Thursday, May 14, 2009

A mistake to avoid this recovery

In 1973, monopolistic control of oils supplies combined with an Arab oil embargo led to record oil prices. Prices hit record levels in 1973 and continue to rise up until 1981.

High oil prices were believed by many economists to be responsible for the 1975 recessions, the deepest since 1948. President Carter responded by creating a new and powerful Department of Energy (reminiscent of Bush's Homeland Security Department) to develop a national energy independence strategy designed to ween us off foreign oil and into alternative energy. Billions were invested in research and development of new energy technologies.

Smaller, more fuel efficient Japanese cars began to penetrate the U.S. market and Congress passed fuel efficiency standards to try and move the U.S. auto industry into the future.

Prices continued to rise until the 1980-82 recession hit bringing the economy to a grinding halt. Demand for oil declined and prices plummeted to levels below the historical average. Sound familiar? To some extent you could say this is where we are now.

Back then, when the economy again began to grow, demand for oil again grew with it increasing imports of foreign oil soared to record levels. Investments in alternative energy were curtailed (largely by low prices) and Detroit continued to pump out even bigger and less fuel efficient cars and Americans kept buying them.

I guess the question is are we going to go through this again? What may prevent that is a national consensus, particularly among young people on the impact of burning carbon on the environment.

In fact, the best scenario for how we are going to get out of this mess is public and private sector investments in clean and alternative energy. A clean energy boom could look a lot like the last big technological wave, the tech boom in the 90s as businesses change their operating model and improved productivity through investments in information technology.

It could also look like a smaller reverse version of the post world war II auto boom that created the American middle class but also got us into this climate change mess. Instead of massive investments in automobiles, new suburban energy sucking dwelling requiring long commutes and the rise of huge parking lots in massive auto based shopping malls we could see their reversal. Sort of a bizarro 1950s (in superman comics, bizarro superman was the exact opposite of superman and bizarro America was opposite of superman's America. OK, OK., you have to read the comic book).

What could actually drive us forward could be investments mass transit, wind and solar energy, transit based housing and energy efficient homes and buildings.

But somehow I'm afraid it will take high oil prices to keep us on track. Really high oil prices.

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