Thursday, September 30, 2010

America IS energy independent!

Good News: we've got energy independence.
All we need now is environmentalist independence.

Nightmare on Green Street

By Mike Razar
Let the good news spread throughout America to every city and village, every farm and hamlet, and every family which is struggling economically.

America is energy independent!

Have you ever wondered why the financial markets are so patient with the fiscal mismanagement of the US government? Look at our balance sheet. We have thirteen trillion dollars of debt and it is climbing at a rate of three or four billion dollars every day. Who would loan us money?  Unfunded liabilities may exceed fifty trillion dollars. How can we ever pay it back? Why aren't interest rates higher?

A balance sheet has two sides. We rarely hear about the asset side.

The left has no comprehension of economics or mathematics. So it is easy to understand why they don't see this. Maybe it is more sinister, though. Maybe they realize that their green dreams are being undermined by the spiraling debt.

The right is much smarter, of course. Yet they also seem unable or unwilling to play the asset card.

At present, all our electricity is generated domestically by coal, other hydrocarbon fuels, hydro-electric power, and nuclear reactors. Most of our transportation energy comes from liquid hydrocarbon fuel.  It appears that close to half of that depends on foreign sources.

This observation permeates our national politics thoroughly and both parties claim to favor energy independence. The left wants us to believe that only clean renewable energy can be used unless we are prepared to drown in the angry sea of global warming. The right counters with "drill baby, drill" disproving my earlier assertion that the right is smarter. Every neuron in my brain rebels against the sad truth that the left is right (sic). We can't drill our way to energy independence.

Luckily for my poor brain, the left has ignored an important barrier to their environmental utopia. Americans don't like economic suffering and they vote accordingly.

There is another asset to describe. There are literally hundreds of trillions of dollars worth of hydrocarbon energy under our feet in the form of coal, natural gas, shale, and tar sands. These assets assume this value once liquid petroleum costs more than $50 to $60 per barrel. Somewhere in that vicinity, the technology to turn them into usable fuel to power planes, trains and automobiles is economically viable, even after accounting for amortization of the capital investments required.

The beautiful thing about these energy assets is that the environmentalists can delay using them but they cannot get rid of them. No matter how many times they win the battles to suppress sensible exploitation of our resources, they can only win the war if more economical alternatives are actually developed. Their problem is that it seems highly unlikely that such alternatives will be available any time soon. If that actually happens, everybody wins, but if progress is slow, how long will voters tolerate the rising energy prices, slow growth, and exploding debt?

Put these facts together. Going green requires a long substantial reduction in the average standard of living for Americans. There are many ways to allocate the pain. We can slash health care or retirement benefits for older Americans, but only if we take away their vote. We can cut national defense and nearly every discretionary spending program without eliminating the deficit.  A blue ribbon commission of mathematically challenged dilettantes with a worse understanding of the problem than Joe the plumber (no offense to Joe) will issue a long set of recommendations which ignore the facts presented here. What a waste of time!

We are consuming more than we produce.

That cannot continue indefinitely. The only democratic way out is to substantially increase supply via rapid economic growth. One sure path to that growth is to free up the energy sector. Repeal all environmental restrictions on using coal, oil shale and nuclear power. Guarantee the repeal for some fifty years, by which time, if the greens are right about their technology predictions, we will have clean, renewable, economically sound alternatives. If they are wrong, we will have had fifty years of prosperity to come up with other ideas. No subsidies are needed. The marketplace will allocate capital appropriately.

This is the painless way. Instead, we can plow ahead with uneconomical, technologically premature energy policies, mandated by law.  We can endure a deteriorating economy for a decade or two. By then, environmentalists will be facing the pitchforks.  The best way to avoid this pain is to explain the facts to the American people now and hope they vote accordingly. For this to work, the Republican Party will have to abandon its attempt to ingratiate itself with the luddites on the left. Instead of paying mere lip service to free market capitalism, the GOP will have to actually fight for it.

The bond market seems to believe that the American voters and the Republican Party are up to this challenge. Markets don't always correctly predict the future, but the feedback loops are awesome. I sure hope they are right this time.
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