Home » Fiscal Responsibility » Solving the Gas Crisis, Part II

Solving the Gas Crisis, Part II

Moving to the World that Works

In our last article on gas prices, we noted a four-point plan to bring down gas prices — a quick review in case you missed it:

  1. Drill Here. Drill Now. Pay Less. We can do it safely, so the time is now to start developing what resources we have (More from American Solutions).
  2. Formulate a real energy policy (no rhetoric allowed) — including biofuel, nuclear, coal, hydrogen, wind, and solar — all are on the table and workable in at least some situations. Additionally, government should remove silly bureaucratic rules which impede R&D.
  3. A Kennedy-esqe commitment to getting the job done. No excuses. Young people under 30 don’t remember that kind of national commitment, but if you recall Kennedy’s speech calling for a moon landing before 1970 you know how it rallied the cause, and produced results beyond what we thought technologically capable (in 1962 our space program was, well, nonexistent).
  4. Accept no excuses — demand action.This is a non-partisan issue. The left gets what they want (alternative energy, higher MPG standards, biofuel, etc), while the right gets increased drilling and production. Neither partisan side “wins” — the citizen does. Isn’t that what government is for?

For some, these could be new concepts. They are a break from the current and past, so we’ll show specific examples of how this works in practice; it’s not an untested idea — these methods have been used in the past, and quite successfully (by any definition) — all implementation stems from one simple idea:

Government should run by the business principle of handling transactions in a specific way — product “X”, qty “Y”, date “D” for payment “Q”, with penalty “Z” for late delivery, and incentive “M” for early delivery.

No mandates, subsidies, nationalization, rhetoric, vague goals, corporate welfare, economic control, handouts, or investment for no rewards — just straight business transactions with specific results for specific dollars. No results, no $$$. It’s (essentially) risk-free. It’s the exact same method the business world uses every day, and it’s quite successful as no business owner wants to pour money down a sinkhole for no return. Rewards for early success, penalties for late delivery, just apply those same business concepts to government to move from a world that fails to a world that works.

That’s quite a simple principle, yet causes profound change in a system that’s used to failure. Of course, some will complain, others will say it can’t be done; for naysayers consider the following examples where such a simple principle has worked — it’s not a vague abstract idea.

  1. The 1994 Northridge earthquake. In January 1994 an earthquake in Northridge, California measuring 6.7 on the Richter scale shattered the overpass bridges of Interstate 10 … the repair would take more than two years … but I-10 was restored to public use not in two years but two months.
    • The California Government Code gives the governor the ability to invoke “emergency powers” that can suspend, for the duration of an emergency, any regulations and statues that might impede or delay recovery.
    • Performance contracting sped performance … contractors would receive a bonus of $200,000 for each day before completion date. For each day past the date, contractors would incur penalty of $200,000. As every day the bridge was close cost California’s economy an estimated $600,000, Wilson’s plan was a cost-efficient incentive
  2. In April 2997, a gasoline tanker truck crashed on a ramp in Oakland … repairs were expected to take fifty days and cost $5.2 million.
    • Incentives produced speed. The California Department of Transportation set a deadline and promised bidders a $200,000 bonus for every day they could finish the repairs before it, not to exceed total of $5 million. … completed the project in 17 days — almost three times faster than the original estimate and more than $4 million under budget
    • Serious problems merited serious response … The contractor had workers and equipment on the scene 15 minutes before the actual signing of the contract. Shop drawings were approved in hours, not months …

Those examples come from Newt Gingrich’s book “Real Change”, page 181-182. Yet those aren’t the only areas.

  1. NASA and the 60’s space program. When the commitment is made, what was previously thought impossible becomes ordinary. Unfortunately, younger people don’t remember what Kennedy proposed was widely thought impossible. Yet the “impossible” goal was accomplished, on time.
  2. Y2K — In this case, it’s a good thing the engineers didn’t listen to the crowd who said do nothing; instead they went out and actually solved the problem. Those that understood the problem devised solutions, and solved the problem on time.

So we have multiple examples of success in reality, not the textbook — it’s not an abstract unproven theory. What do all these successful implementations have in common? Point 3 of the plan — a Kennedy-esq commitment to getting the job done. The appropriate pressure, applied to the right people, yields commitment to solutions and results. No excuses, but common sense and engineering gets the job done.

It’s a win-win for everyone. Of course, there will be those that complain; no matter, there are always people stuck in old group-think. Others quibble over details — so be it, they can continue to rearrange deck chairs while everyone else implements real solutions (it will keep ’em busy and out of the way). So let’s get the objections out of the way:

  • It’s corporate welfare! It’s handouts! — No, it’s not. Every business runs by the exact same principle (specific payments for specific results, penalties for being late, incentives for delivering early). If you want to call it corporate welfare, then every business transaction over the entire economy on the whole planet is corporate welfare (if you want to define it that way, fine, we’ll agree everything is corporate welfare — when IBM buys paperclips from Office Depot, it’s corporate welfare).
  • It’s government control of the economy! That’s absurd — it’s no more influence or control than any other business uses to get results — every business does the exact same thing (specific payments for specific results, penalties for being late, incentives for delivering early) — no overall government regulations are called for, or required. (again, if you want to define terms so that every business transaction falls under your definition, fine. The other 99.95% of us won’t.).
  • We can’t do it! Those forget it works, and has in multiple examples. It has worked in the past, it will work in the future.
  • People can’t change. This is the most reasonable objection, and one which needs actual work. There are always people vested in the status quo, or who fear doing something different, or actually like the system of failure which now exists. There’s not one solution to this problem, as it’s really a management issue, not an engineering one, and each group will be different. This is the hardest problem to solve, as inertia is a powerful force.
  • Others will find other reasons to do nothing but preserve the current system of failure — those on the extremes always object to anything not agreeing with their dogma. And on and on and on, ad nauseum.

The idea is simple — use the same principle used daily by companies everywhere and apply it to the government — with the proven results vastly superior to the mode of failure we’re all used to. Nothing more is needed, nothing less will do. No nationalizing of industries, no subsides for failed solutions, no takeover of the economy.

If you’re interested, you might want to check out American Solutions. They have common-sense proposals with broad support of both Democrats and Republicans — supported by up to 90% of the American people. Have a look at their Platform of the American People for more information (it’s Newt’s idea that “real change requires real change”, with his book laying out in detail what fails and what works, and how government can move from a model of failure to one that works).

Also should consider the following book recommendations (Newt’s book is one, the other is a Democratic liberal):

  • Real Change. Newt’s book details the principles, answering objections, and giving examples of both the world that works, and the world that fails.
  • Tammy Bruce’s The New American Revolution (Tammy describes herself as “an openly gay, pro-choice, gun owning, pro-death penalty, voted-for-President Bush authentic feminist. A lifelong Democrat, in the 1990s she worked to help elect Senators Feinstein and Boxer, and aided the Clinton for President campaign … “

Both books should be on your reading list.

We can quibble over implementation details ad nauseum forever, or get the job done; we take the moderate approach between the extremes of “wait-for-later” and “nationalize-everything”.

The question is simple:

We all see the iceberg ahead (the end of oil, spiraling energy prices, global conflict over dwindling resources, calls for nationalized everything, and so on), shall we take action and change course, or spend time rearranging the deck chairs and wait for that pesky iceberg thing to resolve itself?

Real change requires real change.

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5 Comments

  1. Marc says:

    Of course increased supply leaves few incentives to actually wean ourselves off of oil. Bad for global warming and for our future energy security.

    Also, do you believe it environmentally responsible to drill everywhere oil is available? because thats what the petition at your link advocates.

    It also gives no indication of how I am supposed to “Pay Less” anytime soon. By the time this oil hits the market I’ll have myself a Volt.

    Finally, are you advocating we allow the President to use his “emergency powers” to go beyond the rigorous permitting and inspection process which slow the drilling process? Its precisely that which has stopped environmental disasters since the 1969 oil blowout.

    Kennedy Generation, btw, is older than 40 now, as both Bobby and Johnny were dead by 1978, long dead, and Teddy was still being batted around for the dead secretary debacle and still hadn’t repopularized himself in the 1980 primaries. Also, who finds Ted Kennedy all that inspiring?

    Also, what the left “wants” is what everyone will need in the future because, excepting nuclear, its the only energy solution that isn’t finite. So you’re right, its not a partisan issue, we don’t have a choice.

    What the right “wants” however is just a shot in the arm for an unhealthy energy source we are wrongfully addicted to. Also, it is a corporate hand-out. The oil offshore is public property, and therefore the windfall profits business makes off of that resource at the expense of what will still likely be ridiculously high fual prices is more than a hand-out.

    “MYTH: Drilling will not provide any short-term relief in the price of oil because it will take many years before new drilling will lead to new supplies.

    FACT: This same argument has been used for the past several decades to prevent us from using more of our American oil, leading to our current dependence on foreign oil and the supply crunch we are currently experiencing. Does this mean critics of greater American energy exploration were wrong 10 years ago, 20 years ago, and 30 years ago but are suddenly right today now?”

    A quote from the American Solution website. I’d like to point out the same has been said about alternative energies since the 70’s energy crisis as well. However the return of cheap fossil fuels halted experimentation in alternative energies. I’d say that what we need to do is stop making excuses about alternative energies, and make that priority one. Meanwhile, fossil fuels are beginning to see their sunset. You’re right in saying that maybe there was no excuse for not exploiting them 30 years ago, however, the windows for exploration do pass.

    One wonders if oils time isn’t slowly receding, and if you and Newt there at American Solutions, aren’t just trying to hold onto a fossil fuel driven time which will never, and should never be again.

  2. Colin says:

    Thanks for writing up this article. It is an essential companion for the first one. Knowing this one was coming would have saved a lot of time in responses that were not needed.

    The challenge, of course, for the “four points” is: does it work? While I agree that all four can possibly work – these arguments hinge on the “how.”

    I safely say I firmly agree with #1 and now #2 (with the added clarification that government get out of the way of R&D rather than subsidize, tax it or regulate it). Excellent.

    I do not disagree with #3 and #4 in the context of the first two. As seems to be alluded to, the things the left wants to mandate (“alternative energy, higher MPG standards, biofuel, etc”) will be brought about naturally on the market. The left can stop using taxpayers time and money on failed or doomed to fail government programs expecting the above by fiat.

    I just want to address a couple specifics:

    Regarding the California Hwy example, government can benefit for this kind of model. However, I am not clear how this applies to a federal solution to Energy. I’m open to that solution, but this article doesn’t connect those dots. A key ingredient was the “emergency powers” to suspend the normal government bloat from getting in the way. However, I would feel a little leery about giving a federal department of official (presuming #3’s “national commitment” means federal action) “emergency powers” – especially to fix something as trivial as gas prices. Moreover, I fail to see how this is consistent with the intent of the constitution, where limited emergency powers are only available in “Cases of Rebellion or Invasion the public Safety.” I don’t think the founders would have approved emergency powers to bring gas down a dollar and a half.

    The second set of examples, “the 60’s space program” and Y2K, are vague. I don’t understand the “how” – are there specific programs or models that can be ported from these examples? Yes, these things did happen – how are they related to energy? This is not explained. These are example’s of “getting the job done” – but the space program at least, did the “how” not just by voluntary public commitment and speeches, but by killing several of our smartest men, diverting tax money, interventions and many of the other signatures of government the author claims he is not calling for. We may have ended up with a man on the moon, but we paid dearly for that in lives, property, wealth and prosperity. Since I believe the author does not want to call for these things, what specifically about the space program other than “getting the job done” (which could be found in millions of examples, from Starbucks to Genocide) can we apply to energy?

    Perhaps I missed it, but the American Solutions website did not yet have their information on what their plan is (“coming soon”).

    Overall, I fail to see how this article actually takes anything from the examples it cites to apply to “solving the gas crisis.” In other words, despite the claims made, we are still dealing in textbooks and abstractions, until we have it down exactly how this works.

    Until I see different, I will support the free market (which might not be opposed the the author’s solution, I just can’t tell at this point). The free market is not an abstract theory, it has solved almost every problem men could dream up – from energy, healthcare, education and welfare. There are countless examples of entrepreneurs and businessmen seeing a problem, working together and making a solution happen. It doesn’t take “national commitment to getting the job done” – it takes national commitment to allowing these men to operate and staying out of their way.

  3. Also, do you believe it environmentally responsible to drill everywhere oil is available?

    Drilling and environmental responsibility are not necessarily mutually exclusive. Yes, nothing is 100% perfect, but we can drill and do it safely (in spite of Hurricane Katrina, nothing in the Gulf failed environmentally).

    Kennedy Generation, btw, is older than 40 now

    Time flies by, doesn’t it? I didn’t do the math first 😦

    Also, what the left “wants” is what everyone will need in the future because, excepting nuclear, its the only energy solution that isn’t finite. So you’re right, its not a partisan issue, we don’t have a choice.

    We’ll likely disagree on nuclear use. But the left wants to use socialist controls to get solutions, we don’t (for example, calls to nationalize the oil industry, price controls, windfall profits tax, etc).

    Finally, are you advocating we allow the President to use his “emergency powers” to go beyond the rigorous permitting and inspection process which slow the drilling process? Its precisely that which has stopped environmental disasters since the 1969 oil blowout

    It takes decades to get a new nuclear plant on-line in the United States. France does it much faster. Is France unsafe? They generate a majority of their power via nuclear, and do it safely — the regulations stall the process.

    There’s a middle ground where you can move faster, and still safely protect the environment. We find too many people hide behind “it’s the environment” when what they really mean is don’t drill — ever. (Not that we’re saying you hold such a view, just that it exists).

    The amount of red tape and regulations is absurd. So no, we’re not advocating eliminating safety inspections, but streamlining those rules speeds up a project by many times, and the examples show it *does* work to complete projects faster.

    What the right “wants” however is just a shot in the arm for an unhealthy energy source we are wrongfully addicted to. Also, it is a corporate hand-out. The oil offshore is public property, and therefore the windfall profits business makes off of that resource at the expense of what will still likely be ridiculously high fual prices is more than a hand-out.

    Windfall profits? What exactly is that? Oil companies make about $.10/gallon in profit (or less than 5%). Even if you took *all* of that, it wouldn’t change prices much. Taxes average more than $.40/gallon, so how about some relief from windfall taxes? (A detailed explanation of windfall profits appears in Part I, in case you missed it).

    We don’t see how it’s a handout — the public uses the oil. It’s no more a handout than any other company producing products for public consumption (steel, coal, natural gas, bottled water, etc). Or are you saying all those are corporate handouts as well?

    So you’re saying no drilling, right? If so, how will decreased supply help the situation?

    One wonders if oils time isn’t slowly receding, and if you and Newt there at American Solutions, aren’t just trying to hold onto a fossil fuel driven time which will never, and should never be again

    Just trying to get through the transition as painless as possible. Thus, increased drilling is *part* of that solution. There’s no doubt oil’s time *is* receding, but the transition can be hard or not-so hard. Increasing supply can make the transition easier.

    One side says no drilling — ever. The other side says only drill. We’re in the middle saying we need to increase drilling now, *and* increase conversion to alternatives — increase supply in the short term, and long-term move to alternatives.

    As to the Volt, if GM can make ’em for $30K, they’ll sell a ton of ’em.

  4. The challenge, of course, for the four points is: does it work? While I agree that all four can possibly work – these arguments hinge on the how … Perhaps I missed it, but the American Solutions website did not yet have their information on what their plan is (“coming soon”)

    Newt’s book is several hundred pages long and well worth the read. The two examples are just small sections. What’s interesting is the contrast in the failed model, and the one which works.

    I safely say I firmly agree with #1 and now #2 (with the added clarification that government get out of the way of R&D rather than subsidize, tax it or regulate it). Excellent.

    I do not disagree with #3 and #4 in the context of the first two.

    We agree? Somewhere on the dark side of the moon a cow is coming out of lunar orbit 🙂

    Regarding the California Hwy example, government can benefit for this kind of model. However, I am not clear how this applies to a federal solution to Energy.

    Suppose the government announced to GM, Ford and anyone else there would be a (we’ll totally make up numbers) $100 million reward for delivering 200,000 cars which do not use gas, if they can do it in 3 years. The reward would create incentive to move faster, and the companies take the risk — if they don’t deliver, taxpayers cost is $0, but if they do, they get to (if they wish) market their technology for other uses.

    Reward for companies could be huge, cost to taxpayer is $0 if it fails. That’s the principle of fixed terms, with penalties for late delivery, bonuses for early delivery.

    Perhaps not the best example, but then it’s off the top of my head.

    Until I see different, I will support the free market (which might not be opposed the the author’s solution, I just can’t tell at this point)

    We’re probably closer than you think. This *is* the free market at work — incentives, penalties, specific results, etc. — just applied to a new arena (government) where up to now it’s only sporadically used.

    what specifically about the space program other than “getting the job done” (which could be found in millions of examples, from Starbucks to Genocide) can we apply to energy?

    They thought it was impossible, for one (no use trying, we’re doooooomed. An Eeyore philosophy, if you will). Much like some of the rhetoric we hear (on all sides) in current political discussions.

    It *can* be done, even if the pundits don’t think so (Nobody says Starbucks can’t do what they do, and that’s the difference — space, breaking the sound barrier, etc was thought impossible, don’t bother trying).

  5. Colin says:

    We agree? Somewhere on the dark side of the moon a cow is coming out of lunar orbit

    We’ll, I’m really only going to comment when I don’t agree. So that makes a lot more agreeing than disagreeing.

    Suppose the government announced to GM, Ford and anyone else there would be a (we’ll totally make up numbers) $100 million reward for delivering 200,000 cars which do not use gas, if they can do it in 3 years. The reward would create incentive to move faster, and the companies take the risk — if they don’t deliver, taxpayers cost is $0, but if they do, they get to (if they wish) market their technology for other uses.

    Reward for companies could be huge, cost to taxpayer is $0 if it fails. That’s the principle of fixed terms, with penalties for late delivery, bonuses for early delivery.

    Perhaps not the best example, but then it’s off the top of my head.

    I realize that this example is just that, a rough example, so I don’t think it’s fair to start picking it apart as though there’s a white paper on it somewhere. However, I think it is fair to critique the principle – namely, government intervention in the market (even to “redirect” a company or industry towards some perceived public good through business principles). But I will say that there is a cost for this intervention greater than the reward, and it can be shown with simple math.

    First, presume that GM fulfils the criteria of the award. Now the taxpayers do owe $100m (which could have been spend on roads, defence, etc…). Secondly, and this is the “hidden” or “opportunity cost” GM didn’t spend all that effort (presumably < $99.9m worth) making things that the market actually demanded. That loss of production of more marketable goods has further sweeping consequences to the market. For example, GM did not make cars or innovations that people actually wanted, furthering their costs and loss of profit potential. Also creating a loss of overall wealth for the public.

    GM, as all businesses must do to survive in an open market, must only invest in ventures that will bring them an ROI greater than their costs. If an innovation is not profitable, then they will not do it. Government throwing tax money at a reward above this, flies in the face of the best, most dynamic data we have available – including, but not limited to, the rational pricing function of the free-market (enabling companies to determine less-risky investments). Mathematically, any government reward would have to be greater this factor (and therefore a more-risky, loss-creating investment).

    For example, say that $100m in ten years would not pay for this investment – so GM won’t do it. But maybe if they were to invest $3m every year for 20 years, they could do it. The government must offer a taxpayer funded reward greater than the cost by definition to “generate” incentive. In other words, they must pay more than the project will pay off. Only the government can justify such irrational business ventures. So even if we achieve the innovation, we have paid more for it than we will get out of it (and that loss doubly, because it was already robbed from the private sector in taxes).

    The way that governments typically justify this obvious discrepancy between costs and profits is to tout a vague and unsubstantiated “greater good” argument. For example, something like the Vietnam War is justified to “stop communism from spreading.” Universal Healthcare, despite being a total waste of money for the same reason, is justified because it, “promotes equality” or “is more fair.” This goes into the land of the absurd: “It’s for the children / so old people don’t get thrown out on the street” that begins to typically define intervention.

    In this case it is usually for “national security / energy independence” (touted by the right) or “to save the environment” (touted by the left). I am totally fine with pursuing means that achieve both these ends – but I expect the politicians to show me why their means would achieve these ends. Showing a balance sheet in the red, and then writing below that “but it will save the children” doesn’t cut it.

    This is why subsidies and schemes like this do not work, ever. If society is continually paying more than they are getting back, then the illusion of activity and prosperity is going to be fleeting. If there is an intervention that will solve this problem I am open to it, but until that time, I will trust the verifiable and historically valid free-market – which has a much better record than government both for promoting peace and security as well as protecting the environment and promoting efficiency. Again, we know from Adam Smith, that the public good is best served by the invisible hand of the free-market.

    So while I think the goals of your proposal are laudable, I just don’t see them putting us in a better position. In fact, I think there is a very real possibility of us dodging this proverbial iceberg, only to plot ourselves on course towards a larger one.

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