Energy Policy Focuses on ‘Pain at the Pump’ Ignores the History of How We Got Here | Whuff News


A recent survey of Americans shows “threats to democracy” as the top concern, just ahead of the usual economic choices of “cost of living” and “jobs and the economy.” These concerns are linked between energy and environmental constraints. Yet most political discourse ignores this connection which can damage public understanding. This lack of understanding then leads to unnecessary partisanship in politics as Americans are disappointed by both private companies and government decisions.

What we need is a sufficient number of citizens and a group of decision makers who have sufficient understanding of the nature of the complex social, economic and political systems in which we live.

“Pain at the pump” headlines often appear when gasoline prices rise, as they did this year. These topics are very simple. A deeper explanation places our current situation in the context of a centuries-long decline in the cost of energy and rising levels of consumption.

The most common economic policy assumes that our low level of energy expenditure (typically 4%-6% of total expenditure) means that reducing energy use has a relatively small impact on the economy. But energy consumption makes the economy work like food for people and fuel for machines. So, no energy consumption, no economic activity.

Consider the three phases of US growth since World War II: Phase 1 (1945-1973), Phase 2 (1973-2000) and Phase 3 (2000-present). Each phase has a specific growth rate of energy consumption: 3% (fast, Phase 1), 1% (moderate, Phase 2), and 0% (stagnation, Phase 3). Transitions to new phases correspond to significant changes in socio-economic indicators.

First, total expenditure on food and energy, a ratio of costs, decreased from the beginning of the industrial revolution until the year 2000, a ratio that has not decreased. By 2022, Americans will allocate 11%-12% of spending on food and energy, the same as in 1994. In other words, while energy costs have been falling for a century, we’ve neglected to pay attention to the fact that they haven’t in the last 20 years.

Former President Richard Nixon ended the gold standard for the US dollar in 1971. Along with expensive energy, this caused an increase in the ratio of US private and public debt to GDP from 1.5 in 1970 to its peak of 3.8 in 2009 (Phase 3) and then remained above 3.4. The higher the debt ratio, the lower the interest rate should be to avoid a financial meltdown.

Phase 1 coincides with the most fragmented US Congress since the Civil War. Congressional polarization has increased since then. Although we should expect increased political volatility as economic growth slows, we are victims of circumstance. We need to use this knowledge to understand new ways of working together.

Finally, US labor compensation as a share of GDP increased, remained unchanged, and decreased during Phases 1, 2 and 3, respectively. Slowing wages since the 1970s are not dependent on inflationary pressures supported by energy costs, mainly due to peak US oil production (at the time) and increased world trade caused by resource scarcity. The world is also facing energy constraints not seen since the 1970s.

Policymakers need to put these and other trends in the context of what we can control. We directly control the distribution of economic output, through tax policy, rather than maximizing energy consumption and subsequent economic output.

Despite major energy-related changes in technology over the past few decades, no “baby boom” in oil and gas or renewable energy transitions guarantees a return to 1950s levels of rapid growth that will free us from the choice to stabilize our democracy.

Americans correctly see a threat to our democracy. Unfortunately, very few understand this threat based on few viable economic and political options as it is constrained by energy supply and costs. By moving the discourse of power beyond short-term “pain at the pump” to long-term strategies, we use knowledge to extinguish a threat based on ignorance.

Carey W. King is a research scientist at the Energy Center at the University of Texas at Austin.

A version of this op-ed appeared on The Hill.



Source link