Skyrocketing energy prices are hammering Americans.
Five years ago this week, gasoline cost an average of $1.43 a gallon at the pump; this week, it's $3.94. And home electricity averaged 5.43 cents per kilowatt-hour in 2003; it was up to 10.31 cents in December.
The underlying cause, of course, is that oil, coal and natural-gas prices have all gone berserk - with no relief in sight.
What to do?
Individually, of course, most of us will start conserving - people are already driving less, buying more fuel-efficient cars, etc. We'll keep on finding ways to save as prices stay high.
Should the government mandate even more conservation? No, "too much" conservation is as economically harmful as "too little." Just consider the economic harm that would be delivered by, say, capping speed limits at 30 miles per hour, or banning recreational long-distance travel. Both would save gobs of energy - but at the cost of doing more harm than good.
The only thing government should do on this front is ensure that prices are "right" - that is, that they reflect total costs. That's mainly an issue for electricity, where retail power prices typically bear little relation to wholesale prices. State governments need to encourage real-time pricing of electricity - so that consumers will get the signal to, for example, run the clothes dryer at night, when power is cheaper.
(Incidentally, those who argue that gas and diesel prices don't reflect important "external" environmental and national-security costs are simply wrong - at best, those added costs are trivial on a per-gallon basis.)
But there's a fair bit to do on the supply side. Congress could take four positive steps - if it really wants to bring prices down.
Open up key areas for oil and gas exploration and development. Washington has declared the Arctic National Wildlife Refuge and 85 percent the outer continental shelf off-limits. It's absurd for our politicians to fulminate about the need for more oil production from OPEC when they won't lift a finger to increase oil production here at home.
That said, it will take years to get these fields on-line (all the more reason to start now!) - and they'll do more for natural-gas prices than for oil.
By the time those new fields would be producing, global oil production will probably be about 100 million barrels per day. Optimistically, the fields would yield about 3 million more barrels a day - for a long-run cut in the price of crude of about 3 percent.
But US natural-gas reserves are almost certainly far greater - and gas prices are highly sensitive to regional (rather than global) supply and demand issues, so we'd likely see far greater reductions in electricity prices.
Open up the West to oil-shale development. The United States has three times more petroleum locked up in shale rock than Saudi Arabia has in all its proved reserves. But this US oil is costly to extract. Oil prices need to be at at about $95 a barrel to allow a reasonable profit from extracting oil from Rocky Mountain shale.
Well, it's probably profitable now; there's undoubtedly great investor interest in harnessing shale. Only problem: It's mostly on federal land; Washington has so far said, "Hands off!"
Environmentalists object to both these first two ideas - insisting that the wilderness that would be despoiled by energy extraction is worth more than the energy itself. That's nonsense - faith masquerading as fact.
How much something is worth is determined by how much people are willing to pay for it. If these lands were auctioned off, energy companies (the market representatives of energy consumers) would outbid environmentalists for virtually all of them.
Empty out the Strategic Petroleum Reserve. This now holds 700 million barrels of oil; draining it could add add up to 4.3 million barrels of crude a day to the market for about five months. That's nothing to sneeze at - it's about half of what the Saudis now pump and almost twice what Kuwait puts on the market.
At the very least, this would bring gasoline prices down. And if the theories of a speculator-created "oil bubble" are true (I doubt they are), it would pop the bubble and send prices tumbling.
What of the national-security risk? Another myth. As long as we're willing to pay market prices for crude oil, we can have all the oil we want - embargo or no embargo.
A real US physical shortage is impossible unless a) all international oil actors refused to do business with us - which won't happen, or b) a foreign navy stopped oil shipments to US ports - which the US Navy is more than competent to prevent.
Opening this spigot now also means a $70 billion windfall for the US Treasury.
Suspend (or end) federal rules that force refiners to use only low-sulfur oil to make gasoline and diesel. This is easily the best short-term fix for high gas prices.
Refiners were once relatively free to use heavy crude to make transportation fuel. Today, environmental regulations make it difficult and costly. And there's actually a (relative) glut of heavy crude right now.
Light-crude oil markets are incredibly tight, with no real excess production capacity. Heavy-crude markets are robust, with plenty of crude going unsold for lack of buyers.
Suspending low-sulfur rules would bring those heavy crudes into the transportation fuels. Oil economist Phil Verleger says it could well send gasoline and diesel prices plummeting.