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« VI Day - Victory in Iraq! | Main | Remember hydroelectric power? »

November 24, 2008


jj mollo

Klinghoffer's theory is IMO correct. I quote myself, from October 29, as an authority on this view:

It might be that the economy has suffered because of the high price of oil. Most likely, though, the economy was getting ready to contract, and the high oil prices just pulled the trigger.

I should elaborate that high prices of fuel lowered demand for houses in the exurbs, which made mortgages more likely to default, which increased the foreclosures, which increased the supply of houses for purchase, which lowered prices, which made homeowners less able to refinance when the interest rates went up, which increased the rate of foreclosures, which left people poorer and encouraged them to move to less exclusive areas closer to the cities, which lowered the demand for fuel, which lowered fuel prices.

Blaming it on OPEC's greed is a crock, though. Our demand has been increasing for years as we have craved McMansions farther and farther from the sources of employment, and spent big on bigger and bigger luxury cars to make the long trips more bearable.

The solution to the economic problem is to invest heavily in infrastructure and energy alternatives. This will drain the treasury, but will pay off in the long run. Both issues could be addressed if we instituted a flexible gas tax, imposed by the Fed with the dual goal of discouraging the use of gasoline and, at the same time, moderating the impact of volatile fuel prices on the economy.

As to the Three Gorges Dam. A lot of environmentalists rail against it, but I think I'm for it. If it prevents the construction of half a dozen coal-fired power plants, it's good for the global warming issue. If it reduces China's need for petroleum it will keep a lid on global prices which will discourage production (good from my point of view) and at the same time help the US economy. IMO, nuclear is better and greener, and the sooner the better. Rest assured, however, that the biggest untapped supply of energy as of today remains conservation. Fuel efficient cars may yet save Detroit and green energy may yet save the US economy.

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