Category Archives: Current Affairs

I got published: David Brat’s Bad Immigration Logic

I got published today at The Freeman on David Brat’s bad immigration logic. I haven’t been published at The Freeman before, so that’s cool.

I’m sad to have to call Brat out on this issue, but facts are facts. He’s just dead wrong. And as an economics professor, he has no excuse. If, like he says, immigration really does create a lump of labor and unemployment, then a logical solution to solving existing unemployment is to simply raise the minimum working age and reduce the supply of labor. He, of course, would never advocate this. Why then advocate for immigration restrictions with the goal of constricting the supply of labor?

Cantor. And Brat’s wrong on immigration.

The New York Times Editorial Board laments the fall of Eric Cantor to “little-known resident of the distant extremes” David Brat. They’re no fans of Cantor, but Brat, they say, is even worse. Two thoughts on this piece.

1. Eric Cantor epitomizes corporatism. His top five donors this past year include Blackstone Group, Scoggin Capital Management, Goldman Sachs, Altria Group and Charmer Sunbelt Group. He’s a shill for Wall Street special interests…so much so that it almost goes without saying in this Politico article. He’s the archetype of politico “1 percenters”. I wonder if the New York Times knows this.

2. What’s so wrong with immigration? The article references some pledge going around among Tea Party types (like Brat) opposing not only attempts at amnesty, but even measures that increase legal immigration and increase the overall number of guest workers. Additionally, I found the following comment on Brat’s website:

“Adding millions of workers to the labor market will force wages to fall and jobs to be lost.”

Read that again. So more willing workers coming to America to feed their families means wages will fall and jobs will be lost. That’s assuming people continue to come to America when their prospects for employment here are virtually zero (bad assumption). It also assumes that the new workers will willingly work for less than those already here, which means more money left over for business owners to invest elsewhere (good assumption, and a good thing!).

Bad economic logic. But I don’t think most conservatives’ opposition to immigration has ever been about economic logic. It’s more about perceived culture erosion. Imagine if conservative-leaning, English-speaking Canadians were pouring into the United States to take advantage of our freer market conditions. Would conservatives be so quick to ship them out at every possible opportunity?

For example, according to this logic it makes sense to raise the minimum working age from 16 (or whatever) to 21. That way, the labor supply is limited and those annoying teens won’t be around to bid down wages!

Why inequality hawks (and their opposites) frustrate me

Paul Krugman’s June 1 New York Times op-ed “On Inequality Denial” makes me mad.

In it, he criticizes Financial Times editor Chris Giles for his allegedly flawed critique of Thomas Piketty’s Capital in the Twenty-First Century. He writes,

We have two sources of evidence on both income and wealth: surveys, in which people are asked about their finances, and tax data. Survey data, while useful for tracking the poor and the middle class, notoriously understate top incomes and wealth — loosely speaking, because it’s hard to interview enough billionaires. So studies of the 1 percent, the 0.1 percent, and so on rely mainly on tax data. The Financial Times critique, however, compared older estimates of wealth concentration based on tax data with more recent estimates based on surveys; this produced an automatic bias against finding an upward trend.

Interesting. I haven’t evaluated Krugman’s claim myself. I haven’t read Giles’ critique. I haven’t even skimmed Piketty’s book. For all I know, Giles could be dead wrong and Krugman spot on.

But what frustrates me about inequality hawks like Krugman is their habitual unwillingness to consider how anything other than tax policy contribute to growing inequality (whether such a trend exists or not). At the end of the post, he writes,

…taxes and benefits don’t greatly change the picture — in fact, since the 1970s big tax cuts at the top have caused after-tax inequality to rise faster than inequality before taxes. This picture makes people uncomfortable, because it plays into the populist demands for higher taxes on the rich. But good ideas don’t need to be sold on false pretenses. If the argument against populism rests on bogus claims against inequality, you should consider the possibility that the populists are right.

If I had time, I’d sift through every other post on Krugman’s blog to mark every mention of how tax breaks for the wealthy and a general lack of state intervention on behalf of the poor contribute to growing income ineaquality. I’d compare these with his mentions of how inflation, bank bailouts, crowding out and regulatory capture make life more expensive all around, thereby harming the poor most of all. I can’t be sure, but from my many years of reading Krugman’s blog, I’m sure the former would outnumber the latter by something like one million percent.

I’m not in the inequality debate for kicks and giggles. I’m not in it to unilaterally defend the 1 percent, corporate America or “right-wing” economics. I’m in it because much of what I read is dead wrong and not enough people are saying the right things.

What the inequality debate needs is less lopsided analysis from the likes of Krugman (and many right-wing economists, for that matter) and more equitable commentary that examines not only how tax rates and loopholes contribute to skyrocketing wealth at the top, but also how existing government policy — QE infinity, inflation, unemployment insurance, minimum wage, etc. — exacerbates the problem. Is that not a compromise partisans are willing to make?

The logic of buying and selling vs. forced exchange

Jim Fedako makes some great points in a Mises Daily article last month about Elaine Photography v. Willock —  the recent case involving Elaine Huguenin’s refusal to photograph the commitment ceremony of a lesbian couple in Arizona. He writes,

One implication of a positive right to service from a business is the derivative positive right to quality service. So, it is not just that Elaine Photography must take pictures of the commitment ceremony, it is that they must take quality pictures, as well.

I had a similar thought when reading about this case a few months ago. If vendors like Elaine Huguenin are forced to service the demands of anyone who comes through their doors (which is what the court declared), isn’t it expected that they will treat such customers with the same quality service they’d treat any other customer? Is this something the courts are willing to enforce? If so, how can such an issue be judged fairly? Who is to determine whether a vendor (especially service providers like photographers) treated all clients with the same level of quality?

But there is yet another angle to this issue, aside from the issue above and issues of religious liberty, that I haven’t seen covered elsewhere.

Consider that not all exchange relationships are as simple as that between the Huguenins (vendor) and the lesbian couple (customer). In their case, an established vendor was approached by a customer with cash in hand. But what about those business relationships that involve an exchange of products or services only–without a money medium? In many instances, the “customer-vendor” dichotomy is anything but clear.

For example, consider grocer Bob who, seeking software applications to streamline his store’s internal operations, finds developer John, who is looking for a company to pilot test his new software applications. Instead of exchanging cash for products and/or services, Bob and John merely exchange services: Bob gets to use new software applications and John uses Bob’s user feedback to optimize his applications before selling them on the market. No cash changes hands, yet exchange takes place and both parties benefit.

In this case, who is the customer and who is the vendor? The answer is that neither is only a customer or only a vendor, but both are simply parties to the exchange. Or, if you insist, both are customers and both are vendors. I’m not sure what such parties would be called in the legal literature, but I am sure that arrangements like this are very common in the corporate world–my company is currently involved in one similar to my example above.

Here’s why this matters…

When the Court recognizes a customer’s alleged right to be serviced by the vendor of their choosing, they elevate the status of one party to an exchange (customer) over the other (vendor). While the Court’s reasoning might seem like a nice thing to do and a way to help oppressed social groups, such reasoning can not consistently apply to anything more complicated than a basic customer-vendor transaction.

For example, what if grocer Bob refused to enter into my example arrangement above on the grounds that developer John was engaged in some activity he considered unethical? Would developer John have legal recourse to force grocer Bob to contract with him and engage in this non-cash transaction? Of course not. But throw a wrench into the mix. Imagine that developer John had planned to pay some cash, in addition to free software applications, to grocer Bob for his user feedback. Is developer John now a “customer” and should he be allowed to sue Bob for rejecting his proposal? Still no. John may be paying cash, but that’s not enough to make him the “customer” and Bob the “vendor.” In the end, they are both engaged in this partnership to benefit themselves.

My point here is that traditional cash “customers” and “vendors” do the same thing. Buying coffee from Starbucks does not benefit the customer at the expense of Starbucks or vice versa. Both subjectively benefit as a result of the exchange, otherwise it would not have happened. A coffee buyer does business with Starbucks for the same reason grocer Bob and developer John do business–to profit.

What I’m getting at is that once the customer-vendor distinction is understood for what it really is–mere words created to make our conversations about certain exchange relationships easier–the faulty premises behind rulings like Huguenin case are revealed. For if advocates of such rulings are consistent in their application of the law without creating arbitrary distinctions between vendors, customers and everything in between, vendors should have the right to sue all customers who do not patron their stores because of some moral disagreement with the store’s values. Starbucks could sue all those who do not buy their coffee for religious reasons. Walmart could sue all those who did not shop there on account of their low wages. Family Christian Bookstores could sue all who don’t shop there out of opposition to Christianity. The list never ends.

I understand that the Huguenin case involves religious freedom and an allegedly “oppressed” social group and my three examples in the paragraph above do not, but ultimately anything can become a religious or social justice issue. Mormons don’t drink coffee. Low wages is, for many, a matter of social justice. Christian books are, of course, explicitly religious products.

Elaine Photography v. Willock and other similar cases are anything but black and white. They are about far more than gay rights, religious freedom or free speech. Indeed, trying them involves an audit of the very logic with which we think about economic relationships and human action — an audit I’m afraid many aren’t willing to take seriously if it jeopardizes the progress of their shallow notions about “social justice.”

(After writing this post, I discovered another article by the same Jim Fedako saying essentially the same thing. While his analysis is conciser, I think my analogy paints the picture better for those unaccustomed to thinking deeply about economic relationships or unfamiliar with economic jargon. But I encourage you to read his piece anyways.)

Romney is wrong on minimum wage

Not that anyone cares what Mitt Romney says anymore, but he came out in support of minimum wage on MSNBC’s “Morning Joe” this morning. His reasoning: “[The GOP] is all about more jobs and better pay.”

That’s too bad, because minimum wage does anything create more jobs and better pay. In fact, it does just the opposite. I once wrote about minimum wage for the Mises Institute. I explained why minimum wage outlaws employment below a certain wage rate, leading to unemployment for all workers whose marginal value product — that is, their contribution to their employer’s firm — is below the legal minimum. This hits the lowest-skilled workers hard. Murray Rothbard writes in Making Economic Sense:

If the minimum wage is, in short, raised from $3.35 to $4.55 an hour, the consequence is to disemploy, permanently, those who would have been hired at rates in between those two rates. Since the demand curve for any sort of labor (as for any factor of production) is set by the perceived marginal productivity of that labor, this means that the people who will be disemployed and devastated by the prohibition will be precisely the “marginal” (lowest wage) workers, e.g. blacks and teenagers, the very workers whom the advocates of minimum wage are claiming to foster and protect.

I also note in my article at the Mises Institute that minimum wage is anything but an innocent idea proposed by those with only the best interests of working people in mind. It’s a tool whereby unions can discriminate against laborers willing to work for lower wages — especially against teenagers and immigrants.

So think twice before assuming not only that minimum wage helps poor laborers, but also that it’s advocates have good intentions in mind.

Is American entrepreneurship dying?

The Brookings Institution reported on Monday that the American economy is less entrepreneurial than at any point in the last three decades. See chart below:

Washington Post Chart

From WashingtonPost.com

The report continues:

…recent research shows that dynamism is slowing down. Business churning and new firm formations have been on a persistent decline during the last few decades, and the pace of net job creation has been subdued. This decline has been documented across a broad range of sectors in the U.S. economy, even in high-tech… if it persists, it implies a continuation of slow growth for the indefinite future, unless for equally unknown reasons or by virtue of entrepreneurship-enhancing policies (such as liberalized entry of high-skilled immigrants), these trends are reversed.

Given the Bush and Obama administrations’ insistence on trickle-down, faux-recovery policies that inflate asset prices at the expense of small-time entrepreneurs, these results are not surprising. But the authors of this report don’t seem privy to this elementary insight when they write:

Whatever the reason, older and larger businesses are doing better relative to younger and smaller ones.

“Whatever the reason”…not that a steady piling on of regulatory compliance costs (a la Obamacare) has anything to do with keeping young firms out of the market. But of course, these authors don’t cite such costs a single time in their report. Instead, they blame tough immigration laws (go figure). If only we had more entrepreneurial immigrants, they say, our problem would be solved. But of course, this doesn’t address the problem — it’s like your mechanic proposing a new car as a fix for your broken old car, which shouldn’t be broken in the first place.

I got published: President Obama Doesn’t Know His History

I got published at ValuesandCapitalism.com. I write about President Obama’s stilted view of history as displayed during his State of the Union Address last Tuesday.

In essence, President Obama claimed that technological advances that undermined old-fashioned ways of doing things inhibit middle-class growth. They pull the rug out from underneath Americans who depend on hard work and responsibility to make ends meet. No longer do people’s financial futures depend on their own effort, but rather, technology and competition has introduced extraneous factors into the economic equation that undermine the norm of hard work being the key to financial success.

Technology, he says, makes life harder.

Read the article at ValuesandCapitalism.com, first published on January 30, 2014.

Is the Fed Really to Blame?

bernankThis article was originally published at ValuesandCapitalism.com on August 14, 2012.

With the passage of Ron Paul’s “Audit the Fed” bill in the House recently, monetary policy is once again becoming a mainstream political issue. And it’s about time. For decades, Americans have stood idly by as inflation destroys the value of their hard-earned savings with the sole purpose of pushing economic problems further into the future.

But while Paul and many Republicans like to blame the Federal Reserve, the fact is that inflation has as much to do with your own personal spending habits as it does with Bernanke and his cohorts at the Fed.

According to the BEA, Americans saved an average of 3.9% of their income last May. Over the past several decades, this number has been steadily declining. Indeed, just 30 years ago, the personal savings rate was near 10%, meaning Americans saved almost three times more money than they do today.

While there are various explanations for this decline in personal savings, perhaps the most popular among conservatives is that reckless inflationary policies scare many would-be savers into spending more money to avoid higher prices in the future. Thus, the Fed and big government would be to blame, as only they have the power to legally create money out of thin air.

But another perspective on this decline—while less convenient—is equally plausible and decidedly more ominous. That is, Americans’ failure to save money left little reason for them to actively oppose the inflationary environment that government has always desired. Inflation, then, is a resultand not just a cause of Americans’ own personal financial irresponsibility.

For example, Americans who save a portion of their income every year have much to lose to inflation. Indeed, the more money they’ve put away in the past, the more loss they will experience as the Fed expands the money supply and devalues the dollar. Savings do not adjust for inflation.

On the other hand, Americans who do not save have virtually nothing to lose—they have no substantial wealth for inflation to diminish. Yes, their groceries might become more expensive. But wages adjust for inflation all the time, and inflation for spenders is simply nominal—very little happens to their levels of real wealth.

That said, as Americans continue to spend more and more, they will become increasingly less likely to vote against inflation, let alone actively oppose it. And the further they go into debt, the more an inflationary status quo will become desirable. Currently, levels of personal debt and spending in the US are so high that any serious attempt at curbing inflation through legislative means is probably unrealistic. The reality of inflation simply does not hit home for most Americans, despite the fact that its long-term consequences are disastrous.

Of course, Keynesian economists often welcome this increased spending. Too much saving, they argue, is an impediment to economic progress. But saving and investment are the true engines of economic growth, and without a private sector backed by financially sound individuals, sustainable progress over time will remain an economic fantasy.

No doubt, blaming “average Joes” for inflation isn’t as marketable as blaming Bernanke. But when Americans are saving less than four percent of their income, the effects of inflation become palatable—even attractive—to many Americans, and elected officials find the support they need to fund excessive spending with irresponsible inflation.

Congress and the Federal Reserve are not blameless, however. An audit of the Federal Reserve should have happened decades ago, and the ever-expanding government “safety net” discourages rainy day saving. But before you go marching on Washington, make sure your own financial house is in order.

As long as Americans continue to spend themselves into oblivion, inflation will continue to run its destructive course. We are a republic, indeed. Our elected officials must pass our test if they are to remain in power. Thus, as we seek to preserve capitalism, reexamining our own values and habits will be far more effective than blaming those to whom we ourselves give power. Indeed, how much we spend is ultimately up to us—a matter of personal responsibility.

In the end, Congressman Ron Paul puts it well:

We would like to think that all we have to do is elect the right politicians and everything is going to be OK. But the government is a reflection of the people and their values. That is why the burden is on people like you to make sure we have those values.

Read the rest at ValuesandCapitalism.com.

Don’t Mess With the Big Gulp Economy!

This article was originally published at ValuesandCapitalism.com on June 6, 2012.

Once the public realized that NYC Mayor Michael Bloomberg wasn’t joking about his plan to ban the sale of large sugary drinks within city limits, people responded with fierce (and predictable) uproar. Left looking like a loser, Bloomberg is obviously out of touch with the “leave me alone!” mentality of average Joes, who’d rather decide for themselves how much is too much when it comes to soda consumption.

But this whole fiasco did raise an important, though all-too-familiar, question that I think many proponents of the free market have not actually resolved for themselves. That is: Does the free market give rise to a culture of excess, where Big Gulps and Big Macs become the unhealthy norm?

It’s an honest question, and one I suspect secretly haunts many public supporters of free markets. The answer is certainly not obvious, and what lies on the surface seems to speak ill for proponents of free markets. Before answering, however, there are three characteristics of the free market to take into consideration.

First, the free-market economy is nothing more than what arises due to the respect of individual property rights.

So even if it were the case that free markets lead to unhealthy portion sizes and excessive consumption, the alternative would entail the arbitrary restriction of individual liberties, which inevitably leaves many people unhappy—stripped of liberties they once exercised in peace—and distorts otherwise rational economic calculation.

Then the battle becomes one of whose proposed laws to enforce (sound familiar?). And if an effective law is created—that is, one that alters the way otherwise free individuals behave—the harm to society far outweighs the harm of “excessive consumption.” Indeed, when consumption is regulated by a select few bureaucrats instead of by prices—that is, by millions of consumers transacting every minute—the opportunity for cataclysmic error is wildly intensified. Markets possess various means for correcting misallocations—the same cannot be said about government. If the state passes a minimum wage law that creates unemployment, for example, there can be no real correction to restore employment until they pass another counteractive law, which can take years.

Allowing government to pick and choose which liberties to grant is never a good idea.

Second, lots of seemingly wasteful consumption does not necessarily mean “excessive” consumption.

It may be the case that the mainstream media (and government, for that matter) all but assumes that nobody actually needs more than one big-screen TV, three gas-guzzling SUVs or even a Big Gulp. But who is to say that such consumption is actually “unhealthy” or bad for society?

The fact is, over time the free market identifies and weeds out those who misallocate resources toward objectively excessive levels of anything—consumption included. Thus, there is no need to seek government’s help to discover and put an end to excessive consumption.

For example, the dot-com bubble of the late 1990s entailed of huge levels of investment in the Internet sector—a sector which lacked the fundamentals to support those levels of investment. Spurred on by loose credit policies pursued by the Federal Reserve, this ultimately led to the catastrophic collapse of many large Internet companies in the early 2000s. Excessive levels of investment were thus punished by the market, and healthier levels were ultimately restored. There is no way anyone (including government) could have known, however, what profit margins were “too high” or how much investment was “too much” in the midst of the dot-com bubble. And any blanket mandate would have been hopelessly arbitrary, causing further resource misallocation and perhaps disadvantaging those companies that were indeed solvent and would have survived the bust.

In a similar way, soda consumption is regulated by the market. Those who consume an excessive amount of soda are (supposedly) more likely to develop disease over time. Thus, those who abstain are equipped to be relatively more productive, and others—especially those in the future—can observe their mistake and seek to avoid it. There is no telling, however, how much soda is “too much” soda for each individual person, just as there was no telling how much profit was too much profit during the dot-com bubble. The primary lesson is that truly excessive levels of consumption are only revealed through the market process, and are not always identifiable by scientists or experts.

Third, enforcing a law based on modern-day science can prevent efficient resource allocation in the future.

By this I mean that blanket bans on certain products or substances in the present prevents the use of them by responsible users and for research and development purposes in the future, thereby suppressing any benefits that they might otherwise have.

While it certainly seems to be the case that Big Gulps cannot possibly be healthy for anyone, it would be arrogant for any single person to assert that everything about Big Gulps is universally unhealthy and that they ought to be erased from existence. There is no telling what the future may hold. When dealing with nonviolent behavior (like drinking Big Gulps), it is always safer to err on the side of tolerance, as by doing so, only those who engage in the questionable behavior are harmed.

So to answer my initial question: No, the free market does not promote “excessive consumption” except according to those who claim the authority to know with certainty when everyone else is consuming too much. The free market promotes sustainable consumption levels, and rewards those who consume at the healthiest levels, Big Gulps included.

Student Loan Forgiveness: One Idea That Doesn’t Deserve to Graduate

This article was originally published at ValuesandCapitalism.com on May 21, 2012.

If you are like most college students, you have already accrued a considerable amount of student loan debt. College is expensive, and without student loans many would simply be unable to obtain a college education.

But over the past few months, many have begun to question the efficacy of borrowing so much money—even for a purpose as worthy as education. Recently, the Chicago Tribune reported that student loan debt reached $870 billion—surpassing both car and credit card debt—and is projected to climb rapidly over the next few years.

Thus, it is understandable that The Fairness for Struggling Students Act (FSSA) has become high on the agenda for many government and education officials. The FSSA would allow student loan debt from private lenders to be wiped out in bankruptcy proceedings. Seen as a remedy for a growing economic problem, the Act has found support among many in government and academic circles.

But the reality is: The FSSA is an unjust bill that should warrant no support from respectable students, no matter how indebted they are.

First, no one is entitled to a college education. Despite what many progressives preach, education is not a right, but a privilege. But by forcing private banks to forgive loans for those who prove unable to repay them, government asserts that college is a right and need not be paid for.

This entitlement culture is bad for morals and ruinous for the economy. Telling students that they have a right to go to college even if they cannot ultimately pay for it only perpetuates this sort of selfish attitude.

Second, defaulting on loans is a privilege, and forcing lenders to forgive bankrupt lendees is a coercive affront to property rights.

If an individual is able to lend money to needy individuals, it is only because that individual was able to save or acquire enough money to be able to do so while maintaining an acceptable quality of life. Such saving requires much diligence and thrift—behaviors that should be encouraged and expected of all people.

But when the government forces lenders to forgive lendees, they spit in the face of those who empower the less fortunate.

Banks are not evil. When they grant loans, they are doing lendees a favor—allowing them to use money now and not pay until later. But by forcing banks to forgive the loans of those who cannot repay them, the FSSA disadvantages banks and discourages further lending.

Third, the FSSA will only encourage the increasing indebtedness of America’s youth and will do nothing to discourage underqualified students from acquiring student loans.

It sounds harsh, but the fact is: a sizeable amount of college students simply should not be at college (AEI scholar Charles Murray is right!). This is not because college should be reserved only for the intelligent. It is because college, for many, is simply a bad investment that hurts them more than it helps—especially when paid for by student loans. College is expensive, and if one does not possess the natural talent necessary to do well, then the expense can often outweigh the cost. If this is the case, there is no justification for going to college.

But for decades, the government has encouraged maximum college attendance by making student loans unbelievably easy to obtain. Thus, many who would otherwise not go to college are empowered to enroll, despite the fact that they do not possess the skill necessary to do well. By forcing banks to forgive the debts of those unable to pay, the government only gives underqualified students more incentive to go into debt.

If you really care about your fellow students, you will not support any measure that lets them off the hook when unable to pay college debt, or any bill that forces owners of money to forgive lendees who promised to pay them back. Acquiring debt entails the responsibility to repay it—seeking government’s help to fight against your lender is no less than theft.

Nothing Short of Crisis: A Front-Row View of America’s Energy Conundrum

Reporting on 2011 National Summit on Energy Security held in Washington, DC. Published at Townhall.com on July 14, 2011.

Global oil supply is severely disrupted by a crippling attack on a key Saudi oil processing facility. Crude oil prices spike to $160/barrel. Economic recovery efforts in the United States face severe setbacks as gas prices near $6/gallon and pressures to address the growing national debt continue to be heard from around the world. Shock and confusion consume global financial markets, and the threat of further attacks is looming.

How do the US government and global markets respond? One can only speculate. But at today’s National Summit on Energy Security in DC, industry leaders and former government officials weighed in, participating in a realistic, war-game simulation of the above scenario.

Titled Oil ShockWave, the intense simulation featured several high-level former cabinet members and energy industry leaders, including former national security advisor Stephen J. Hadley, former Director of National Intelligence John Negroponte, and former Shell Oil CEO John Hofmeister. Playing the parts of top current cabinet-members, the participants offered their opinions and debated as to the best course of action to take to best preserve both the nation’s security and its already-fragile economy. The simulation was complex and realistic, as even the participants were not briefed beforehand.

Needless to say, the event made for an exciting morning. Watching high-ranking officials skillfully respond in “real time” to a crisis of this magnitude was encouraging, while the shocking but realistic facts of the scenario provided a subtle reminder that there is only so much government can do when faced with a crisis of such magnitude.

But by far the most significant take-away from the morning was the brief but mortifying glimpse of the truly fragile place the United States occupies in regards to energy security.

According to the Securing America’s Future Energy (SAFE), the United States is the world’s largest oil consumer at 19.1 million barrels per day (compared to runner-up China’s 9.1 MBD). The US transportation sector alone consumes more than the total consumption of any other single country in the world, and total global consumption is only increasing as demand in emerging market economies is growing rapidly. Couple all of this with today’s oil price volatility and the fact that the United States imports about half of the oil it consumes, and the security of America’s energy future looks very grim indeed.

In the short-term, it was agreed that there really is little that can be done to reduce America’s dependence on foreign oil. Developing domestic sources of oil and alternative energy technologies will take years, and there is currently no viable alternative to oil to meet America’s energy needs. If a crisis as the one described above (which was entirely believable) were to occur, especially with the national economy still in recovery-mode, the economic ramifications would be life-altering for millions of Americans.

But regardless, the Oil ShockWave participants were in unanimous agreement that waiting for a crisis to happen before acting is unacceptable. Though forced to respond to this simulated crisis last-minute, they commented afterwards on the folly of doing nothing during periods of relative stability to lessen America’s dependence on foreign oil. “They key is education…sustained, honest dialogue with the American people” said Stuart E. Eizenstat, former Deputy Treasury Secretary.

Former Shell CEO John Hofmeister reaffirmed this, but added that as much as Americans may want to develop green energy technologies, such innovations will likely be unable to meet America’s energy needs for years to come. “The pathway to the green economy should not be paved at the expense of hydro-carbon power,” he said, explaining that allowing a recession to occur now because of a refusal to deregulate America’s domestic oil industry is too high a price to pay to achieve the green technologies of the future.

The participants’ overall consensus was clearly summarized by Stephen Hadley after extended deliberation: “We need a comprehensive energy policy going forward so we can get off this corrosive dependence on foreign oil.” Though a severe energy crisis would certainly induce the public support necessary for significant action to be taken, waiting around for a crisis to happen is neither responsible nor wise. Deregulating the country’s domestic oil industry and encouraging the development of green technologies are both necessary if the United States is to avoid a crippling energy crisis.

But the most eye-opening moment of the event came during the question and answer period, when an audience-member who had attended the first Oil ShockWave simulation in 2005 noted that the consensus of the participants in that year was no different than the conclusions reached today. And back then, the “oil crisis” came about after a disruption in supply caused a spike in crude oil prices to the then-unthinkable (but now all-too-familiar) price of $100/barrel. Five years and two different administrations have failed to produce any real progress toward securing America’s energy future, and there is little talk today of achieving any real reform.

As Ambassador Susan Schwab noted, when it comes to America’s looming energy crisis, “We have met the enemy, and he is us.” For decades now, Americans have known about their over-dependence on foreign oil, yet inaction remains the status quo.