Friday, July 11, 2008

The energy crisis could be a blessing in disguise

By taking away investment opportunities from American businesses, foreign government mercantilism is reducing fixed investment in the productive sectors of the American economy. For a while, the lower interest rates caused by mercantilism increased investment in housing and in the retail sector, but with the housing crash, those investments have largely come to an end.

Some worry that the result of less fixed investment is that the government needs to run ever-increasing deficits just to try to produce enough aggregate demand for American products to keep people employed. (See for example Bill Gross's July commentary on the PIMCO website.)

Most economists, as exemplified by Andrew Batson's commentary in today's Wall Street Journal, live in a dream world in which the mercantlist countries reduce their trade surpluses on their own. According to their wishful thinking, the mercantilist countries (starting with China) will spontaneously abandon mercantilism. He writes, "Most economists deem a fall in China's huge trade surplus to be inevitable, and largely desirable." Our current presidential candidates are living in the same dream world due to the poor quality of advice that they are getting from their economists.

However, don’t despair. God has a way of providing for America. The energy crisis is actually a very promising development.

The United States could get a huge boost in fixed investment as a result of the energy crisis. I am especially encouraged by T. Boone Pickens’ commentary in the Wall Street Journal for investment in wind power. Senator Obama seems to like wind power also. And Senator McCain is talking about taking away the impediments to development of nuclear power.

If the government helps out by: (1) doing what Pickens suggests to move electricity generated by Rocky Mountain wind power to other markets, and (2) doing what McCain suggests to take away legal and government impediments to nuclear power, and (3) providing tax incentives for turning wind-generated or nuclear-generated electricity into a gasoline substitute, then we should get plenty of increased investment in domestic energy production that could be just what the doctor ordered for our economy.


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