An open letter to Barack Obama (and all presidential candidates) on Energy Policy

Dear Barack Obama (or any presidential candidate),

My name is Michael Krause from San Diego, California, and am captivated by your past leadership, and mission to guide the country. But let me be blunt - I am not satisfied by your forward initiatives concerning energy policy (and consequently economic and political) as being enough. With the amounts and time frames of suggested fixes, your solutions with energy policy in particular are just Band-Aids that cannot possibly fix a tumor that needs to be removed. $15 billion per year for clean fuel research is simply not enough, nor actually indicative of true leadership.

Fundamentally, the direction the United States has been pursuing, of overweight defense spending ($643 Billion/year for 2008), has been a function of attempt to maintain stable oil supply in the overall region. I cannot think of one example where the United States ever devoted a meaningful amount of troops to ever solve a humanitarian issue (the likes of Rwanda, Darfur, etc). Our past actions have never been entirely altruistic. I would like to see our future military actions be more motivated by humans rights and altruistic causes, not financial ones. This is a moral dilemma that the United States has miserably failed with, and attainment of your leadership is an opportunity to make right the future on this one.

The entire economic recovery from 2001-2007 was predicated by a combination of war spending, increase of monetary supply, and credit creation. Now we are paying a very dramatic price for that superficial recovery. In simple economic terms, there was a lack of investment to offset the simultaneous increase in demand. It was a consumption driven recovery (whether consuming military machines or cars and disposable assets against home equity debt) where wages did not keep up with inflation. Oil would not be at $100 if we had found a way to increase total energy supply in the economy to offset the amount of monetary supply that came into the global economy during the same time period.

Wheat, corn, and soybeans would not be seeing 100-300% year over year price ascents if ethanol subsidies would have never come to existence (remember, wheat and soybean production was forced down as a result of this) in addition to growing and record demand from developing economies. Supply is not keeping up, and therein lies an opportunity for you to solve economic problems by fixing the supply side.

Proposals (like yours) to increase renewable fuel requirements from food crops are disastrous, as they turn what should be our food into energy. The jury has returned on this one; just look on food prices ever since Bush and congress passed ethanol subsidies. This is partly a function of world food demand growth and monetary policy, but a large bulk of this price ascent is indisputably caused by this poor policy planning. Put another way, would you rather pay $10 for a loaf of bread or $5/gallon for gasoline? Fundamentally, we all need to eat. Why should our global habits of driving inefficient cars and SUVs have an effect on our ability to afford to eat?

So simply put, I conclude that the economic (and therefore political) future of the United States rests on policy driven by investment on the supply side, not merely consumption. I’m not one to argue with expansionary monetary policy (and its effects of persistently increasing monetary supply) as it provides a perpetual catalyst for economic growth that a gold standard policy doesn’t. But with using the tool of expansionary monetary policy comes the responsibility of an expansionary supply policy. That is what the United States has failed miserably with, and we are already paying the price.

That means a few things most obviously; Since elevated commodity prices are hitting Americans most immediately – we need to cut our 20 million barrel/day oil consumption habit in half now, not in 2020 or 2050. Here’s an idea of how to do it:

a. Pass immediate vehicle efficiency standards effective within 3 years that double MPG requirements.

b. To make it possible to obey these standards, rapidly deploy a battery car development and purchasing subsidy. Technologies such as this Stanford discovery that enable capacity improvements by 10 times on Lithium ion batteries (Link Here) will make it a realistic path.

c. To offset new electricity demand from a new plug-in energy infrastructure, we need an immediate massive buildout of nuclear power plants. Nuclear waste handling initiatives (and public education) can accommodate acceptance of this. Most people do not know that nuclear waste can now be glassified, stored in casks, essentially made inert and leakproof into our environment. Furthermore, money can be spent to secure these waste storage facilities, providing meaningful employment opportunities. Education to allay the fear of nuclear power options will facilitate acceptance of this. Assuming option d (which follows) is not viable, nuclear power production is the only near term way out of our energy need issues that is both clean, safe, and realistically doable now.

d. Additionally, adopt and subsidize a massive deployment of solar panels in sun-rich regions. A new company called Nanosolar has solar panel product that is supposedly eight times cheaper than conventional photovoltaics. If their claims are indeed true, their product wallpapered on every American roof could provide all of the energy the grid could possibly need to supplement growing energy demand. And with appropriate investment, this wallpapering could be done in 5 years.

e. Invoke an international energy policy and energy research cooperative which enables other nations to follow our lead – particularly China, India, and the European union. We need to establish a forum of sharing all energy research progress with ally nations to make adoption costs and discovery sharing not burdensome. If they could import or even locally produce this great new battery and solar technology in combination with these innovations in solar energy production, they could follow our example and reduce their per capita energy consumption, thus lowering global fossil fuel demand.

f. Enable a tariff (perhaps $10K) on all vehicles that do not pass certain MPG (or equivalent Kw/Mile) standards. This will provide consumer incentive to be more efficient, and thus environmental friendly, while still leaving the choice for the more affluent who should pay their proper part in our energy demand picture. For example, as more people demand more inefficient vehicles, that raises oil prices for everybody, essentially functioning as a way for the inefficient users of energy to financially punish the efficient ones. This is an indirect form of taxing the poor more than the wealthy. This must be dealt with. It is called fair accounting.

Just imagine if we spent $300 billion/year (excess Iraq spending), or even $500 billion/year to do this, enabling all new passenger vehicles to be battery powered within an extremely short timeframe. Oil prices would plummet; energy supply would be a non-issue; food cropland would be able to return to its proper function: feeding our masses (not fueling them), thus food prices would come down. The American citizen would once again be on the path to better financial security.

Most exciting is that a proposal like this would enable massive local investment in a time where our economy needs it the most. Infrastructure buildout (via production of nuclear power plants, solar panels) is an economically rewarding proposition that would provide jobs and increase incomes in a time we need it most. Long term, we would enjoy the benefits of cheaper energy (lower prices on all goods for consumers), higher government revenues from a more viable economy, less exports of US dollars to petronations (thus ending the continued economic support of many of our adversaries who rely on those funds), an end to a dangerous inflationary move that threatens the value of the dollar and viability of our economy, and a balancing of trade deficits due to less dollar outflows to pay for petroleum.

In summary, we would be equipped to deal with the other economic problems that would remain in our society – Medicare, Social Security – less distracted by war involvement and war spending that simply does not leave the long term mark that direct investment into our economy does. The moral of my message is to request that we end the pursuit of the wrong direction of economic solution: consumption and war, and focus it into investment – in this case, what we need most: energy.