Dr. Thomas A. Gresik presented a very interesting analysis of one of the most relevant issue that the United States faces today: outrageous energy prices. The seemingly constant fluctuations have been seen since the mid-2000’s and became increasingly apparent to me when I got my driver’s license. The less apparent details regarding energy prices that were discussed by Dr. Gresik have to do with the influences on prices and the economic and policy decisions made in reaction to these influences.
One of these influences is the relative scarcity of sources of energy. As oil consumption increases globally, it becomes more and more important to find either ways to conserve it or find alternate sources of energy. These realizations have had effects on firms and households alike. For example, automobile countries have invested much money in both more efficient vehicles, as well as alternate sources of power for vehicles. Government policies such as the “Cash for Clunkers” program and cities choosing to use alternative fuels for their public bus systems exemplify the choices that have been made in order to manage the rising energy prices. Many individual households tend to have their decisions influenced by energy prices, such as whether to turn on the heat in their house or drive a more fuel-efficient car. This will affect preferences that will affect demand for goods both positively and negatively.
Another factor that affects the scarcity of energy sources is the location of these sources. While the United States is increasing its production of energy sources, much of these remain in foreign countries. This has had an obvious affect on policies and decisions made in the United States, one example being the war in Iraq. Many other conflicts are occurring in nations around the world, however, the United States seems to choose only to intervene in those countries in which we are economically affected. This does make sense and is likely the right decision as we cannot intervene in every conflict, but its motivation seems quite apparent.
Dr. Gresik suggested that one of the major issues surrounding increasing energy prices is the large amount of political polarization hindering process. Instead of constantly denying one another’s ideas, they need to support policies that promote affordable energy, environmental protection and energy independence. Only then will energy prices become manageable and consistent.