The stalemate going on in Washington about the fiscal cliff highlights the two very different economic viewpoints held, not just in Washington, but across America: more government, more taxes; less spending, lower taxes. But there is a third prong that is largely absent from the discussion: growth and creating new wealth—and energy can play a big role, but it, too, has two divergent sides.
To have success, both sides need to feel that they are getting what they want.
Energy should be part of the current fiscal cliff discussions because all recessions since 1973 have been preceded by a spike in oil prices. In the last decade, we’ve seen a consistent climb in oil prices—with the average household’s gasoline expenditure now more than double what it was in 2002—coupled with a steady decline in Gross Domestic Product.
High energy costs are a drag on the economy—which is important to Republicans. But they also mean less federal and state tax revenues and lower revenues endanger entitlement programs—which are important to Democrats. Earlier this year, it was announced that Social Security is going to run out of money three years earlier than projected last year. The 2012 Social Security Trustees report states: “This is the largest actuarial deficit reported since prior to the 1983 Social Security amendments, and the largest single-year deterioration in the actuarial deficit since the 1994 Trustees Report.” The report cites “many factors.” However, it blamed “a surge in energy prices in 2011” for “lower average real earnings levels over the next 75 years than were projected.”
Energy can give both sides what they want. To achieve this, Democrats will need to understand that oil is important and Republicans will need to acknowledge that there is some role for government to play. Can both parties feel that they are getting what they want without sacrificing their core principles?