Old White-Haired Dude Was Right

No, not that one. Not the guy busily selling out to any group under the tattered Republican tent claiming more than a dozen or so members. Not the guy who’s abandoned most of his previous positions – mostly the intelligent ones. Not the guy who’s given up the Straight Talk Express in favor of the Low Road Mobile.

No, the worthy elder of whom we speak is Adam Smith, whose impact on economic civilization can hardly be overstated. Adam Smith, he of the invisible hand metaphor, lived, studied, and wrote (The Wealth of Nations) in the latter half of the eighteenth century. Over two hundred years on, his analysis of the forces impacting commercial transactions is as cogent and insightful as they were as the ink from his pen was drying.

To grossly over-simplify, Smith ventured that self-interest in a free-market society, besides working to advantage of the individual, would also work for the good of the community as a whole. Check this out: It develops that Americans are driving fewer miles than they used to – a drop of some 40 billion miles over the six months to last May versus the same period a year ago. Hardly surprising when the costs of filling the tank and feeding the average-sized family for a couple of days are about equal. What we have here is the invisible hand busily at work. Sales of low-mpg vehicles have declined to levels rivaling the President’s popularity. And waiting lists for the fuel-efficient Prius are months long because Toyota can’t make them fast enough. The market, without benefit of any particular intervention, is reacting just as Smith would have predicted.

Not that intervention hasn’t been tried. The good folk at OPEC, distraught that sales of the stuff underpinning their economies may reverse their upward spiral are doing what would have been expected to any rational market participant. Or, for that matter, the nearest drug pusher, with whom the OPEC countries have more than a passing similarity. Demand down? Reduce prices. Maybe increase supply a bit. Just don’t let customers kick the habit.

Beyond actual attempts to manipulate the market we have, too predictably in this election season, any number of worthies proposing more-or-less painless solutions to the problem of high-energy costs. The gas and wind generated by these fulminations, could it be harnessed, would significantly ameliorate the original problem. But even according the government’s own figures, throwing open every available spigot to every known U.S. oil and gas field, environmental consequences be damned, would supply our energy needs for at most a year or two, and then only after a decade of field development (see McCain, John, --Pandering).

Probably not even that. Because while we’ve been sleeping, China and India have elbowed their way into the game and are aggressively bidding for the same energy sources we have our eye on. Ignore for the moment that this ability , which helps push the prices we all pay higher, is in large part due to their Scrooge McDuck swimming pools of dollars. Lenin famously said the U.S. would sell the Russians the rope they’d use to hang us. This is better: the U.S. deficit provides China, and others, with oceans of dollars with which they bid up the oil we need, proceeds from the sales of which flow to such bastions of democracy and stalwart friends as Saudi Arabia, Venezuela, Nigeria, Russia, and Libya.

But I digress. The all-too-real individual, community and national pain caused by ionospheric energy prices was at least largely avoidable. How, you might ask? By the simple, if altogether unlikely expedient of a gentle, timely government assist to Smith’s invisible hand. As has been clearly if belatedly demonstrated, gas prices north of $4/gallon have the effect of reducing consumption, both through fewer miles driven and a shift to more fuel-efficient vehicles. Suppose a couple of years ago, the government had raised gasoline taxes to the point where gas cost the same $4/gallon level whose salubrious effects we presently see. Suppose further – yes, this is fantasyland – that a goodly chunk of the revenues generated by this increased tax had been plowed back into the economy to fund new construction and repairs to the transportation infrastructure. Maybe even an alternative energy project or two.

This is not a new idea. John kerry and Tom Friedman among many others, have proposed essentially the same thing. No, all that’s lacking is, and has been a popular understanding of the problem coupled with a willingness to make the modest present sacrifices to avoid horrific long-term costs. Smith’s invisible hand can do much, but not all of the work.