Political responses to economic problems can do more harm than good. The US government is now rushing together a political fix for an economy unraveling at surprising speed. A $140 billion package of rebates to taxpayers and short-term incentives for business investment seems likely. At issue are eligibility and size of the rebate, the nature of the incentives, and immunization of the initiative against the special-interest leeches that attach themselves to fast-moving legislation when no one is looking.
Debate so far has avoided the contribution of US energy policy to economic distress. National leaders, after all, don’t like talking about their mistakes. But the silence is regrettable. Urgent concern about the economy should give the nation a chance to focus serious attention on energy, maybe even to correct historic errors and avoid new ones.
Poor record
The energy-policy record is poor, the consequences evident. Recent energy mistakes, for example, are pushing up costs of food and fuel while the economy struggles with problems in financial markets and the growing disquiet of consumers. The combination is dangerous. The stresses come while a weakening dollar signals an inevitable rebalancing of international accounts, US deficits in which became unsustainable in part because the country imports more oil than it should have to.
Legitimately prominent in recent news has been fuel ethanol’s multiple blows against consumer interests. While diluting vehicle fuel mileage and tapping federal and state treasuries, the mandated gasoline additive is levitating food costs as farmers cash in on corn at the expense of other food crops such as wheat and soybeans. The pain will worsen. To win political favor in farm states, Congress last month passed, and President George W. Bush signed, a law sharply increasing the fuel ethanol requirement. A quick way to boost a reeling economy would be to rescind that mistake. The Iowa caucuses are over.
The costly and unjustified ethanol mandate is just the most recent energy blunder in the US. Energy consumers now bear the costs of an embedded tendency to err on the side of strictest possible environmental regulation. Even as statutory air pollutants fall, for example, the Environmental Protection Agency ponders toughened standards that would expand requirements for reformulated gasoline and possibly raise costs of making the fuel. Costs of making diesel fuel similarly have risen recently as refiners meet sulfur standards stricter than they need to be. In a reversal of the historic pattern, the retail price of diesel now exceeds that of gasoline most of the time.
The argument here is not against environmental performance standards for vehicle fuels; the country needs them, and they obviously work. The dispute here is with standards that raise fuel costs without producing commensurate environmental gains. A review of past and proposed fuel standards, with adjustments as warranted, is in order. Environmentalists, who think regulation should be as strict as possible in all cases, whatever the cost, would complain about “turning back the clock.” They’re wrong. Rationalization of fuel specifications would in fact retune the economy and, by association, environmental progress.
Rethinking leasing
An economic downturn also should prompt the US to rethink its longstanding refusal to assess oil and gas resources on federal acreage off the East and West Coasts and on the Arctic National Wildlife Refuge coastal plain. Refusal even to allow leasing of these promising expanses makes no sense except in the cost-blind framework of environmental obstructionism. With its recalcitrance on leasing, the US is forswearing jobs, taxable incomes, federal bonus and royal receipts, and supplies of oil and gas that now must be imported. Rapidly developing economic jeopardy makes that position look not just untenable but manifestly ridiculous. A long-needed change wouldn’t pay off immediately, of course. But it would be a welcome sign that the US is serious about its economic future.
Rebates and short-term business incentives might help an economy with problems that seem to worsen by the day. They’ll hurt, however, if they serve as excuses for the country to avoid making the structural changes it needs—many of them involving energy.
