oil from tar sands is among the most polluting and GHG emission causing oil in the ground. Aren’t you happy? In light of reserves, we can tether ourselves to fossil fuels for hundreds of years and a range of environmental problems, including, but not limited to, air pollution, landscape destruction, toxic water resulting from tailing ponds and excessive water use. Many scientists warn of increased rates of cancer and other diseases. While the tar sand industry, to its credit, has tried to limit the problems, according to the Scientific American article by David Biello, “tar sands may be among the least climate- [and health-] friendly oil produced at present.” By the way, conversion to gasoline will likely result in higher prices for the least advantaged among us, not exactly Rawlsian ethics.
We are in a difficult position, policy wise. Sure, we can establish long-term institutional relationships with Canada and its provinces that will assure U.S. on-demand access for Canadian oil sands. To do this would be comforting to vested interests and some leaders who still believe that oil is the key to America’s economic future. But business, academic, nonprofit, community as well as government leaders are increasingly searching for alternatives that will be better for the economy, the environment and national security. Weaning the U.S. off of oil, as the president has sought, will require, at least for the transportation sector, substituting a “drill, baby, drill” mentality for a strategy that includes increased use of alternative fuels, open fuel markets and flex-fuel vehicles.
Alternative fuels are not perfect, but for the most part, they are much better than gasoline in light of national energy and fuel objectives. Many replacement fuels, like natural gas and natural gas-based ethanol, cannot compete easily because of government regulations (e.g., RFS, etc.) and oil company efforts, despite large subsidies to limit their purchase by consumers (e.g., lobbying against open competitive markets, franchise agreements, price setting, etc.). Most alternatives appear to have sufficient reserves to provide the consumer with cheaper and better fuel than gasoline for a long time. For example, natural gas seems to have more than a proven 100-year supply, and that’s without further exploration.
The policy framework is easier to define than implement given America’s interest group politics. It would go something like this: As soon as they are ready for prime time and reflect competitive prices, design and miles per tank, increasing numbers of electric and perhaps hydrogen-fueled cars will appeal to a much wider band of U.S. consumers than they do now. The nation should support initiatives to improve marketability of both thorough research and development. Until then, the good or the better should not be frustrated by the perfect or an unreal idealization of the perfect. Please remember that even electric cars spew greenhouse gas emissions when they are powered by utilities that are fired up by coal, and that the most immediately available source of hydrogen-based fuel is natural gas. Currently, there are no defined predictable supply chains for hydrogen fuel. Perhaps, more important, neither electricity nor hydrogen fuel cells can be used in the 300,000,000 existing cars and their internal combustion engines.
So what’s a country to do, particularly one like the U.S., which is assumedly interested in reducing GHG emissions, protecting the environment, growing the economy and decreasing dependence on foreign oil? Paraphrasing, the poet Robert Frost, let’s take the road less traveled. Let’s develop and implement a strategic, alternative-fuels approach that incorporates expanding consumer choices regarding corn and natural gas-based ethanol, a range of bio fuels and more electric and hydrogen fuel cars. Let’s match alternative fuels with initiatives to increase Detroit’s production of new FFVs and the capacity (through software adjustments and conversion kits) for consumers to convert their existing cars to FFVs. To succeed, we should take a collective Alka-Seltzer and build a diverse strong fuels coalition that will encourage the U.S. to develop a comprehensive, alternative fuel strategy. The coalition, once formed, should place its bet on faith in the public interest and good analysis to gain citizen and congressional support. I bet the nation is ready for success — just remember how Linus of the famous Peanuts comic strip ultimately gave up his security blanket.
Photo Credit: http://priceofoil.org/
The U.S. interest in going to war or supporting war efforts on behalf of our “democratic” allies like Iraq, Qatar, the United Arab Emirates, Egypt and Saudi Arabia is not based, as said by some political leaders, on converting those countries to democracies or providing their citizens with increased freedom. Neither is it, primarily, aimed at reducing terrorism possibilities here at home. For the most part, it is instead aimed at protecting the U.S. and our allies’ interests in oil and stability in some of the most corrupt, autocratic oil-producing states in the Middle East.
Surely, recent history indicates that use of patriotic and compassionate language reflecting America’s historical ethos to justify our actions often wins initial public support for “Operation This” or “Operation That,” but as conflicts drag on and U.S. soldiers, sailors or marines suffer physical and emotional wounds, the gap between articulated justifications and reality becomes clearer to the public. When the fog of war or near-wars lifts a bit, support for U.S. military activity, often becomes muted among the citizenry.
Concern for protecting oil resources, production and distribution has been, and is currently, a paramount objective of the U.S. The U.S. and its allies have helped overturn governments, remake global maps, redefine national or tribal borders, create new nation states and abandon old ones and dispatch national leaders. Contrary to Gen. Powell’s admonition, we sometimes have failed to own the disastrous results of the wars that we have fought (Libya, Iraq, etc.). Based on our own desire for oil, we have tolerated sometimes exotic and many times terrible behavior among private oligarchs and despotic rulers, which, regrettably, often, escapes coverage in text books and in the media. Clearly, the link between our large-scale addiction to oil and its negative political, social and economic consequences in several Middle Eastern countries lacks sustained attention in our public policy dialogue.
The importance of oil and the U.S. willingness to go to war or engage in covert activities to protect it has been intensified by the relationship between petrodollars and the U.S. economy. Since 1944 at The Bretton Woods Conference, the global reserve currency has been the good old U.S. dollar. First, gold was the back-up to the dollar. As reported by the Huffington Post, the dollar was pegged at $35 to an ounce of gold and was freely exchangeable. “But by 1971, convertibility of gold was no longer viable as America’s gold resources had drained away. Instead, the dollar became a pure fiat currency (decoupled from any physical store of value) until the petrodollar agreement was concluded by President Nixon in 1973. The essence of the deal was that the U.S. would agree to military sales and defense of Saudi Arabia in return for all oil trade being denominated in U.S. dollars.” We as a nation committed to go to war in return for ostensible economic benefits and access to oil.
Was it good for the American economy? Sure, at least in the short run. The dollar became the only currency for energy trading. All foreign governments desiring to secure and trade for oil had to hold U.S. currency. The dollar was easily converted into barrels of oil. As the Huffington Post indicated, the dollar costs for oil flowed back into the U.S. financial system. What a deal!
Recently, lower U.S. interest rates, a troubled, slow-growing U.S. economy and the rise of oil-shale production in the U.S. has muted the almost-absolute, four-decade direct relationship between the dollar, and other nations’ need for oil and or export of oil. Instead of “next year in Jerusalem,” some nations like China, Russia and even France and Germany have indicated next year either a return to gold or the use of their own currencies as a peg to trading. However, the petrodollar still plays an important role in the exchange of oil in the global trading system. Its demise, as Mark Twain suggested about reports of his death, is, if not greatly, (at least) somewhat exaggerated. I suspect the petrodollar will be with us for some time.
Our nation’s willingness to militarize support of countries that depart radically from supposed U.S. norms of global behavior (encoded in the U.N Charter and other international agreements), because of their oil resources and the post-World War II emergence of dollar-based trading in oil and its benefits, has muddled U.S. foreign policy. Critics have questioned our not-so benign initiatives in countries throughout the Middle East and, as a result, they have raised issues concerning supposed American exceptionalism.
We have more than just a Hobson choice (that is, there is no real choice at all) if we choose to break from oil dependency. Increased U.S. oil production to secure profits and reach demand will still require both importing and exporting oil. This fact, coupled with the desire to keep the dollar the key oil-trading denomination, will sustain U.S. entanglements and the probability that we will continue to play oil policemen in many places.
A different future could be achieved if we took the president seriously and tried to “wean” ourselves off of oil. Paraphrasing liberally and adding my own meaning, Léon Blum, former French leader, “Life doesn’t give itself to one [nation] who tries to keep all of its advantages at once…morality may consist solely in the courage of making a choice [between energy sources and fuels].” The U.S. has not had the political guts yet to really focus on converting from an oil- and gas-based economy and social structure to an alternative energy and fuel-based one (e.g., natural gas, ethanol, methanol, biofuels, electricity and hydro fuels). Such a strategy would allow consumers greater freedom at the pump. It would be fuel agnostic and let consumers pick winners and losers based on cost, and impact on the quality of their lives and the nation’s life. We know that if we do make alternative energy and fuel choices now, based on equity, efficiency, GHG emissions and pollution reduction criteria, we can secure important environmental, economic, social and security benefits. To fail to act is an act itself, one that will harm the nation’s efforts to become the country on the shining hill and pave the way for other countries and itself to access a better, more peaceful future for present children and their children.
Photo Credit: www.defense.gov
The Greeks are going broke…slowly! The Russians are bipolar with respect to Ukraine! Rudy Giuliani has asked the columnist Ann Landers (she was once a distant relative of the author) about the meaning of love! President Obama, understandably, finds more pleasure in the holes on a golf course than the deep political holes he must jump over in governing, given the absence of bipartisanship.
But there is good news! Many ethanol producers and advocacy groups, with enough love for America to encompass this past Valentine’s Day and the next (and of course, with concern for profits), have acknowledged that a vibrant, vigorous, loving market for E85 is possible, if E85 costs are at least 20 percent below E10 (regular gasoline) — a percentage necessary to accommodate the fact that E10 gas gets more mileage per gallon than E85. Consumers may soon have a choice at more than a few pumps.
In recent years, the E85 supply chain has been able to come close, in many states, to a competitive cost differential with respect to E10. Indeed, in some states, particularly states with an abundance of corn (for now, ethanol’s principal feedstock), have come close to or exceeded market-based required price differentials. Current low gas prices resulting from the decline of oil costs per barrel have thrown price comparisons between E85 and E10 through a bit of a loop. But the likelihood is that oil and gasoline prices will rise over the next year or two because of cutbacks in the rate of growth of production, tension in the Middle East, growth of consumer demand and changes in currency value. Assuming supply and demand factors follow historical patterns and government policies concerning, the use of RNS credits and blending requirements regarding ethanol are not changed significantly, E85 should become more competitive on paper at least pricewise with gasoline.
Ah! But life is not always easy for diverse ethanol fuel providers — particularly those who yearn to increase production so E85 can go head-to-head with E10 gasoline. Maybe we can help them.
Psychiatrists, sociologists and poll purveyors have not yet subjected us to their profound articles concerning the possible effect of low gas prices on consumers, particularly low-income consumers. Maybe, just maybe, a first-time, large grass-roots consumer-based group composed of citizens who love America will arise from the good vibes and better household budgets caused by lower gas prices. Maybe, just maybe, they will ask continuous questions of their congresspersons, who also love America, querying why fuel prices have to return to the old gasoline-based normal. Similarly, aided by their friendly and smart economists, maybe, just maybe, they will be able to provide data and analysis to show that if alternative lower-cost based fuels compete on an even playing field with gasoline and substitute for gasoline in increasing amounts, fuel prices at the pump will likely reflect a new lower-cost based normal favorable to consumers. It’s time to recognize that weakening the oil industry’s monopolistic conditions now governing the fuel market would go a long way toward facilitating competition and lowering prices for both gasoline and alternative fuels. It, along with some certainty concerning the future of the renewable fuels program, would also stimulate investor interest in sorely needed new fuel stations that would facilitate easier consumer access to ethanol.
Who is for an effective Open Fuel Standard Program? People who love America! It’s the American way! Competition, not greed, is good! Given the oil industry’s ability to significantly influence, if not dominate, the fuel market, it isn’t fair (and maybe even legal) for oil companies to legally require franchisees to sell only their brand of gasoline at the pump or to put onerous requirements on the franchisees should they want to add an E85 pump or even an electric charger. It is also not right (or likely legal) for an oil company and or franchisee to put an arbitrarily high price on E85 in order to drive (excuse the pun) consumers to lower priced gasoline?
Although price is the key barrier, now affecting the competition between E85 and E10, it is not the only one. In this context, ethanol’s supply chain participants, including corn growers, and (hopefully soon) natural gas providers, need to review alternate, efficient and cost-effective ways to produce, blend, distribute and sell their product. More integration, cognizant of competitive price points and consistent with present laws and regulations, including environmental laws and regulations, is important.
The ethanol industry and its supporters have done only a fair to middling job of responding to the oil folks and their supporters who claim that E15 will hurt automobile engines and E85 may negatively affect newer FFVs and older internal combustion engines converted to FFVs. Further, their marketing programs and the marketing programs of flex-fuel advocates have not focused clearly on the benefits of ethanol beyond price. Ethanol is not a perfect fuel but, on most public policy scales, it is better than gasoline. It reflects environmental, economic and security benefits, such as reduced pollutants and GHG emissions, reduced dependency on foreign oil and increased job potential. They are worth touting in a well-thought-out, comprehensive marketing initiative, without the need to use hyperbole.
America and Americans have done well when monopolistic conditions in industrial sectors have lessened or have been ended by law or practice (e.g., food, airlines, communication, etc.). If you love America, don’t leave the transportation and fuel sector to the whims and opportunity costing of the oil industry.
Some environmentalists believe that if you invest in and develop alternative replacement fuels (e.g., ethanol, methanol, natural gas, etc.) innovation and investment with respect to the development of fuel from renewables will diminish significantly. They believe it will take much longer to secure a sustainable environment for America.
Some of my best friends are environmentalists. Most times, I share their views. I clearly share their views about the negative impact of gasoline on the environment and GHG emissions.
I am proud of my environmental credentials and my best friends. But fair is fair — there is historical and current evidence that environmental critics are often using hyperbole and exaggeration inimical to the public interest. At this juncture in the nation’s history, the development of a comprehensive strategy linking increased use of alternative replacement fuels to the development and increased use of renewables is feasible and of critical importance to the quality of the environment, the incomes of the consumer, the economy of the nation, and reduced dependence on imported oil.
There you go again say the critics. Where’s the beef? And is it kosher?
Gasoline prices are at their lowest in years. Today’s prices convert gasoline — based on prices six months ago, a year ago, two years ago — into, in effect, what many call a new product. But is it akin to the results of a disruptive technology? Gas at $3 to near $5 a gallon is different, particularly for those who live at the margin in society. Yet, while there are anecdotes suggesting that low gas prices have muted incentives and desire for alternative fuels, the phenomena will likely be temporary. Evidence indicates that new ethanol producers (e.g., corn growers who have begun to blend their products or ethanol producers who sell directly to retailers) have entered the market, hoping to keep ethanol costs visibly below gasoline. Other blenders appear to be using a new concoction of gasoline — assumedly free of chemical supplements and cheaper than conventional gasoline — to lower the cost of ethanol blends like E85.
Perhaps as important, apparently many ethanol producers, blenders and suppliers view the decline in gas prices as temporary. Getting used to low prices at the gas pump, some surmise, will drive the popularity of alternative replacement fuels as soon as gasoline, as is likely, begins the return to higher prices. Smart investors (who have some staying power), using a version of Pascal’s religious bet, will consider sticking with replacement fuels and will push to open up local, gas-only markets. The odds seem reasonable.
Now amidst the falling price of gasoline, General Motors did something many experts would not have predicted recently. Despite gas being at under $2 in many areas of the nation and still continuing to decrease, GM, with a flourish, announced plans, according to EPIC (Energy Policy Information Agency), to “release its first mass-market battery electric vehicle. The Chevy Bolt…will have a reported 200 mile range and a purchase price that is over $10,000 below the current asking price of the Volt.It will be about $30,000 after federal EV tax incentives. Historically, although they were often startups, the recent behavior of General Motor concerning electric vehicles was reflected in the early pharmaceutical industry, in the medical device industry, and yes, even in the automobile industry etc.
GM’s Bolt is the company’s biggest bet on electric innovation to date. To get to the Bolt, GM researched Tesla and made a $240 million investment in one of its transmissions plan.
Maybe not as media visible as GM’s announcement, Blume Distillation LLC just doubled its Series B capitalization with a million-dollar capital infusion from a clean tech seed and venture capital fund. Tom Harvey, its vice president, indicated Blume’s Distillation system can be flexibly designed and sized to feedstock availability, anywhere from 250,000 gallons per year to 5 MMgy. According to Harvey, the system is focused on carbohydrate and sugar waste streams from bottling plants, food processors and organic streams from landfill operations, as well as purpose-grown crops.
The relatively rapid fall in gas prices does not mean the end of efforts to increase use of alternative replacement fuels or renewables. Price declines are not to be confused with disruptive technology. Despite perceptions, no real changes in product occurred. Gas is still basically gas. The change in prices relates to the increased production capacity generated by fracking, falling global and U.S. demand, the increasing value of the dollar, the desire of the Saudis to secure increased market share and the assumed unwillingness of U.S. producers to give up market share.
Investment and innovation will continue with respect to alcohol-based alternative replacement and renewable fuels. Increasing research in and development of both should be part of an energetic public and private sector’s response to the need for a new coordinated fuel strategy. Making them compete in a win-lose situation is unnecessary. Indeed, the recent expanded realization by environmentalists critical of alternative replacement fuels that the choices are not “either/or” but are “when/how much/by whom,” suggesting the creation of a broad coalition of environmental, business and public sector leaders concerned with improving the environment, America’s security and the economy. The new coalition would be buttressed by the fact that Americans, now getting used to low gas prices, will, when prices rise (as they will), look at cheaper alternative replacement fuels more favorably than in the past, and may provide increasing political support for an even playing field in the marketplace and within Congress. It would also be buttressed by the fact that increasing numbers of Americans understand that waiting for renewable fuels able to meet broad market appeal and an array of household incomes could be a long wait and could negatively affect national objectives concerning the health and well-being of all Americans. Even if renewable fuels significantly expand their market penetration, their impact will be marginal, in light of the numbers of older internal combustion cars now in existence. Let’s move beyond a win-lose “muddling through” set of inconsistent policies and behavior concerning alternative replacement fuels and renewables and develop an overall coordinated approach linking the two. Isaiah was not an environmentalist, a businessman nor an academic. But his admonition to us all to come and reason together stands tall today.
Nobel-Prize winning economist, Dr. Robert Shiller, is one of the top economists in the nation, actually, let’s make him an imperialist, in the world. He is best known, perhaps, as the co-creator of the S&P/Case Shiller Home Price Indices. His books on economic theory and issues populate many college classrooms and personal libraries, including mine. He is an impressive, smart and accomplished intellectual giant.
It’s tough, given Dr. Shiller’s pedigree, to even suggest a bit of criticism. But because I think it’s important to current policy debates concerning economic, energy and transportation fuel policies, I do want to take issue with his recent short piece in Project Syndicate (What Good Are Economists?). In it, he defends economists and their mistakes concerning economic forecasts.
Shiller seems oversensitive to the pervasive criticism of economists in the media and literature. Because of the esteem with which he deservedly is held, his somewhat-thin response may mute a needed dialogue concerning the weaknesses attributed by respected critics of the work of economists. Shiller admits they failed to warn the nation in advance of economic downturns as far back as 1920-1921. By implication, he also suggests that because of this fact economists did not have a major impact or may have even had a negative impact at the policy table and often gave up their places to business and political leaders. Certainly Dr. Lawrence Summers and Alan Greenspan have not escaped criticism for failing to predict both the recent recession and for instituting policies that may have exacerbated the recession itself.
Over the past several years, many Americans have been frustrated by the errors of omission and commission made by respected economists from America’s think tanks and its government institutions, like the EIA, concerning analyses, forecasts and predications of the price of oil and gas as well as, demand for and supply of fuel and the role alternative fuels have and will play in America’s future economy. Their numbers and analyses often seem like the “once a day” or maybe “once a month” variety. Many of you don’t remember the famous (now clearly seen as a sexist) joke by I believe Ilka Chase in the old Reader’s Digest that a “woman’s mind is cleaner than a man’s because she changes it so often.” The comment now fits many energy-related economists. Their minds may be cleaner than those of normal folks because, as seen in many of their energy and fuel forecasts, they change it so often. But by doing so, they present obstacles to government, congressional leaders, industry, academic and environmental officials anxious to develop sound energy and fuel policies and program initiatives.
Can you name — on more than one hand — the economists who predicted the recent significant decline of oil and gasoline prices? Can you find consensus among economists concerning oil and fuel prices in the future? Can you identify economists willing to go out on a limb and describe, other than in generalities, the causes of the current decline in prices? Put two economists in a room and you will get three or more different reasons, most resting on opinion and not on hard data. Paraphrasing, oh, yes, the reason(s) are (or is): the Saudi Kingdom and its unwillingness to limit production and desires to gain market share; another favorite: the American producer’s recent oil shale largess is too good to pass up by slowing down drilling significantly; and don’t forget: the rise of the value of the dollar and the fall off in travel mileages resulting from the global recession. For the politically susceptible and sometimes cynical economists, throw in the genius of American and Saudi foreign policy as a factor. They fail to sleep at night, believing the decline is the purposeful result of the State Department and/or their counterparts in the Kingdom. If you keep prices low, who does it hurt most…Russia, Iran and Venezuela, of course!
There are many theories concerning recent price declines but no real hard answers based on empirical evidence and factor analysis.
Energy and transportation fuel economists, at times, seem to practice art rather than science. Diverse methodologies used to forecast oil and gasoline prices; demand and supply are unable to easily manage or accommodate the likely involved complex economic, technical, geopolitical and behavioral factors. As a result, specific cause and effect relationships among and between independent and dependent variables concerning oil and gas trends are difficult to discern by expert and lay folks alike.
Understandably, American leaders often appear to value what they feel are the good artists among economists, particularly if they lend credence in their speeches and reports to their own views or ideological predilections. Shiller’s question about economists in his piece is not a difficult one to answer. He asks, “If they were unable to foresee something (the 2007-2009 financial crisis and recession) so important to people’s wellbeing, what good are they?”
The best in the profession have provided insights into the economy and what makes it tick or not tick. They, at times, have increased public understanding of corrective public and private-sector actions to right a weak economy. They, again at times, have helped lead to at least temporary consensus concerning options related to fiscal and monetary policy changes and the need for regulations of private sector activities. But Dr. Shiller goes too far when he offers a mea culpa for the profession by comparing its failure to predict economic trends to doctors who fail to predict disease. Doctors probably do suffer more than economists for their mistakes, particularly when their analyses result in increased rates of morbidity and mortality. At least economists can bury their errors in next week’s or next month’s studies or reports; many times doctors can escape their errors only by burying their patients. The article could have been a provocative and an important one, given Dr. Shiller’s justifiable stature. It might have stimulated self examination among some of the best and brightest if it had linked weaknesses in economic forecasts to proposals to strengthen the rigor of methodological approaches. Presently, the brief article regrettably reads as an excuse for professional deficiencies. Res ipsa loquitur.