Today President Obama announced a new plan “for America’s energy security, including increased responsible domestic production and winning the future through a clean energy economy.” I find it puzzling that Obama can claim to be fighting high oil prices by supporting several approaches that all work to increase costs. Obama proposes:
1. More domestic drilling – if it were cost effective wouldn’t oil companies already be doing it? If he would propose to make changes to get the government out of the way, say by reducing regulation, then this could indeed save us all money. However, Obama is proposing a mixture of increased regulation and increased subsidies, which means chasing oil that is more expensive. We would be better off buying our oil from the cheapest source and using that money for a more productive effort.
2. Biofuels – Same question as for drilling – if it were cost effective to create biofuels as substitutes for imported oil then why would we need the government to get involved? Ethanol from corn is a classic example of a non-economic approach to energy production. Again, this means we are paying more to get our fuel than we would if we purchased from the low-cost supplier. How could that possibly be better for the country as a whole?
3. Greater fuel efficiency in cars. – Sure this would reduce energy use, but at a cost of more expensive vehicles. That isn’t saving us any money, it is just shifting our money from oil companies to auto companies.
I wonder if I can succeed with Obama’s approach with my own budget? I’ll go out and buy more expensive versions of everything I consume and surely I will end the day with more money in my bank account, right?