Thomas Friedman: Truth or Consequences

Posted by Kendall Harmon

Imagine for a minute, just a minute, that someone running for president was able to actually tell the truth, the real truth, to the American people about what would be the best — I mean really the best — energy policy for the long-term economic health and security of our country. I realize this is a fantasy, but play along with me for a minute. What would this mythical, totally imaginary, truth-telling candidate say?

For starters, he or she would explain that there is no short-term fix for gasoline prices. Prices are what they are as a result of rising global oil demand from India, China and a rapidly growing Middle East on top of our own increasing consumption, a shortage of “sweet” crude that is used for the diesel fuel that Europe is highly dependent upon and our own neglect of effective energy policy for 30 years.

Cynical ideas, like the McCain-Clinton summertime gas-tax holiday, would only make the problem worse, and reckless initiatives like the Chrysler-Dodge-Jeep offer to subsidize gasoline for three years for people who buy its gas guzzlers are the moral equivalent of tobacco companies offering discounted cigarettes to teenagers.

I can’t say it better than my friend Tim Shriver, the chairman of Special Olympics, did in a Memorial Day essay in The Washington Post: “So Dodge wants to sell you a car you don’t really want to buy, that is not fuel-efficient, will further damage our environment, and will further subsidize oil states, some of which are on the other side of the wars we’re currently fighting. ... The planet be damned, the troops be forgotten, the economy be ignored: buy a Dodge.”

Read it all.

Filed under: * Economics, PoliticsEnergy, Natural ResourcesUS Presidential Election 2008

15 Comments
Posted May 29, 2008 at 11:23 am [Printer Friendly] [Print w/ comments]



1. Chris Jones wrote:

What a stupid column.

Friedman starts out with the truth:  that high prices for both crude oil and gasoline are the result of rapidly rising demand, which in turn is the result of burgeoning economic growth in places like China and India.  China and India are not going to go back to being desperately poor backwaters; they are going to continue to modernize and to grow.  Therefore, the rising oil demand that their economic growth produces is not going away, and the price of crude and refined products is going to continue to rise.

But if the real cause of rising oil prices is to be found in the economic coming-of-age of countries like China and India, then it is not to be found in the failure of our energy policies.  Our failure to enact socialistic energy policies in the 1980s and 1990s did not cause China and India to grow; and our adoption of such stupid policies now will not stop them from growing, nor will it do anything else to “fix” the problem of high oil prices.  Where Friedman is right, he is not telling us anything that we did not already know; and his prescriptions for dealing with the situation are just warmed-over socialism.

Government can no more repeal the law of supply and demand than it can repeal the law of gravity.

May 29, 12:29 pm | [comment link]
2. John Wilkins wrote:

Chris - what are “socialistic energy policies?”  You mean like the government paying the defense department to do research in institutions about different ways to make energy efficient weapons?  Do you mean investing in NASA?  That’s a lot like socialism.  Of course, lots of European countries have an effective private/ public mix of managing energy, and they aren’t whinging as we are because they have lots of alternatives.  I might also read a bit about how the oil companies did what they could to get rid of the competition found in electric cars at the turn of the century.  Capitalism indeed.  History seems to indicate that people like capitalism for other people, but not when it threatens their own profits. 

You also avoid the fact that the government subsidizes the oil industry in lots of ways by refusing to compute the fair cost of the commons.

May 29, 1:04 pm | [comment link]
3. Chris Jones wrote:

John,

what are “socialistic energy policies?”

Government manipulation of prices (which is what Friedman is recommending) is what I mean by “socialistic.”  I think it is stupid.

I’m not defending the oil companies (you’ll notice I said nothing about them in my comment) and I think subsidies to industry (direct or indirect) are just as socialistic and just as stupid as price controls.  But the oil companies did not cause the current rise in prices (as Friedman rightly pointed out, it is entirely demand-driven), and to complain about the oil companies as if they did cause it is sheer demagoguery.

I’m not endorsing “unbridled capitalism” but there’s a big disconnect between Friedman’s correct analysis of the root of the problem and his proposed remedies.  That’s all that I am saying.

May 29, 1:23 pm | [comment link]
4. Br. Michael wrote:

John, if you like Europe so much then move there.  The plain simple fact is that, gasp, Europe and the US are different.  The shear size of the US is one thing.  What works well there might not do so well here.  The entire rail system of a country in Europe might do well in a state, but how do you create a rail system that extensive in the US?

And the left effectively shut down attempts to use nuclear energy.

But I don’t worry because I know that the demogogues will effectively shut down rational debate.

May 29, 2:59 pm | [comment link]
5. Brian from T19 wrote:

I’ll say first that I love Thomas Friedman.  I recommend all of his books and I use alot of his work in classes that I teach.  His documentary “Searching fopr the Roots of 9/11” is indispensible.  However, on this issue he is dead wrong.

There are 2 problems: One is the price fixing issue that Chris Jones points out above - those never work -  and the other is the inelasticity of demand for oil.  His assumption that price fixing will make the demand for oil more elastic is simply wrong.  The overall level of investment in oil-dependent products makes a change far too costly to the average consumer - even with a reduction in the payroll tax.  Not all of us have the ability to trade in our hybrid for a new one when the mood strikes.

May 29, 3:05 pm | [comment link]
6. Rick in Louisiana wrote:

Chris wrote: “But if the real cause of rising oil prices is to be found in the economic coming-of-age of countries like China and India, then it is not to be found in the failure of our energy policies.”

I respectfully disagree. Increased demand for oil from China and India is part of a larger picture - which Friedman himself clearly states. And whether they alone or they partly are to blame, surely failed and shortsighted energy policies make it worse for America. Perhaps wiser and more farsighted energy policies would mean $3 instead of $4 a gallon gasoline (making up an example).

I agree with Chris and others who do not care for Friedman’s proposed solutions. But that does not mean the United States is just fine when it comes to energy policies or strategies. We do not have to imitate Europe to learn from their example. I do not want $8 a gallon gas. But even in rural areas one can have better public transportation. (I lived the in the UK for several years. I miss the rail/bus system.)

Surely more and better public transportation would be helpful for America. One of the reasons China demands more oil is because private car ownership/use is going through the roof. Ding ding ding.

I rather liked riding my bike to class nearly every day for five years in Ithaca, New York. I would do it here in Baton Rouge were it not so hazardous. (This city is anything but bike friendly.)

May 29, 4:04 pm | [comment link]
7. Baruch wrote:

#4 Br Michael Right on. Fill the tank of your car in Germany and translate the price per liter to gallons and you will be around $8.00 per gallon. Lucky us, now if the econuts didn’t insist that we not drill offshore East Coast or in ANWAR northern border or elsewhere inside the country we could have increased supplies right here at home.

May 29, 4:07 pm | [comment link]
8. Bryan McKenzie wrote:

The real question is if we want to increase conservation of gas, then why don’t we do what we did in the ‘70s and reduce the speed limit on the nations highways to 55 miles per hour?  Not only would we reduce consumption of gas, but it would make the highways safer too encouraging people to buy smaller cars.

May 29, 4:12 pm | [comment link]
9. Carolina Anglican wrote:

Thomas Friedman continually approaches issues from a viewpoint that steeped in a liberal/socialism bent. #1’s first sentence sums it up.  Friedman actually suggests we should raise gas taxes to guarantee a high price at the pump!!! Why stop at 4$ Friedman? why not artificially raise the price to $10?  Friedman shows in his book The World is Flat and in his columns that he is an elitist and out of touch with reality.

May 29, 5:12 pm | [comment link]
10. aldenjr wrote:

Tom Friedman is right on.  This idea that somehow we should not embrace collective solutions to our energy issues because they are “socialism” in action, is completely naïve to the reality of our entire energy system.  For example our entire electric utility system is socialism.  We don’t have a choice and we all, within a region, pay the same for the same service.  And it isn’t lefties that have caused utilities to shy away from investing in nuclear power, it has been the unwillingness of the US Government to guarantee catastrophic insurance and nuclear waste indemnification that has persuaded electric utilities not to invest in nuclear energy.  They cannot afford to manage an unsubsidized risk.  Subsidizing this risk by the Government is socialism, right?

And what about this idea that somehow our free market has nothing to do with collective or socialized incentives.  Balderdash!!  Much of what we enjoy, now manufactured by companies in the free market, was first created by our collective investment in the military system and/or the space program.  Consider Henry Ford’s first assembly line automobile plant, the Rouge Plant.  The was the symbolism of the virtues of the free market capitalism, right?  It was actually built by the US Government for Henry Ford to make LH-1s, I believe, for the World War I forces. 

In fact, it may be that collective action is the only way to get products to market quickly that could help us resolve the current energy crisis.  Consider plug-in hybrids.  For four years now promoters have proved that they can reliably deliver over 100 MPG, that the batteries are available and will last, that the current crop of hybrids could easily be converted.  However, even Toyota will not make them available.  And the costs for hybrid to plug-in conversions done on a onesy-twosy basis is too high for the average consumer to afford (additional $10,000).  However, if the Federal Government, a State Government or City were to make a mass purchase they could help lower the cost for everyone. 

So Tom Friedman is right.  The problem we have in this country is that we have been led by a President and an Administration that are afraid to act collectively for the good of the country.

May 29, 5:23 pm | [comment link]
11. Bill Matz wrote:

There is much truth in all the foregoing comments. Rational evaluation of alternatives can be made impossible by hidden subsidies, noted by John Wilkins.

While demand increasingly comes from outside US, as Brian notes it is largely inelastic. However, the current imbalance (87m bbl demand vs 85mm bbl/day supply) is very narrow. This suggests that at least in the short term small improvements in conservation or supply could significantly impact prices; e.g. a <5% reduction in demand would change the situation from a 2m bbl/day undersupply to a 2m bbl oversupply. But that only buys time, as demand continues to grow with economic growth. So for the long run we have to develop worldwide conservation plans while we develop additional, alternative energy supplies. Oddly, this is exactly the multi-pronged strategy that Friedman has advocated in prior writings; reduce demand with mileage limits, etc., while increasing supply with ANWR, nuclear, solar, geothermal, etc.

May 29, 7:33 pm | [comment link]
12. Chris Hathaway wrote:

Industries do not invest in new ventures when the likelihood of loss exceeds the likelihood of profits. Talking of “excess profits”, windfall profits taxes and liabilities for possible environmental dammages are sure ways of increasing the likelihood of losses for industry and has always been the stock in trade of liberals, be they Democrats like Hillary and Obama or Republicans like McCain. The left simply doesn’t care about energy PRODUCTION. What they care about is energy CONTROL and CONSUMPTION control. Giving more power to these power junkies in Washington is not goinfg to solve any of our problems because these pinheads can’t solve the problems they themselves created. They propose ethanol, and raise the price of grain worldwide while giving us inferior gas at higher energy costs.

Perhaps once upon a time when Government was smaller it knew how to jumpstart an industry, or rather, it knew how to let an industrialist get an industry going with government help. Now there are too many politicians who simply despise business and private enterprise. The only businesses they want to create are bureacracies that make money without needing to solve anything or give any body anything they want. They are still “profitable” because we, the taxpayers, have no choice but to pay for them. As for the oil companies, we have a choice whether to buy their product, and apparently we decided to buy less of it this Memorial Day weekend and the price dropped a bit. Go figure. At least these eeeevil oil companies deliver a product I want and use, and at a profit margin far lower than most businesses.

If you want a solution to a problem, look to business, not government. In business, you do things that work or you go out of business. In government, you do things whether they work or not. How long have we been engaged in a War on Poverty? Talk about “endless war”.

May 29, 8:57 pm | [comment link]
13. aldenjr wrote:

Christopher – Our entire electric utility is subsidized by state government regulation that keeps us from even seeing the true cost of electricity.  Solar companies cannot compete with government subsidized rates.  For example, the real cost of electricity during the peak time of day is considerably higher than the cost of the energy produced by solar panels,  but utilities hide this peak cost, because; 1) most states do not give them rate recovery for solar power to reduce the peak energy required on the system; and 2) By running out of peak power the utility can justify building a new central coal plant and transmission line and get the cost recovered plus a rate of return which, we, as captive ratepayers, then have to pay.  We have to appeal for Federal Government intervention to resolve this.

Then there is the problem of water shortage in the southeast where we live.  The state of Georgia is already moving to strict water rationing if the long-term drought does not stop.  Yet, conventional power plant generation is the single largest consumption of water, and, incredibly, the state is authorizing another coal-fired power plant on the Chattahoochee River, a river that provides most of the drinking water from Lake Lanier to the City of Atlanta.  Last Fall, at the peak of the drought, it was reported that Atlanta had a 90-day supply of water left.  Fortunately, it started raining at the end of December and since then we have had enough rain to get out of our critical situation, but we are no where near out of the woods.  We are still in what is considered a severe drought.  We haven’t seen businesses, such as Georgia Power saying we’ll use alternative energy instead of coal to conserve water.  And I wasn’t very impressed with the State Government’s efforts last Fall to annex part of Tennessee to gain access to the Tennessee River.  In short, we need a Federal renewable energy policy to break through these failed state policies.

Finally, we waited for seven years while the price of gasoline steadily rose from around $1.00 a gallon to where it is now at over $4.00 per gallon for Detroit to respond with energy-efficient vehicles.  Detroit didn’t respond at first, but Federal tax credits for Japanese Hybrids led the revolt against the big three until first Ford and then GM caved in to offer Hybrids.  You will remember that a lobbyist for GM was at Anna’s wedding in 2006 and he was still carrying the party line and putting down hybrids.  GM refused to respond to customer demand even in 2006.  Now that they have ceded leadership to Japan, US consumers import both oil and their energy-efficient cars.  If by business over government for setting energy policy leads you to GM.  I think I’ll take the government.

Now, people in this country who depend on their cars and gasoline to get to work and need electricity to run the heating, cooling, lighting and cooking in their homes are really hurting from rising prices.  We must realize that we already have a myriad of government policies and regulations in place, and if we are going to help businesses spring forth to bring relief by producing cost-effective alternatives, as you say we need to wait for,  then we are going to have to use new Government Mandates to break through the log jams that have been created by big American business and government regulations.  Private energy and manufacturing companies just do not have the power to break through.  If you had been working in the energy industry the last 26 years as I have and witnessed this, you’d know what I am talking about.  Arguing ideologies is not going to solve the problem for the people trying to cope with high energy prices.

We need help now, we need a Federal Energy Policy that breaks up the big business log jam.

May 29, 11:16 pm | [comment link]
14. Chris Hathaway wrote:

Government created this mess, not business. Giving the government more power to fix it only increases our slavery. Government never gives without taking twice in return.

Freedom is a more precious comodity than energy.

May 29, 11:37 pm | [comment link]
15. aldenjr wrote:

We are already enslaved by big business running rampant over us because Government Regulation protects them.  How many coal plants are we going to be paying for to meet peak power capacities when alternatives could lower the peak at much lower costs?  Don’t believe me, just ask how much rates are going up in Maryland, Connecticut, Delaware, Virginia, Georgia to pay for coal fuel costs.
How much more are we going to pay for oil because we didn’t have enough fuel-efficient automobiles available to reduce our demand and, thus, the upward pressure on gasoline prices?
You think that business will come to our rescue with the ongoing government regulations in place?  I have a four letter word for you; …..  ENRON.
Now we both agree that we are enslaved by Government regulations.  The way I see it, then, we have two choices, Revolution or implore Government to break through the existing regulations.  Here is what I propose the Government could immediately do to alleviate our energy crisis (should have done at least four years ago):
1)  Issue mass purchase for plug-in hybrid automobiles to rapidly commercialize them into the mainstream and bring on scale of economies that will reduce their price;
2)  Provide tax credits/incentives to everyone purchasing a plug-in hybrid;
3)  Increase the Federal Gas Tax and use it to pay for the rebates and/or tax credits on hybrids;
4)  Incentivize the banks to offer low interest financing on plug-in hybrids, such that, combined with the rebates and/or tax credits, it actually pays for someone to trade in an old gas guzzler for a plug-in;
5)  Offer incentives for solar at all Federal Interstate Highway Rest Areas for drivers to plug-in while they are taking a rest break;
6)  Deregulate the wires and require the posting of all real time costs for electricity; 
7)  Provide incentives for builders to construct zero-energy solar homes;
8)  Provide incentives for banks to offer low interest mortgages for zero energy solar homes;
9)    Require utilities to provide proof of achieving a high load factor before granting approval and rate recovery for new transmission lines and power plants;
10)  Pass a National Renewable Portfolio Standard or Deregulate the entire electric utility industry;
11)  Allow the off-shore development of wind, oil and natural gas (Provide special incentives to develop these resources)

What is your plan?

May 30, 12:09 am | [comment link]
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