There has been a lot of talk recently from the White House of an impending energy shortage. I’m wondering if this is true. While I have no background in economics or the energy industry, it seems to me that there is not a shortage, per se, but rather a concern that demand will cause cost to rise to what some consider unacceptable levels. What’s the idea behind tackling the supply side of this equation instead of just letting demand increase price until it is economically viable to explore or extract new sources or alternative sources are viable?
There is a crisis, but by the time it’s fixed, like the oil crisis of the Carter administration, we will have forgotten.
At some point the supply and demand do level out, but in the meantime, some people gouge and some people suffer. The market economy is not efficient at all, and when the government takes a hands-off stance it becomes cruel.
Not efficient compared to what?
Don’t take that to mean I think it’s perfect. I think it’s closer to the chestnut that democracy is the worst possible form of government, except for all the others.
The idea is to head off short- to mid-term disruption that could take years and disrupt millions of lives (i…e. voters) before it balances out. Just ask my sister in California whose utility bills have quadrupled over the last year.
As Ma Parrot said, at some point supply and demand balance out, but that’s over a long-term perspective. Think of it as a pendulum. When supply is high and demand low, prices go down. However, so does the investment needed to develop new sources. At some point, cheap suppliers decrease and/or demand increases so that supplies are low and demand is high. Prices go up, and suppliers invest in development, to get more supplies to sell at the higher price. Then the process reverses again.
Short-term (stopgap) approaches could include rationing (as in World War II), economic incentives (tax breaks for energy companies who explore), economic disincentives (the so-called gas-guzzler tax on big cars) and finally the removal of “artificial” barriers to increasing production. Of course, the key “artificial” barrier is environmental restrictions.
Obviously all these stopgaps have serious long-term risks, but as a society, we tend to take a short-term view.
I think the primary crisis is a crisis of will. We have been willfully subsidizing environmentally destructive energy sources for years. With prices kept artificially low by this subsidization, demand has gotten too high. Our economy is very inefficient in its use of energy because energy has been artificially cheap.
Admittedly, some things might need to be done in the short term to help out those people who cannot afford the sharp rise in energy prices that are occurring in places like California. And also perhaps to cushion the rate of change of the effects which could have a negative impact on the economy. But, for the most part, I think increasing energy prices is a good thing and will ultimately be healthy for the economy and will encourage conservation and less environmentally destructive forms of energy production.