All the responses here seem to assume the decision to change will be voluntary. What happens if the price of oil continues to rise? No one would have predicted $130 a barrel oil a year ago. How can we be sure it is not headed to $250, $300 or $500 a barrel in ten years? The free market may force our hand, and then we will see just how quickly we can make wholesale changes in our energy culture. We may be facing a choice between radical, short term change, or complete economic paralysis.
Don’t underestimate the speed the market can operate at when really pushed. Think of how much the internet has changed society in a decade.
For example, if oil went to $500/bbl, every automaker would increase hybrid production dramatically. The fleet turnover rate would become much more rapid, and this would result in increased auto sales as we exchanged the least fuel efficient models out. This would give the auto companies more money to invest in production and research, and societies energy and resources start flowing to the place they need to go. And some goes out to solar research, and nuclear, and wind, and tidial and geothermal. Before oil gets to $500/bbl, solar power will be cheaper on a cost per btu basis. Then money starts flowing to the solar industry, causing it to grow.
The relative proportions of capital and labor are determined by people negotiating with each other, risking their own capital on their estimates of what the right and wrong technologies are. As information is gained over time, people refine their bets and capital flows change.
That’s how a free economy transitions. It might be painful, because we might devote so much of our capital to energy that we’ll cause other areas of the economy to contract. But that’s because the intelligence of the market is saying that those investments are simply more valuable than what was lost.
The alternative to this wonderfully complex and efficient mechanism is to have a self-appointed energy expert like Al Gore dictate what the economy shall look like in twenty years, convince enough citizens to rally around around him to bring him into office, and then to start ordering industry professionals around on the assumption that he and his fellow politicians in Washington are more qualified to dictate where our energy dollars should go than the people who are actually risking their money and reaping rewards by making those kinds of decisions.
Which one do you think will be more successful at navigating us to a new energy infrastructure? The market? Or Al Gore? Or Barack Obama?
I have a good chunk of my meager wealth invested in the proposition that the market will ultimately pay off. So does anyone else who invests money in the stock market. We are betting on future growth, and voting with our dollars that we trust the market is intelligent and the best place for our resources to be parked. That should tell you something. Don’t let salesmen with a ‘plan’ convince you to give him the keys to the economy.
The Internet, in case you’ve forgotten, started out as a government-military-academic project entirely insulated from market forces.
Fear, all the more so if oil continues its meteoric rise.
Let us assume it does. Where does the energy come from to replace gasoline to fuel the transportation infrastructure? Cellulosic ethanol? Best case it could provide for a smallish fraction of the transportation sector’s needs. EVs? Maybe, charging off-peak the current grid could almost handle it, but there is no way that you won’t exploit the nation’s coal resources as part of the electricity generation mix. Yes, given the fact that electric motors are several fold more efficient than ICEs carbon emissions would overall decrease substantially, even with all coal-fired electricity generation, but that aint carbon-free.
The internet was started by the government. Most of the original infrastructure was either built by the government or regulated utilities using a lot of public land. The equipment that runs the internet was invented using a mix of government and private funds in both public and private institutions. The build-out of the interent is very much a government directed public-private partnership. I really don’t see how you can hold up the internet as an example of the market in action.
I’m not talking about the infrastructure of the internet. I’m talking about the market that grew up out of it - still the most unregulated, untaxed, freest market around. Look at the radical change that’s happened, but also at how much structure and organization has arisen spontaneously out of it. The engineers in ARPAnet never imagined their packet network being used to create a worldwide auction house for average citizens, or amateur video web sites that are eating into the market of television and movies. They never saw the social ramifications of the instant networking, or the economic implications of virtual businesses. Or the productivity gains to workers of having the world’s largest intellectual resource at their fingertips 24/7. The internet has changed the way we do business, the way we entertain ourselves, the way we form relationships, and numerous other things. Entire industries have been sunk and created by it.
Or if you want to extend it, consider the computer revolution as a whole, and how it has changed society in the past 30 years. Entire trades have vanished, and new ones sprung up. Whole industries have been destroyed (how many telephone operators does AT&T employ these days?). Computers have changed the way we build products and design them and use them. The economy went from industrial to information age - a huge transformation - and not just survived, but thrived and grew. Almost all of that organization came spontaneously from the cumulative interactions of the market.
Well, if you’re saying that once infrastructure is in place, the market is usually the best way to exploit it, I’d mostly agree with that sentiment. And if we’re talking about a change in our energy usage patterns, that is likely going to involve an infrastructure buildout. Which, if we’re using the internet model means that government should take the lead in working with the private sector to accomplish that buildout.
Hit reply to soon. I don’t know what Canadian law is like, but all internet transactions in the US are regulated just like any other transaction. All our usual laws governing fraud, commerce, false advertising, etc. still apply over to the internet. I’m not sure I’d call it the freest market around. There are certain areas where transactions aren’t subject to sales tax, but a lot of economists consider consumption taxes to be non-distorting anyway, so I don’t really see an argument for freer markets arising from that.
Now, because you can ship things you want to do off to countries with lax regulation, there’s an element of that freer market to some transactions. But a lot of the stuff we ship out using the internet goes to India and China, which are two highly regulated countries.
I think you misundertand me. I agree, the free market will determine how we respond to the energy crisis. My point was, we may not have the luxury of declining to change; circumstances may force change upon us, since the alternative is energy starvation. Nice try at shoehorning Obama in to the mix, though.
Why is that?
We need a governmental push because if I understand the issue correctly, one of the chief barriers to nuclear energy is regulatory. This is where I think, frankly, McCain is right and Obama is wrong–McCain wants to make a big push for nuclear power–45 new nuclear plants by 2030. It won’t achieve Gore’s goal, but it’s progress in the right direction. And it will take a strong leader pushing through an agenda to streamline the approval process for new plants.
ETA: and ditto **Kalhoun’s ** question. Que?
Because Japan Steelworks is currently the only company that can make the huge forgings required for a containment dome, and they are currently backlogged and can only handle half of the orders they’ve already got. It’s a serious bottleneck in nuclear development.
And like a lot of things in the nuclear industry, the market is hesitant to expand because they don’t know if nuclear power will continue to be pushed in the U.S. They’ve been burned before by a new President suddenly deciding nuclear is bad and throwing the industry into a tailspin. They’ve also been burned once already by the collapse of oil prices, which makes them a little more leery about investing the hundreds of millions of dollars required to build another facility to make these forgings. The article estimates that it would take another company about five years just to get up to the capability Japan Steel has now.
There’s no doubt this problem can be solved, given enough investment. But it is currently a bottleneck and will constrain the number of reactors that can be built in the next ten years.
I wanted to comment more on this. The government does NOT get the credit for the infrastructure of the internet. When it was a government-only infrastructure, it was a packet-switched network that had been designed to connect defense and research establishments together in case of nuclear attack. It was never intended to be a public communications network.
Furthermore, I remember well that when the debates started around allowing the internet to be opened to the public and used for profits, ‘progressives’ heartily opposed the change. I was active on Usenet at the time, and remember the debates well. The internet should be free! We don’t want crass marketing and greedy capitalism on the internet! We don’t want the great unwashed to intrude on the purity of our academic discussions! There won’t be enough bandwidth for everyone! Most of the ‘old guard’ on the internet HATED the idea. Furthermore, there were plenty of people who thought that it wouldn’t amount to much anyway. What’s a company going to do with the internet? Sell stuff? Ha.
In any event, at the time the internet was opened to commerce, it was but a tiny shadow of what it is now. The major protocols we use today - Flash, ActiveX, Java, AJAX, SOAP, Wi-fi, another others, did not exist. They were created by corporate interests. There was no broadband access.
A better example of a government-run public communications network would be France’s Minitel system. And look where it is today.
Some states are moving forward on their own without the Federal Government’s involvement. See here.
*AUSTIN, July 17 – Texas, headquarters of America’s oil industry, is about to stake a fortune on wind power.
In what experts say is the biggest investment in the clean and renewable energy in U.S. history, utility officials gave preliminary approval Thursday to a $4.9 billion plan to build new transmission lines to carry wind-generated electricity from West Texas to urban areas such as Dallas. *
Just like with the railroads and the Interstates and the canals, government provides the infrastructure and lets the market take care of things after that. It’s what has always worked and will continue to work, despite the Libertarian arguments that it doesn’t work.
As someone said in a different thread, in practice it works just fine, but the theory doesn’t compute.
When it comes to large infrastructure pieces, I actually agree with you, and part company with the hardcore libertarians. It’s hard to see how private industry can build an interstate highway system or build a new powerline network on public and private lands. So government does have a role in this case.
Of course they get credit for the buildout of version 1 of the internet. Version 1 then gave rise to a private market demand for using the internet. As the government allowed more and more private actors onto the internet, that in turn gave rise to a private market demand for better internet infrastructure, which the market then began to supply.
Without the original buildout, it’s highly unlikely any of this would have happened. This is a standard economics coordination problem. There’s little to no incentive for private market actors to develop products to use the internet if there is no internet in existence. And there’s little incentive to spend a huge amount of money on building something like the internet until some sort of demand exists. By directing the buildout of version 1, the government created demand for a basic internet infrastructure, and the basic infrastructure then gave rise to the private market demands.
So what? A lot of people from across the ideological spectrum backed the change. I’d consider Al Gore progressive on a number of issues and changing the internet to the private market was one of his issues.
See above. Without version 1 of the internet, the incentives to develop these things are significantly diminished. Who would you develop them for?
You know, it’s clear from your last post you understand fully well about these type of coordination problems when it comes to infrastructure buildouts, so I don’t know why you always start all your economic arguments from a purely theoretical perspective.
Absolutely! Any change of this magnitude will have to have some significant government involvement, simply because the current set of laws and policies was developed for a very different set of conditions and assumptions. The bulk of the effort will have to be led by industries, and will have to be driven by market innovations. But the market is going to have to have some sort of external incentive to make it run. There’s simply no existing profit motive for such a massive change in infrastructure.
The big technology-driven societal changes that I can think of over the last several hundred years - colonization of the Americas, the intercontinental railroad, the rise of the automobile, the internet - have all had some combination of government and private sector involvement. Most of the work was done by the private sector, with the incentives or early development provided by government. That’s how the system is supposed to work, and my guess is that it will be similar this time around.
I was trying to think of how governments were involved in the industrial revolution as a (probably the) major technology-driven societal change over the past several hundred years, but can’t point to anything in particular. I know there is some ignorance on my part, but I also think that governments mostly responded to those changes rather than playing any significant role in instigating them. So it’s not a requirement in all cases, but I think it will be in the case of the energy system.
I’m trying to figure out what you’re saying here. Surely you’re not saying that the biggest reason we don’t have more nuclear plants in N.A. is due to lack of free-market demand? Or is it a combination of that and heavy government regulation and direct-to-government lobbying by anti-nuclear folks?
Several things have happened to keep nuclear power down, but the bottom line is that nuclear requires a huge capital outlay at the beginning, which makes it very sensitive to delays in construction. The cost of money starts to skyrocket if your billion dollar investment gets tied up for another few years without generating revenue. Therefore, nuclear investment requires a fairly predictable timeline for construction.
However, nuclear plants are constantly bombarded wtih lawsuits, injunctions, demands for environmental reviews, work stoppages due to protests, and changes in regulations during construction which require redesigns. Therefore, there is huge risk in nuclear investment. That drives up the cost, which makes the whole venture cost-prohibitive. By 1981, the average time from ground breaking to first power in a nuclear plant had stretched from 8 years to 20. That’s a hell of a long time to tie up that much capital.
Also, nuclear power was burned by the collapse of oil prices in the 1980’s and 1990’s. Oil became so cheap that nuclear didn’t make sense. So that became one of the risks as well - what if you start building your plant, and before it’s done the bottom falls out of the oil market and no one will buy your expensive energy?
But the main problem is the uncertainty around construction cost and project delays from new legislation and activism. It plays havoc with financial planning. This was exacerbated by the sky-high interest rates of the late 70’s and early 80’s, which made the cost of money even more prohibitive. 40 nuclear plants were canceled between 1973 and 1979.
Today, the problem is different - it’s very hard to get permits for nuclear plants, it’s hard to find people who know how to build and run them, and it’s hard to get the materials required to make them because industry shrunk so much after 1975 that there is very little in the way of supporting industry.
Today, the other problems facing nuclear are gone - fiancing is relatively inexpensive, oil is sky high and not likely to come down to earlier levels, and China and India are driving demand. But the regulatory problem still exists. What would help more than anything would be regulatory reform - for example, saying that once a plant is certified and construction begins, the plant will be immune to further legal challenges except under very strict conditions. Another reform would be to say that once a plant is certified, other plants using the same design could go through an expedited regulatory process.
I’ve often thought about that. I don’t know what is or is not possible legally but I would chip into to any legal fund used to fight needless lawsuits or legislation that would streamline the process of building nuclear plants.
National energy requirements are not a joke or a chess piece to be thrown around year after year without resolve.
This is a good idea in theory, though I’m not sure how it would work in practice. Now, I’m not a nuclear or civil engineer, so I don’t know that much about plant design. But I would imagine that a plant built in California would have to be designed to withstand earthquakes–which I assume drives up the costs. So we approve the earthquake-safe plant and tell everyone they can build it. But someone in Idaho is going to object (rightfully) to having to make their plants earthquake safe. So, we have to go through a review and approve a new design which is ok for Idaho. Now we have 2 designs, one of which is ok for Idaho, and one of which is ok for California. Now, Arkansas wants to build a plant, and they want to use the Idaho design because it’s cheaper. But wait, Arkansas is on a fault line…
I can imagine issues like this coming up over and over again, and I’m not sure that the idea of having a set of pre-approved plant designs will amount to anything.