Monday, March 10, 2008

How to Avoid a Recession

There's a lot of talk about what to do about the economy. One group of economists believes that Federal Reserve Board Chair Ben Bernanke made a mistake in cutting interest rates recently. They think that will lead to inflation.

Most politicians agree that we need some form of tax cut. Some say that the middle class should get a tax break. Others say no, the middle class will just use it to pay down debt, and that businesses need tax breaks in order to hire more workers.

Some suggest that saving sub-prime mortgage borrowers from bankruptcy is the key to bringing about economic recovery.

Many of these opinions have merit, but they fail to address the cause of the faltering economy. The real problem is the rising cost of energy.

The economy depends on energy for growth. You cannot manufacture items unless you use energy. You cannot transport these manufactured goods unless you use energy. And consumers cannot afford to buy these goods if they're spending most of their disposable income on energy.

You might think we'd've learned a lesson from the oil crisis of the 1970s. But our favorite energy source still seems to be based on oil. And as the oil supply tightens, our economy falters.

Imagine this scenario: It's the distant future, and our world is without oil. Where does our energy come from for manufacturing, transportation and consumer use? Solar and nuclear.

Equatorial countries are the world's energy movers and shakers. They get the most intense solar radiation. They produce the most electricity per photo-voltaic cell. Their biofuel is the richest and most abundant on the planet.

So perhaps it's time to cut taxes on oil, gasoline and electricity. Maybe it's even time to think about subsidizing energy costs? It depends on how serious our government is about maintaining economic growth.