Two summers ago, I made a step toward the dark side by trading in my bicycle for a shiny new SUV. I couldn’t have timed the switch more poorly. This was the first summer of record setting gas prices, when the pump price first climbed over $3.00 a gallon. Fair weather activists went to work that summer, sending out chain letters over email and myspace demanding a boycott of gasoline. Let’s boycott all gas stations for a day! Or better yet, let’s just boycott Exxon! That’ll show ’em!

After reading these, I (and anyone who had taken Econ 101) immediately were hit with terrible headaches. Why? These consumer gas schemes pandered more toward emotions than to any rational economics theory.

Now two years later, a similar situation is occurring. However, this headache isn’t being spread by zealous internet users. This fire is being fanned by two of our own presidential candidates. Their idea is not a boycott, but rather a “gas holiday” where the federal gas tax is erased for the summer driving months.

But wouldn’t lowering the gas price increase demand? And when demand increases, won’t the prices go back up? The short answer is Yes. Peter Schwartz of Global Business Network describes this as the true American energy policy: “Maximize demand, minimize supply and buy the rest from the people who hate us the most.”

Under such a scheme, consumers would see little change in gas prices this summer. Without taxes of course, our own Federal government’s revenue would shrink. And the real winners in the game would be….you guessed it….the big oil companies.

According to this article by Thomas Friedman of the NYT, “This is not an energy policy. This is money laundering: we borrow money from China and ship it to Saudi Arabia and take a little cut for ourselves as it goes through our gas tanks. What a way to build our country.”

Paul Krugman, another NYT columnist points out in a post that any attempt to quell gas prices for the summer driving season is too little, too late. The petro we’ll use this summer has already been extracted and refined. No matter what politicians will promise for the summer, there’s simply not much to be done.

Photo found at Huffington Post

My car gets 14 mpg on a good day and public transit isn’t an option for my commute. I’m sitting front and center in the cross hairs of high gas prices, and I would be ecstatic if there were a plan that could help me out. Unfortunately, there doesn’t seem to be much of a rationale consensus from our leaders. Of the three candidates, only Obama has voiced his disapproval of a gas holiday. Both McCain and Clinton have publicly favored this gas-tax holiday.

It’s time for our politicians to take a proactive and logical approach to our energy policy. All the research, rationale, and logic point to the same conclusion. It’s been close to 30 years since President Jimmy Carter proclaimed we would stop being dependent on foreign oil and that we would develop oil alternatives. Perhaps its time we began working toward this long-time goal.

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Credit: Timothy Fessier & the Santa Barbara Independent

Like many political science and international studies students, I was first introduced to Nobel Prize winning economist Joseph Stiglitz while discussing globalization. His 2002 book “Globalisation and its Discontents” was the tastiest of textbooks for the aspiring politico and undeclared academic. The critical assessment of globalization Stiglitz put forth cost him a job at the World Bank, but helped stimulate the minds of many who grew up in the midst of the internet and NAFTA.

Now, Stiglitz has struck again. His new book, “The Three Trillion Dollar War”, is an in-depth look at the dollar cost of the Iraq war, and the subsequent consequences (dollar or otherwise) of all the money spent. In an interview given to the Guardian, Stiglitz reveals some shocking conclusions his research uncovered:

money.jpgIn 2005, the Congressional Budget Office estimated the cost of the Iraq war at $500bn. Stiglitz and the book’s co-author, Linda Bilmes, found this number to be surprisingly low. Discrepancies began to unveil themselves. For instance, the listed cost of the 2007 troop surge only accounted for combat troops. No funds were budgeted for the additional support troops needed as well. After years of data mining and number crunching, they’ve found the cost to be between 2 and 3 trillion dollars.

What’s more surprising than an unannounced 3 trillion dollar bill? Stiglitz links the cost of the war to US credit woes, economic recession, dependency on foreign nations, and even the failure of foreign aid in Africa. The war cost has been paid for not by raising taxes, but primarily through borrowed money. This has hidden the true cost of the war from Americans – most of whom have been spending their savings as if they were lottery winnings. We were, as NYT columnist Paul Krugman calls it, “partying like it was 1929”.

Once the lights came back on and the party ended, an economic recession hit. Banks called for a bailout. Problem was, the US didn’t have the money to bail out everyone. Many bailouts are being financed not by the US, but by countries in the Middle East and Asia. Other nations rescued Citibank and Meryl Lynch when they called for help. These companies now depend – as does our economy – on forces other than our own.

Outside of the actual cost, even the war itself has had economic effects. The instability in the Iraq region has sent oil prices souring to new heights. At the start of the war, oil was $25 a barrel. Now it’s over $100. Developing nations are feeling these price hikes like never before. African nations have been amongst the more dire strugglers. Stiglitz estimates that years of foreign aid have been virtually erased simply due to high oil prices.

This is just the tip of the iceberg.

The amount spent on the war so far could have paid for 8 million housing units, 15 million public school teachers, health care for 530 million children for a year, or collage scholarships for 43 million students. Three trillion could have fixed America’s social security problem for half a century. America, says Stiglitz, is currently spending $5bn a year in Africa, and worrying about being outflanked by China there: “Five billion is roughly 10 days’ fighting, so you get a new metric of thinking about everything.”

It appears it is our economy – and not the terrorists – that now sit in the cross hairs.

In figures:

  • $16bn
    The amount the US spends on the monthly running costs of the wars in Iraq and Afghanistan – on top of regular defense spending
  • $138
    The amount paid by every US household every month towards the current operating costs of the war
  • $19.3bn
    The amount Halliburton has received in single-source contracts for work in Iraq
  • $25bn
    The annual cost to the US of the rising price of oil, itself a consequence of the war
  • $3 trillion
    A conservative estimate of the true cost – to America alone – of Bush’s Iraq adventure. The rest of the world, including Britain, will shoulder about the same amount again
  • $5bn
    Cost of 10 days’ fighting in Iraq
  • $1 trillion
    The interest America will have paid by 2017 on the money borrowed to finance the war
  • 3%
    The average drop in income of 13 African countries – a direct result of the rise in oil prices. This drop has more than offset the recent increase in foreign aid to Africa

(Figures and other quotes heisted from the Guardian; read the full article here)