“To control our own destiny, America must develop new forms of energy and new ways of using it. And this is not a challenge for government alone -- it's a challenge for all of us."
--- President Barack Obama
“Drill, baby, drill.”
--- Sarah Palin, former Governor of Alaska
My old friend Richard came to town and joined me for lunch in West Palm Beach last week. Back in the day, Richard was a “playah” in South Florida. In the 90’s, he had his fingers in aviation, timeshares and technology and we were briefly business partners in an Internet venture.
Now that he has moved to Houston, he has gone into -- what else? The oil business. The higher price of oil has made it economically viable to take oil out of the ground in the Great Plains again. And, Richard’s Tulsa based company is doing just that.
Richard grew up in Birmingham and I grew up in New York. As you might imagine, we wear different political stripes. But, on the topic of a national energy policy, we agree. Democrats want the government to invest in green tech and eschew domestic opportunities to drill for oil. Republicans want to drill, baby, drill and let the free market decide what green technologies are viable.
And, they are both wrong. It’s not one or the other, it’s both!
A good friend of mine, who began his career as a manufacturing executive in Germany, is fond of saying that the American economy is based upon cheap energy. Coal is dirt cheap (no pun intended) and Pennsylvania and West Virginia are the Saudi Arabia of coal. We don’t tax gas at the pump to the extent the Europeans do which is why we drive Yukons and F-150’s and they drive Minis and Fiestas.
It has served us well for the last 100 years. So, why change the current paradigm?
My answer does not come from concern about global climate change. My concerns are based in economics and foreign policy.
US oil production peaked in 1970 while demand has continued to rise. Unless something changes, we will continue to import a greater percentage. Meanwhile, the global demand for oil is expected to increase by 60% over the next 20 years, largely driven by the economic development of China. The economic implications to us are obvious. Higher energy costs, more imported oil (larger trade deficits) and a less competitive economy. To continue on the current course will only lead to economic disaster.
We read a lot about alternative energy every day. Wind, Solar, nuclear and natural gas all have viable applications. But, we don’t know how all this will scale up or what the unintended consequences may be. We do know that any major transition will be expensive and is likely to take decades. Yet, it needs to be done if we are to reduce our dependence on foreign oil.
Our political quagmire prevents us from doing what we have done throughout our history, namely invest. By that I mean government investment.
Our infrastructure – roads, seaports, railroads, airports, the electric grid and telecommunications – is absolutely critical to our economy and much of it was developed with the help of the US Government. Land grants, government funded R&D, loan guarantees and tax breaks were the impetus for getting much of it started.
Technology? The silicon chip was developed by NASA. GPS systems and the Internet itself were developed by the Department of Defense. The US Government funds research at universities and private companies that have resulted in pharmaceuticals, carbon fiber and countless other products.
So, why not alternative energy? Our economic future relies upon it.
Complicating matters are the implications of our dependence upon unstable governments in the Middle East, Africa (Nigeria) and South America (Venezuela). Do we really want to bet our future on those relationships? If one of their leaders passes gas, the price of a barrel of oil jumps 5 bucks.
While I am on the topic of foreign relations, do you ever think about how much of our Defense budget goes to protecting the supply chain that delivers oil to our shores? Ever think about the connection between Middle East oil money and the terrorists that took down the World Trade Center?
How about the amount of turmoil in which we have found ourselves in the Middle East over the past 60 years? American soldiers have spilled their blood and lost their lives in Iraq, Lebanon, Yemen and, of course, Afghanistan.
Wouldn’t it be nice if imported oil was not so important? Remember how our economy was humming along in the 90’s with low taxes, low Defense expenditures and budget surpluses?
A British historian, Paul Kennedy, wrote a book in 1987 called The Rise and Fall of the Great Powers. He analyzed the great empires throughout history from the ancient Egyptians to the British Empire and used the data to predict the eventual fall of the Soviet Union and the rise of China. Key factor: the percentage of GDP consumed by military expenditures. While the Soviets and the US were escalating, the Chinese were de-emphasizing.
If that’s too esoteric for you, think of it this way: in 25 years time, do we still want to be spending 5% of GDP to defend the supply chain of our enemies? If you don’t think so, you have to be supportive of any effort to become more energy independent.
So, to return to the beginning, what should we expect from our political leaders in Washington? Will the Democrats recognize that we must continue to develop domestic oil sources to maintain a viable economic platform? Will the Republicans support the development of alternatives to fossil fuels even if it means increased government spending and intervention in the free market?
Or, to put it another way: WHO WILL LEAD?