Greenspan on energy
Greenspan is no polymath, to go by the discussions of energy and climate in his instant bestseller, The Age of Turbulence: Adventures in a New World. During his nuclear power love-fest, he writes (p. 453):
Nuclear power is not safe without a significant protective infrastructure. But then, neither is drinking water.
Wow! That’s an analogy I bet you never heard before. Greenspan is actually comparing drinking water infrastructure — which is needed mainly to protect the water from us (i.e. from human pollution) — with nuclear power’s infrastructure; which is needed to protect us from nuclear material, which (unlike water) is inherently dangerous. I guess this economic guru is the only person in the country who would rather live next to a nuclear power plant than a reservoir.
Even more annoying (p. 446):
For example, after the initial surge in the fuel efficiencies of our light motor vehicles during the 1980s, reflecting the earlier run-up in oil prices, improvements slowed to a trickle.
Seriously? This statement sums up everything that is wrong with conservative economists. Greenspan hates government mandates like fuel economy standards, so they can’t be the reason why fuel efficiency surged (as the law required) and then stopped (since we haven’t toughened the law in two decades).
Greenspan’s thoughts on global warming are equally annoying and confused, but that will have to wait until Part II. The reason I interrupted my multipart thrashing of Lomborg is that Greenspan’s book is perhaps more damaging, since he is far, far more respected and this book will be read by many more people — it has already leaped to no.1 on Amazon.
Greenspan does have more to say on the issue of oil and fuel economy a few paragraphs later. He notes parenthetically (pp. 446-447):
(In the United States, of course, mandated fuel-efficiency standards for cars and light trucks induced the slower growth of gasoline demand. I, and a number of my colleagues at the Council of Economic Advisers, believed, however, that even without government-enforced standards, market forces would have led to increased fuel efficiency.)
Well, of course that is what you believed. You dislike regulations so much you could only force yourself to talk about them in parentheses!
But relying on oil price has two problems. First, oil prices go up and down. If Greenspan were right that market forces were the most important thing, then when oil prices collapsed in the 1980s and then again in the 1990s, fuel economy would have collapsed too. Thankfully, fuel economy regulations stopped such a collapse from happening.
Second, gasoline has a relatively low price elasticity of demand (as this post by Shannon explains). Even big price changes only have a small effect on demand, as we have seen in recent years. And Greenspan knows this! In a footnote he writes, “Having observed that rapid gains in US consumption before 1973 seemed insensitive to price change, I feared the oil price rise required to bring demand down to the level of output implied by a long embargo would not be politically acceptable.”
The intellectually honest conclusion is that fuel economy standards are in fact a viable and valuable strategy for reducing oil consumption. But Greenspan can’t accept that. He acknowledges that (p. 460):
To achieve the twin goals of enhanced national security and curtailed global warming, the growth rate of US petroleum consumption must flatten, and eventually consumption must decline outright. The big opportunity for displacement is on America’s highways …
So what is his answer? He has “come very reluctantly to taxes as an alternative way to accomplish what competitive markets could do.” He proposes “a gasoline tax of, say, $3 or more per gallon, phased in over five or 10 years with the resulting revenue used to lower income or other taxes” (p. 460).
Well, it has a certain intellectual consistency, if we ignore the political impossibility — which Greenspan does (p. 462):
I consider the argument that gasoline tax hikes are politically infeasible irrelevant. Sometimes the duty of political leadership is to convince constituencies that they are just plain wrong. Leaders who do not do that are followers.
I never heard Greenspan speak up for doubling the price of gasoline when he was in a position of power, let alone when he was trying to get reappointed. But it just shows you how much he hates government mandates.
Personally, I think oil prices will take care of themselves, as supply is going to have a harder and harder time meeting demand in the coming years. But we need higher fuel economy now, and standards are clearly the best strategy from a practical, political perspective.
Bizarrely, while Greenspan proposes the U.S. unilaterally raise gasoline prices $3 to solve our oil problem, he opposes any such increase in carbon prices to deal with global warming, as we’ll see in Part II.