How to Eliminate Our
Dependence on Oil Imports
At The Soonest Possible Time:
A Balanced, Comprehensive Bill
(1) a proposed bill (19 pages, in the markup format used by Senate Legislative Counsel);
(2) a
2 page bulleted summary;
(3) general explanation and background;
(5) slides on how to break our dependence on oil imports at the
soonest possible time, an updated
version of my keynote talk to the IEEE International Conference on Intelligent
Vehicles, June 2009, held in Xian.
Deficits in the US balance of payments are actually more of a threat than deficits in government spending. This is the most effective way I know to get back to a more secure economic future for the US, even over the next few years. Nevertheless, in an ideal world I would add one more provision saying: “If there is any increase in total tax incentive payments from one year to the next, under title 30B or C of the IRS code, the gasoline tax will be raised just enough in the following year to cover the increase.” With this addition, the bill would meet two important criteria for fiscal discipline: (1) it would be revenue neutral, even not counting the large follow-on benefits to the US economy and treasury; and (2) it would not increase total net taxes.
================================
Further
background:
More
on the thoughts behind the R&D section: We Could Change the Energy Game With NEW R&D (i.e. what it takes, concretely, to
capture unmet opportunities for major near-term breakthroughs that could change
the world energy picture).
How to Avoid A
Second, Deeper Recession: An Engineering Approach (i.e. how to avoid a $1 trillion/year
oil bill in the near term. $1 trillion/year extra outflow of money actually
means more to the US economy, for example, than the $2 trillion of Chinese
holding of US Treasury bonds. And a new recession would hurt everyone.)
More
near-term: how to address current jobs problems:
The White House announced
yesterday that they are about to embark on some really serious soul-searching
about how to increase
jobs, just as serious as the soul-searching on
Afghanistan. Unemployment has crept to the very top of the list of political
issues,
perhaps because of public opinion polls, perhaps because of
growing concern about the "high deficit jobless recovery,"
and perhaps because some people really care about the
real suffering going on out there.
How do we respond to that?
Based on my experience -- I
would not be surprised if local hot dog vendors started to respond by putting
up signs that say
"eating
my hot dogs creates jobs." Sadly, that is how most of the world responds.
And if someone could make a hot dog that really did increase jobs (other than
medical ones), we are all so jaded that we might miss the opportunity. So even
if we are hot dog makers or energy experts, maybe we have a duty
to set some time aside and ask: what could ANYONE do to
really address the incredible unemployment problem we now face
in the near term, which seems to be especially focused
in construction, autos and steel?
The White House spokeswoman
on jobs recited the conventional wisdom on why it is "an impossible
problem": to create jobs requires more demand in the economy.
We can generate demand either
by tax breaks or by government spending, but either way, a dollar of initial
demand costs "ABOUT" a dollar
of government debt. (We could also expand the money
supply, but that is already being done about as much as they think it's safe to
do, or more.)
If we are already testing the
limits on what is a safe level for the deficit, how can we possibly do more on
jobs?
It's not really impossible.
It's only the "300,000 foot" way of thinking that makes it seem
near-impossible. If anyone knows what vector
thrusting or nonholonomic control
are... sometimes we only need to pay more attention to the extra degrees of
freedom in the problem.
The key to creating more jobs
WITHOUT adding to the deficit is to pay attention to these degrees of freedom.
How does that work in
reality?
Let's just consider the tax
and tax break side of the equation.
The demand in the US economy
which results from $1 of tax breaks is DIFFERENT depending on
which specific tax or tax break is involved. If we can find
one tax break (a type A tax break) which generates a
lot of demand in the US
economy, and another tax (type B tax) which generates a lot
less, we can simply add, say, a $10 billion break to A,
paid for by a $10 billion addition to B, and get a whole
lot more demand and jobs in the economy WITHOUT
increasing either the deficit or the total level of taxes or the
size of the federal government.
There is another important
"vector" correction to this kind of analysis. EVEN STARTING from the
same economic situation,
some types of
economic demand may lead to more employment (both of labor and of capital)
while others
may just lead to inflation. In general, if demand goes to
specific sectors which are grossly unemployed
(like
steel, autos and construction today), it tends to lead to more employment, but
if it goes to sectors
(like
hospitals) which are already overstrained, it tends to lead to inflation. This
is tricky, because sometimes strain is desirable
when a sector needs to grow or shrink long-term, but there
are very good reasons to believe that the present low level
of car sales is not likely to be consistent with our
present GNP with economic growth in the long-term.
Putting this together, and
getting back to our very serious concerns about oil dependency and balance of
payments....
What if we added $X of tax
incentives for advanced cars like fuel-flexible cars and plug-ins and
refueling/recharge (type A),
paid for by an adaptive increase in the gasoline tax (type
B)?
Whatever the pros and cons of
the "cash for clunkers" program, it did prove that incentives for new
car purchase
are be a "type A" tax break, able to induce
initial consumer spending much larger than the initial tax break itself,
with money propagating to two of the three most seriously
underemployed sectors (cars and steel). In fact, the refueling
section propagates to construction and steel. As for gasoline
tax... a significant portion propagates outside the US
altogether.
The tax credit for first time
homebuyers is probably also "type A," as are some measures to keep
people in their homes,
but that's for someone else to fine tune.
For the auto and refueling
sectors - which are large enough as is -- I would argue that the draft bill
posted
at the bottom paragraph of www.werbos.com/energy.htm
does provide a very well fine-tuned way to
do the "type A," type B kind of thing --
though the bill itself doesn't talk about the "type B" part. (That's
in that paragraph itself.)
Why is the "type B' part
not in the bill as such? A few months ago, in attending an EPW committee
meeting,
I saw a rare moment of great
bipartisan unity and cooperation, when Senators Boxer and Inhofe were truly
smiling at each other
and meant it.
In discussing highway and public transit funding, they agreed that EPW
would vote out a bill that didn't actually specify where the money would come
from, because they would leave it to others to take care of that part. With
such bipartisan unity on what needs to be done, they
felt it would be better political strategy to get
agreement on what will be done, and then work out the other part. It seemed
reasonable
at the time to follow that kind of course. The energy
security bill would be far less expensive (unless it is extremely effective,
which would be worth the price),
but it might have some cost, depending on how things work
out in future years. But in the past week or two, it turns out that the
strategy used in the highway bill has simply bombed completely, creating great
problems. Maybe it's better to have a balanced package in advance. The irony
is that the main new tax breaks in the proposed bill are
all adapted (with acknowledgment) from a bill by Senator Inhofe himself;
I hope he would appreciate
the value of doing them, even if they do have to be paid for to make them real.
There are other measures, too, all focused on creating new PRIVATE SECTOR
investments to be paid for through private sector capital --
another increase in demand without increasing the deficit. To
get real jobs, the challenge is to create real investments in real industries,
and that is being maximized here.