It’s the Thought that Counts

Real Clear Politics posted this article today by John Stossel in which he argues that energy independence is some sort of populist, protectionist talking point that makes no economic sense.  All he succeeds in, however, is showing his own economic idiocy.  He correctly uses some very basic principles from high school economics to point out problems with the most simplified 3-second sound bites on the issue.  It’s great that someone understands these overly simplified basic principles, but if that’s the only economics you understand, you should stay out of high-profile public debates on economic issues.

Don’t Obama and Pickens realize that we get something useful for that money? It’s not a “transfer”; it’s a win-win transaction, like all voluntary trade. Who cares if the sellers live in a foreign country?

This point is right on face.  It’s not in general bad that we buy things from other countries, and the “our money is being sent overseas” argument would apply to all trade.  He is, however, ignoring a multitude of points that are more subtle.  First of all, oil is not traded in a free, competitive market.  It’s controlled largely by a cartel that is not above manipulating the price.  This isn’t to say we don’t benefit from the trade — we still voluntarily make the exchange — but it does mean that developing domestic supplies or alternatives lowers the price more than the normal competitive forces would indicate, and therefore has what are essentially positive externalities.

It’s also important to note where the money goes.  Stossel points out that most of the oil that physically comes into the US comes from Canada and Mexico, rather than oppressive dictators, but in doing so he’s missing his own point.  The oil market is global.  Price changes affect everyone.  Our demand for oil raises the price that Russia can charge, even if we aren’t buying oil from Russia.

He also, of course, ignores the negative externalities (pollution, massive geopolitical games and expensive wars, increased power to Russia and Venezuela, etc.) that aren’t priced into oil.

The biggest idiocy, though, is the premise of the entire article.  He thinks that “energy independence” means not ever importing oil.  Maybe someone somewhere has used it to mean this, but definitely not anyone intelligent.  Energy independence means that we produce as much energy as we consume.  Denmark has done this, and yet they still both import and export oil.  Stossel is correct to lampoon a literal no-oil-imports goal, but that’s not the argument anyone else is making.

If we export as much oil as we import, or if we have cheap alternatives available in the case of price spikes, it forces oil prices down and means that oil prices can never be used as a political weapon against us or anyone else.  It takes power away from our enemies.  (It should be pointed out that since much of our decreased dependence is likely to come from new technology, it will be easily spread and will also reduce the demand for oil from other countries.)  That’s because an increase in the price, in addition to being unlikely, helps us as much as it hurts us.

He also makes the unfounded claim that energy independence is an impossible goal.  We could replace oil for electricity generation, he says, but cars need oil so we’ll always need oil.  Except that a lot of the focus of energy independence efforts has been to change exactly that.  Hydrogen or electric cars, for example, do not offer any way to generate energy.  They simply offer the flexibility to use other methods — anything that can produce electricity — to power cars.  I’m just blown away by the stupidity of his argument.

He finishes by warning against government spending programs for energy research, saying that the government is unable to pick the most promising technologies.  I have a lot of sympathy for this goal, but there are a lot of methods, such as gas taxes, that are clearly effective methods by which the government can push energy independence without trying to directly engineer the solution.

There are lots of good options, and they need to be supported.  The energy debate is sorely in need of some increased sophistication.  Stossel is clearly trying to provide that, but wow did he fail.

Tags: economics, energy, oil

Here’s a video that’s worth seeing. (Hat tip to Ben Smith at Politico.com.)

“It’s like these guys take pride in being ignorant,” Obama says. I’m thrilled whenever I hear politicians calling each other out on that tactic rather than trying to outdo each other with the old “I’m jest reg’lur folks like you, don’t need no fancypants edjumucation” act. If there’s an effective, logically sound idea out there, we should use it, even if it might sound silly to “reg’lur folks” who don’t want to take the time to think it through. Obama’s banking on the fact that the average voter is actually smarter than that. I hope he’s right.

Sending tire gauges tagged as “Obama’s energy plan” is a cheap trick. It would have been a politically useful cheap trick if it had actually made a legitimate point, but it’s a shameful and easily mocked trick since it deliberately ignores the context surrounding the original suggestion. A man in the audience had asked about what small, everyday thing he could do to contribute to a solution to our gas woes, and Obama suggested a small, everyday thing that has been demonstrated to make a big difference. There’s nothing about that that’s worth poking fun at.

Setting a new record in missing the point, the person who posted this particular clip on YouTube has titled it “Obama Insists Inflating Tires Better Than Oil Drilling.”

Tags: barack obama, energy, oil, politics

There are lots of very difficult, nuanced issues in politics — issues where two intelligent people could disagree, have an intelligent back and forth for hours, and still come out with totally intact, cogent views on the topic.  These are often fundamental questions about the very way our country works.  But there’s another kind of issue.  There’s the kind of issue where there is just an obvious correct decision, with very little room for intelligent discussion.  Sometimes these issues are incredibly important, but more often they are small and just slip by, because only a handful of people is involved in the relevant decision, and they didn’t realize what they were doing.  These issues annoy me the most, because, however minor they are, there’s no excuse for failing to do the obviously correct thing.

The way we measure fuel efficiency is one of these dumb things.  Using miles per gallon is really misleading.  It can make tiny gains seem huge, and huge gains seem tiny.  Let’s take two totally hypothetical vehicles.  One one hand you have a hybrid car, which gets 40 mpg, and you convert it to a plug-in hybrid, which gets 100 mpg.  On the other hand, you have a very inefficient small truck, which gets 10 mpg, and you put in a more efficient engine, pushing it to 15 mpg.  It seems like the former improvement is better.  It’s a 60 mpg improvement rather than a 5 mpg improvement.  It’s a 150% improvement rather than a 50% improvement.  Nevertheless, if we assume both vehicles are driven 1000 miles, the hybrid goes from using 25 gallons to 10 gallons, saving 15 gallons, where as the small truck goes from 100 gallons to 67 gallons, saving 33 gallons.  The gain from improving the truck’s efficiency is massively better than the gain from improving the car’s.

This is a general mathematical fact.  The inefficient vehicles are the ones using lots of fuel, and small changes in their mileage are large percentage changes, so very small mpg changes can save a lot of fuel.  The super-efficient cars use very little fuel anyway, so even massive improvements can’t save that much.  Consumers, obviously, think about mileage in the units that it’s given to them in, so they value it in an irrational way.  (Science Pundit has a great post about this.)  It would make a lot of sense to change to gallons per mile (or per 1000 miles) and get consumers thinking more rationally, but I can understand the reluctance.  The switch to a new unit takes mental adjustment, and it’ll take a while for consumers to get a good handle on what counts as “good” or “bad” mileage, meaning they’ll probably take efficiency into account less during that unit transition.  (Interestingly, it seems that this is already frequently done in many other countries.  Sociological Images posts this video that shows mileage in L/100km.)

What really makes no sense is using mpg in regulation.  US automobile efficiency is regulated by the CAFE standards, which mandate a minimum average mileage for the fleet of vehicles produced by each manufacturer.  The problem is, by using miles per gallon, rather than gallons per mile, the economic incentive is to produce more super-efficient hybrid small cars, whereas much bigger gains could be made through smaller improvements to the worst vehicles.  Adding 3 mpg to a hybrid doesn’t cancel out a loss of 3 mpg in a pickup truck, but that’s how the standards work.  You could easily pick the new required average to be no more or less stringent than the current one — it would just be more intelligent.  If anything, it would help US manufacturers over Asians ones, since it’s the Asian manufacturers that are producing the small, hybrid cars.

There is only one intelligent argument I can think of against this change, which is that these super-efficient cars are the ones that are pioneering technologies that will push down to all vehicles sooner or later.  This might be true, but I doubt it’s fundamentally necessary.  (It’s easier to put a more advanced engine or a battery in a big vehicle than a small one.)  Maybe you can make an argument that this over-counting of gains for small cars is a way of subsidizing the technological innovation behind them.  I don’t really buy that, though.  A change in the regulatory measures seems obviously good.

Tags: economics, energy, environment, math, oil

I care a whole lot about the environment and humanity’s impact on it, but I hesitate to describe myself as an “environmentalist.” That’s because I disagree vehemently with one of the fundamental beliefs of major environmentalist organizations like Greenpeace and the various PIRGs. I think nuclear power is a big part of the answer to our environmental woes, rather than part of the problem. When canvassers with clipboards and pamphlets approach me on the street to ask for a donation, I ask them if they’re still against building nuclear power plants. Then, when they launch into a prepared speech beginning with an enthusiastic yes (they think I’m on their side), I tell them to call me when they change their mind, and I walk away.

Setting aside all the science for a (brief!) moment, I want to point out that the tactics environmental groups use for pushing this anti-nuclear agenda are often pretty shady. It’s often merely implied by the language they use — for an example, see this US PIRG report that constantly refers to “fossil fuels and nuclear power,” that exact phrase, as if they’re equivalent in all important respects. Fossil fuels are bad for the environment, so it’s implied that nuclear plants must be equally so. After all, they’re always right there, one after the other! Never mind that the vast majority of the text devoted to explaining this is actually only talking about fossil fuels.

That said, let’s get to it. This “fact sheet” written in 2005 claims to explain why nuclear power is “expensive, dangerous, and unnecessary”. It’s full of generalizations and misleading statements, and not full enough of hard facts (though it’s decorated with lots of pretty charts to help disguise that). I could go through it sentence by sentence, but that wouldn’t do much more than make me too angry to finish this post. Instead, I will explain why all three of those adjectives aren’t fitting, and that nuclear power is affordable, safe, and absolutely necessary. read the rest »

Tags: energy, environment, nuclear power, science

Several of John McCain’s energy initiative ideas have been in the news lately. Aside from the totally preposterous gas tax holiday, he’s talking about lifting the federal ban on offshore drilling and awarding a huge prize for better battery technology. He also wants to build 45 new nuclear reactors within the next 22 years. (You can hear his June 17 energy policy speech here, thanks to NPR.)

Meanwhile, Barack Obama remains deeply connected to ethanol, a fuel additive made from cellulose. In the US, this generally means corn, and currying favor with the ethanol lobby correlates strongly with winning big in corn-growing Midwest states. As a senator from Illinois it’s unsurprising that Obama is involved with the ethanol industry. However, it’s scientifically ambiguous whether corn ethanol actually yields more energy than it takes to produce it — but either way it’s many times less efficient than ethanol made from sugar cane, which is a major export of Brazil, and on which there is currently a substantial tariff that Obama just happens to support. Also, the demand for ethanol corn drives up food prices. (Fuel corn and edible corn are different varieties, brags the American Coalition for Ethanol, seemingly ignoring the fact that that’s exactly the problem. Fuel corn is displacing edible corn being grown, making the edible kind more scarce.) Support for ethanol is little more than pandering to Big Agriculture, and that isn’t exactly bringing the change.

That’s not to say Obama’s position on energy policy is bad overall — far from it. His campaign website outlines his plans. He wants to spend $150 billion in clean energy technology and infrastructure over the next 10 years. He’s generally supportive of nuclear power, but has specifically proposed the goal of making 25% of US electricity consumption derived from renewable resources by 2025 (about double the current percentage). Obama is also in favor of a cap-and-trade system for regulating carbon emissions by auctioning off credits to the highest bidders.

And while I’m thrilled to hear McCain talking about big initiatives for technological developments and a serious effort to bring our nuclear power generation capabilities up to where they ought to be (I’m not so sure about the offshore drilling — it might be a reasonable thing to do, though it won’t have any effect on our oil supply for decades) his energy position does leave a bit to be desired. First of all, I don’t really feel confident endorsing the policies of anyone who thought the gas tax holiday was a good idea. (He’s still not letting it go!) Is he just throwing everything out there to see what sticks? McCain is also a proponent of cap-and-trade carbon regulation, but unlike Obama would give away most of the credits to firms that currently pollute the most — meaning less government revenue, and a reward for past pollution. He supports subsidies for nuclear power plants but not for solar or wind power, despite some misleading imagery in his ads.

A lot of good ideas have been proposed, but so have a lot of bad ones. Unfortunately, each candidate has a few from each category, so neither looks clearly in the right. The thing is, science isn’t naturally a political thing. It’s not about ideologies, and it doesn’t care about opinion polls. Wouldn’t it be nice if Obama, McCain, and their campaign staffs could sit down and brainstorm together, then pick and choose the best ideas from each? Lots more nuclear plants, auctioning off carbon credits, ending ethanol subsidies to corn farmers, supporting solar, wind, and geothermal generation… good policies are out there. Here’s hoping politics will get out of the way.

Tags: barack obama, energy, john mccain, oil, politics, science

So, one of the sad things about starting this blog when we did was that I missed out on the chance to make fun of the idiotic gas tax holiday idea. Luckily for me, McCain brought it up again today, and I just can’t resist. I know I am far from the first to be amazed by how bad an idea this is, and by now most people with a brain understand it’s unwise. I don’t think, however, that the sheer magnitude of idiocy represented in this idea has fully sunk in, so I thought I’d add my two cents.

The main problem people seem to have with the proposal is that it is too small to have any meaningful effect and as such is more of a political ploy than a serious policy proposal. (The federal gas tax is 18.4 cents, which results in an average of somewhere around $30/month in savings for most people.) This is a totally valid criticism, but it’s answered reasonably easily with something along the lines of “Sure, it’s not enough to really solve the problem, but that doesn’t mean it isn’t at least a small help, and if the Washington elites [read: Obama] really cared about the little guy, they’d do every little thing they could.” Everyone knows that the attention on this minor proposal is political, but that doesn’t mean they’ll oppose the proposal. People are also worried (at least with McCain’s version — Clinton’s taxes oil companies to make up the difference) that it’ll either increase the deficit or reduce funding for transit. McCain, of course, plans to avoid this by magically pulling money out of “wasteful spending”. This is the apparently unlimited pool of money, of which the only specific item he’s labeled is earmarks — which he’s also going to use to pay for tax cuts, which he massively over-represents, and large portions of which are totally infeasible to cut. To add a bit of hilarity, in Tennessee, where he brought up the idea today, if this magical fiscal maneuver doesn’t work out and federal transportation money gets cut, the state gas tax automatically increases to make up the difference.

So, great, it’s a meaningless and ineffective campaign promise that has no hope of being passed. That’s dumb, but by no means unique. The real problem here is that whatever effect it does have will actually be incredibly harmful to the country. First, recognize that even the $30/month in savings will never happen, for reasons anyone who’s ever taken freshman economics will understand. Say the tax is eliminated, and prices fall that incredibly drastic 18.4 cents. The price producers receive for selling the gas won’t change (since the extra 18.4 cents previously went to the government, not them), so supply will remain unchanged, but the price consumers have to pay would be lower. That means the amount consumers want to buy will increase. Since previously supply and demand were at equal quantities, and now demand has increased, there will be a shortage. Markets solve shortages with upward pressure on prices, so the price will rise until there is no longer a shortage. In most markets this happens because the higher price partly lowers demand and partly increases supply, and the price would come to rest somewhat below the original price for savings, albeit by less than 18.4 cents. However, this is a somewhat unique circumstance, since the supply of gas is limited by the bottleneck of US refineries, which are already working near maximum capacity. That means in the short term supply can’t increase, so the shortage has to be eliminated entirely through a decrease in demand, which means lowering demand back to where it was before the tax decrease, which means raising the price up to where it was before the tax decrease… which means no savings. There will be plenty of extra profit for oil refineries, though. In the long term, this would mean people would build more refineries, and the price would go down some, but this tax break is only temporary, so it won’t even have that effect.

The consequences only get worse from there, though. read the rest »

Tags: economics, energy, john mccain, oil, politics, taxes