Energy independence on a budget

No comment on the President Bush “plan” of January 31, 2006, except to say that if you have any empathy at all, it’s hard to watch a man make a fool of himself on national TV.

The cheapest solution to the oil quandary requires understanding the problem very precisely. The problem is not oil supply — it is oil supply uncertainty. We do crazy things in the Mideast (e.g. cozying up to dictators, invading Iraq) because we fear the economic effect of unexpected disruptions in supply.

The solution is to build a gigantic strategic reserve, enough to cover all imports under normal demand conditions for 9 months. This would cost many billions, but is less expensive than the alternatives (war and economic shocks).

We need not be able to last forever without oil imports. We need only be able to outlast the exporters. Remember, they are much poorer than we are, and oil is essentially their sole source of income. None can survive six months without selling oil, and they cannot boycott just one country: since oil is a commodity, if they sell to ANY market economy, supply increases and price falls for everyone.

Imagine what would happen if Iran shut down exports under these conditions. The U.S. would experience minor hardship, but after six months, Iran’s economy would collapse. They only reason they wield power now is because our reserve is too small.

A giant reserve provides an economist’s form of independence: we still use oil, we still import, but we are no longer subject to pricing power by the seller. Best of all, this is something that requires no new technology. We could do it right now.

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