$100 oil is the answer...

Not the problem.

I heard this at a dinner I attended back in October or November. The speaker was talking about how afraid we are of $100/barrell oil. When oil gets expensive relative to other options, we start to use those other options. It's basically saying that when we let the price system help us allocate our resources, we're much better off.

I wish I felt ethanol was going to be the answer. Not only is it considerably more expensive, but it's not even certain if it's actually net-net better for the environment. (This is talked about briefly here and some other places I can't find right now.) But all of the subsidies are creating a lot of artificial incentives for investment that might not even become a viable fuel source.

There's an article in Monday's WSJ about the country's efforts to decrease our use of oil. A few quotes and my thoughts:

"Forecasting future energy prices and demand is "like sitting around in 1994 and forecasting (demand for) Web browsers,"... In other words, no one knows whether...Silicon Valley's "clean tech" movement will succeed in [its] effort to do for the way we fuel cars what Netscape or Google did for the way we shop and collect information."

It's really hard to predict the future. This is why the government should not be playing with taxpayers' money. One of the main ideas I got from a book I read called The Road to Serfdom by F.A. Hayek, in arguing against socialism, no one person or group can possibly see down the road and accurately plan for the future needs and wants of each person in a society. The same applies to scientific development. Right now, the government has put a lot of eggs in the ethanol basket, hoping it's right. But how can it know for sure? The answer is it can't.

"Within the next year or two, Americans are going to be pushed as never before to live without burning so much oil, particularly in their cars...[P]eople aren't likely to embrace expensive, new and unfamiliar automotive technology without a big economic push."

On a comment to a WSJ article I read recently, someone mentioned that our "addiction to oil" is a bit of a misnomer. Most of us don't really have an alternative to driving. In Atlanta, for example, unless you live in a few specific neighborhoods, it's virtually impossible to get by without a car. I take public transportation to work, but only after I drive 20 minutes to get there. If public transportation was a better option, like it is in Chicago, more people would live closer to town and go without a car. But, as it was, oil and gas was cheap so we based our decision to live further from the city on that. As the price of gas goes up, we'll be forced to re-evaluate those decisions and we may choose to move. Again, $100 oil is the answer because we're now considering the tradeoffs between paying a lot of money for gas as we commute from our big homes on multi-acre properties and paying less for gas by living closer to town in smaller houses or condos.

I think the allusion is a push from the government, either in the form of a cap and trade system or a carbon tax or of tax breaks. I don't know all of the details of the cap and trade system, but I feel that the carbon tax system would be best IF we can figure out exactly how to set the tax. If we can't figure out the right way to tax it, we shouldn't try. The biggest economic push will come from more expensive oil.

"Putting the U.S. economy on a course to produce less carbon -- via a government system of carbon "caps" -- "is going to require a kind of social commitment the likes of which we haven't seen since World War II," said Jason Grumet, an advisor to Sen. Barack Obama."

Anything that requires a wartime-like "social commitment" to be successfull will fail. I have no question about that. When it does fail, those of us who aren't fully committed to helping out voluntarily, will be forced to help. It is, after all, for the good of society and we should all be committed to helping, whether you like it or not isn't the governments concern as long as they can be elected with a majority. Wasn't this one of the aims of communism? See Ayn Rand's The Fountainhead for a little commentary about the good of social commitment. Hayek discusses it as well.