Energy and Food — Fixing the Economy

I’ve read some fantastic blogs on oil prices as of late that have inspired some bloggable thoughts of my own. For quite sometime I’ve thought that energy and food systems must be disrupted in order for significant societal progress to occur. Clearly fossil fuels are not an infinite solution and agricultural subsidies are some of the worst crimes against humanity and yet are no less commonplace in the US than air. As a good fiscal conservative I’d gladly carry the battle flag against them, but more on that later.

Months ago a friend from my Masters in Economics program said something that has slowly set in. He proposed that supply input pricing, specifically oil, is far more important in determining economic growth than interest rates. His point being that Federal Reserve attempts to use low interest rates and monetary supply expansion do not change the real current and future price of oil. As a matter of policy the logical extension is to have a strong monetary policy to keep the real price of energy cheap.

Unfortunately for Americans, we are no longer the growing powerhouse of energy usage. Increasing demand from developing nations worldwide is hindering our ability to directly affect the price of oil through fiscal policy. Furthermore our current industrial agricultural model, supported by subsidies, is very energy intensive. Agricultural subsidies are often supported on the basis of National Defense: if besieged or blockaded a lack of food would be the greatest liability. In the face of climbing oil prices, subsidizing corn, etal to be price competitive will continually increase and further hamstring consumers to purchase goods. In my opinion, industrial agricultural dependent on fossil fuels with no price influence is looking like the greater liability.

Imagine however a scenario where energy prices and policies were decoupled globally, meaning energy prices were specifically a product of internal supply and demand. Processes of increasing efficiency or reducing consumption would actually have a measurable effect on prices and thus growth. Of course that’s not possible for the US based on oil but other energy sources provide this kind of opportunity given further development, mainly solar. Taking a granular view of this new economy, household disposable income would be directly affected by reliance on the local grid. Additionally, efficient localities would be further rewarded with lower energy prices, making them more attractive for private capital projects.

Solar isn’t there yet, and the smearing of Solyndra’s bankruptcy on government investment certainly didn’t help the cause, but how can solar power get there? I vote an end to agricultural subsidies. The billions we spend on supporting corn and other produce has dramatic, negative rippling effects throughout the entire economy; that’s excluding the absolute destruction they have on developing countries ability to develop their own agricultural economies. Pouring the billions we are already spending in ag subsidies into renewable energy research will pay off enormous dividends in reducing energy supply constraints in the future plus the subsequent growth of the global food economy will lower produce prices and increase overall quality across the board.

Now this is policy recommendation is far from my traditional libertarian perspective but this reallocation of government spending seems far better than our current arrangement. Furthermore it’s a policy that plays to both parties; it’s born out of capitalist motivation yet with altruistic benefits. I would go as far to say that all government funded research on renewable energy should be open sourced. If we are no longer competing globally for resources then we can ensure many positive externalities by sharing our knowledge. Consider the hypothesis; I think it makes a lot of sense.

Credit http://www.theoildrum.com/node/7095 for inspiring this blog post