Think of this as Volume 15, Number 32 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.
The simple answer is a lack of growth.
If economic growth were strong, the debt would not be a problem. Republicans don't see growth coming, and see that as a good excuse to go back on the promises we made decades ago, to see people into a comfortable, healthy retirement through Social Security and Medicare. They think that if that money can be “put to work,” in the fossil fuel industries, that growth will return.
The key fallacy in the previous paragraph is not where you think it is. It's in the phrase “fossil fuel industries.” We can no longer get long-term growth through fossil fuels, as we have for the last two generations. We can only get scarcity. Every barrel of oil or mcf of natural gas we produce, every ton of coal we tear from the ground, means there's one less left. No matter how much there may be, the cost of getting it will not go down, ever.
This is not news. Nixon knew that domestic supplies were headed down a generation ago, that the abundance of the previous generation was winding down. The energy prosperity of our generation, what there has been of it, was bought with blood. All the energies of our foreign policy, all our wars, over the last 30 years, have been fought for one reason and one reason only – to assure the monopoly of power needed to bring oil, gas, and other natural resources to our markets, at a price we could control.
The Big Mistake of our time, and I'll repeat it because it's important, was Al Gore's decision to make this fight a moral fight, a fight over “the Earth,” rather than what it is, an economic choice. At this point in time, his arguments are completely counter-productive to the simple truth.
And this simple truth – repeat after me.
There is no energy shortage. The Sun shines, the wind blows, the tides roll, we live on a skim coat over molten rock.
The problem we face is this. There is a huge infrastructure in place for fossil fuels. Trillions of dollars have been invested, by the oil and gas industries, in oil extraction, refining, and delivery. Our wealth is based on the value of those assets in the ground, and the assumption that they will be worth more tomorrow than they are worth today.
This is on top of all other subsidies – environmental, governmental, military. The economic momentum of oil, gas and coal is mind-boggling. Take that away and the relative strength of the American economy will appear to disappear.
So our opponents tell us.
It doesn't have to be that way. We have an immense, ginormous opportunity before us, building the infrastructure and devices necessary to extract the Sun's energy for our use, as well as that of the wind, the tides, and the Earth. We have the technology. That wasn't true in Jimmy Carter's time, but it's true now. The costs of producing a solar cell will, within a year, fall below the $1/watt cost of fossil fuel consumption. Ramping up production, squeezing out distribution, installation, and marketing costs, can get us to parity with coal within five years. That goal is in sight.
Once parity is achieved, the whole world changes. Because costs are going to keep declining. And as oil companies see the future, they're going to start investing more heavily in things they understand well – drilling for geothermal heat, producing fuel from algae and switchgrass and other waste materials.
Why will they make this change? Because the value of what's in the ground, the equity value underpinning their business models, will stop going up. Once the oil companies see that their future depends on their making this change, they will make it so fast your head will spin.
We can accelerate this change, we can decelerate it, or we can let it happen by itself. But make no mistake. It will happen. It is happening.
How can we reach prosperity sooner? By focusing on price equalization. Not a carbon tax, price equalization.
There are many ways to do this. One way is to mark the value of current coal and oil drilling leases to the market value of the commodity. Another way is by charging producers for the environmental damage they're doing – creating a remediation fund. Yet another way is to charge for their post-production costs, requiring that carbon be captured, that it either be captured or paid for so we can capture it.
Start talking about these issues in terms of price equalization and you win. Keep talking about taxes, about raising costs, and you'll keep losing. Real costs must be paid, that's a pretty conservative argument. How do we make sure we pay the real costs of what we're consuming, that's the question politicians should be asking.
There are external costs to renewable energy that the oil industries insist be paid. The cost of creating infrastructure to support solar, wind and other non-constant energy sources. The cost of the devices needed for harvesting. Boilers and car engines are here, paid for, while those devices needed for harvesting other energy don't exist.
We must pay those costs. But know what they are, know that fossil fuel companies don't have to pay them, find a way to equalize those costs, and then look what happens to the market.
We change the game by changing the way we talk about it. We change the subject, from government actions to market functions. And instead of promising a cleaner, greener world, we emphasize prosperity, which is what people most want and need.
America can reach this prosperity very quickly, if our economy's mind is set to it. We have more “cheap renewable energy” – wasted energy – than any other country. We can create a lot of that energy fast, and make a ton of money doing so. We have lots of scientists, engineers, venture capitalists, and financial infrastructure to bring to bear on this – a lot more, in total, than any other economy.
Every gallon of oil we replace with a renewable resource helps us in three ways. There's the work involved in creating that energy. There's the energy itself. There's the downward pressure on fossil fuel prices generated through the replacement. That's a much greater stimulus than you can get from any fossil fuel investment, even more than we can get from most government investments.
Right now we put nearly 10% of our GDP into energy. Dropping that, by even a little, will solve all our current economic problems.
What makes renewable devices so compelling is that once they're paid for, the extra energy they produce is free. We attach a high cost to energy from solar panels and windmills because we're recapturing their capital cost. What happens after we've done that? The cost of any remaining energy they produce is just the cost of maintaining the equipment.
The only cost of renewable energy is the cost of creating the devices and infrastructure needed to harvest the abundance all around us and get it to market. That cost is declining, as technology improves, and production ramps up, and more harvesting equipment goes into production, we we build distribution channels, and as we work to reduce demand and improve efficiency.
That's the way to prosperity. It is the only way. The real problem is getting past the present period of artificial scarcity, into a new day of energy abundance. Deal with the real problem, and what we think of as the problem goes away, all by itself, because growth will pay that debt, and more.