Tom Friedman Actually Said Something I Liked

I am back after baking in the sun in Nicaragua for a couple of weeks doing absolutely nothing at all but swing in a hammock staring at the ocean. Not even internet access for the most part which is a good thing to do every now and then for those of us who are addicted to it. Also a good break from the surface-of-Pluto conditions I found in upstate NY when I got back. But what I also found was that Tom Friedman, who usually drives me crazy with his ability to believe his own nonsense even when it flies in the face of numerous facts, said something good. Admittedly, it was buried in the middle of an otherwise silly column of the Iraq-would-be-a-huge-success-if-only-my-fantasy-were-reality genre. On January 12 (sorry, it’s behind the subscription wall) he said

“You need to tell Iraqis that by calling for a surge in troops you’re giving them one last chance to reconcile, otherwise we’re gone by Dec. 1. And you need to tell Americans that you’re creating a $45-a-barrel floor price for imported oil, so investors can safely finance alternatives without worrying that they’ll be undercut by OPEC.”

The first part I won’t even try to comment on apart from saying I would be happy if we were gone by December 12. Tom seems to be unable to believe that the situation in Iraq really is beyond our power to fix. The second part, however, is a great idea. Not one that Tom Friedman thought of but a good idea nevertheless. There have been numerous proposals from economists for decades to raise the price of oil so that it reflects societal costs. But at this particular point in time it is perhaps more obvious than ever just what those costs include. Ask yourself this – How big a pigovian tax would be needed to account for the following costs of our unrestrained consumption of imported oil?

– the Iraq War. Even lowball estimates put this at $2 billion a week. And though we have had numerous excuses, does anyone really think we would be there if they had no oil?

– 2 US deaths/day (Though far higher on some days such as today at 21)

– pollution

– global warming

This is a very incomplete list but the basic lesson remains. We are already paying a very high price per gallon of gas. We just aren’t paying all of it at the gas station. As a result we are stuck in a situation where it doesn’t pay to invest in alternative technologies since there is no way to know that they won’t be undercut if the price of oil takes a dip in the near future.

This dip is in fact more likely than not. When the price of oil spiked recently a lot of investment went into developing oil sources that were previously uneconomic. When these come on line the current situation of tight supply will be gone. If it is coupled with a recession then lower prices are likely for a while even though the long run outlook remains one of higher prices. If investors in alternative energy technologies had some confidence that they would not be affected by such short run dips then they would be much quicker to put money into them. We should all be in favor of this.

(A note. Hydrogen is NOT an alternative energy source. It is an alternative intermediate form for transporting energy in, e.g. cars. Why? Because you need to use energy – usually electricity – to make the hydrogen in the first place. This means that hydrogen, though clean burning at point of end use, is really just another way of using electricity which is produced by all of the same old sources we have had for a long time – coal, oil, nuclear, hydro, etc. A truly alternative source would be one which did not rely on these fuels to produce the electricity, e.g. wind or solar)