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pa4086c.jpg Paul Lachine

The Energy Deficit

Having underinvested in energy efficiency and security when the costs of doing so were lower, the US today is poorly positioned to face the prospect of rising energy prices. Rather than anticipating and preparing for change, Americans have waited for change to be forced upon them.

MILAN – I have been surprised by the recent coverage in the American press of gasoline prices and politics. Political pundits agree that presidential approval ratings are highly correlated with gas prices: when prices go up, a president’s poll ratings go down. But, in view of America’s long history of neglect of energy security and resilience, the notion that Barack Obama’s administration is responsible for rising gas prices makes little sense.

Four decades have passed since the oil-price shocks of the 1970’s. We learned a lot from that experience. The short-run impact – as always occurs when oil prices rise quickly – was to reduce growth by reducing consumption of other goods, because oil consumption does not adjust as quickly as that of other goods and services.

But, given time, people can and do respond by lowering their consumption of oil. They buy more fuel-efficient cars and appliances, insulate their homes, and sometimes even use public transportation. The longer-run impact is thus different and much less negative. The more energy-efficient one is, the lower one’s vulnerability to price volatility.

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