[Oz-envirolink] Are Global Warming Models Accurately Predicting Our Future

[hugh spencer]

http://resourceinsights.blogspot.com/2008/04/more-coins-in-fuse-box.html

Saturday, April 26, 2008

More coins in the fuse box

Even as the signs of a growing oil crisis gather around us, there are those
who prefer to put coins in the fuse box. I am referring, of course, to the
very dangerous practice of putting a coin in a fuse box where the fuse
ought to go.

Sometimes foolish homeowners whose electrical systems are prone to burn out
fuses do this out of frustration or as a temporary expedient until they can
get to the hardware store. In doing so, they deny themselves the feedback
that keeps electrical fires from starting. (I have used this analogy
previously and couldn't resist trotting it out again given recent
developments.)

Perhaps the most visible current coin-in-the-fuse-box proposal is John
McCain's gas tax holiday. Its irresistible political appeal in a campaign
year means it is likely to be enacted. By lowering gasoline prices his
proposal would, of course, send a price signal to people to use more
gasoline. That's hardly the message they ought to be receiving when the
peak in world oil production is growing ever closer. McCain and many others
have also called on the U.S. government to cease its oil purchases for the
country's Strategic Petroleum Reserve. The move would eliminate one sizable
source of demand from the oil market. (Never mind that such a reserve might
be especially important now when a major oil supply disruption could
cripple the weakened U.S. economy.)

The result of suspending gas taxes and oil purchases for the Strategic
Petroleum Reserve would probably be a brief period of lower prices followed
by another run-up set off by increased demand. So, instead of the money
going into the federal highway trust fund, it would then go into the
coffers of oil producers. (Perhaps the failure to repair roads and bridges
would reduce incentives to drive more. But that hardly seems like an
efficient and proper way to encourage less driving.)

Coins in the fuse box make for an addictive habit. As long as things
continue along smoothly, the temporary fix feels great. That's why it is
almost certain that as the date for resuming collection of the gas tax
approaches, there will be a call to extend the tax holiday. And, if
gasoline prices don't decline sufficiently by the time that extension
lapses, there could be further calls to extend it.

In other important areas we are also being deprived of necessary feedback.
The recent bailout of Wall Street investment banker Bear Stearns by the
U.S. Federal Reserve tells Wall Street once again that the Fed will always
come to the rescue if things get bad enough. Such actions create what in
financial circles is called "moral hazard." It is the hazard that financial
institutions will engage in ever more risky behavior to seek higher
returns, secure in the knowledge that the government will rescue the
financial system if it becomes vulnerable to systemic collapse.

This is not a new development, but one that has been growing in proportion
for many years as I explained in a previous piece entitled, "When
Socialists Take Wall Street." The fact is that as such bailouts become more
certain over time, they become more necessary to avoid catastrophic
financial collapse. That's because risk taking expands with each cycle of
crisis and government rescue. As a result of decades of indulgent U.S.
policy toward financial institutions, such risk taking has now expanded to
the point where it would have been too risky for the Federal Reserve not to
bail out Bear Stearns. Removing the coin from the financial fuse box --
that is, letting Bear Stearns go down -- would not simply have cut power to
Wall Street; it might have made the entire world economy go dark.

But perhaps the most insidious of the current coins in the fuse box is the
one that is in the mind of most Americans and perhaps many others across
the globe. It is the idea that the high oil prices of the last few years
are simply a cyclical phenomenon and that lower prices are sure to follow
as the market brings forth new supply. While the market is indeed bringing
forth new supply, the question now is whether that supply can keep up with
depletion. The evidence increasingly is that it will not and that high
prices will become a permanent state of affairs.

The public is aided and abetted in this belief by the soothing
pronouncements of the great majority of economists that the operations of
the market eventually cure all high prices. It is a message that the public
wants to hear and wants to believe is true. And, while it has turned out to
be true on many occasions, neoclassical economics is not physics. There are
exceptions to its precepts and this exception, if that's what it turns out
to be, could be highly destabilizing to our global society.

Waiting for the market to resolve the oil problem on its own may have
financial consequences just as severe as regulators feared would have
occurred had Bear Stearns gone bankrupt. Imagine for a moment what $200- or
$300-a-barrel oil might do to the economy. (In saying this, I am not
advocating government actions that would lower prices. Rather I support
deep subsidies for a rapid transition to renewable energy funded perhaps by
higher taxes on nonrenewable energy.)

Because they are in power for a limited time, it is the habit of
politicians and policymakers to temporize. They are simply trying to make
it through to the next election. I do not expect any of them to take the
coins out of the fuse box. If we want that to happen, we are going to have
to do it ourselves, community by community.

posted by Kurt Cobb at 10:21 AM

Amen to that!!

HS.






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