Capital Commentary is the weekly current-affairs publication of CPJ, written to encourage the pursuit of public justice.
Fueling Retirement Security
May 22, 2000
As oil prices began to rise a few months ago, motorists complained and politicians talked of reducing gasoline taxes to ease the pain. They should have done just the opposite.
The greater pain we should fear is a shock that will occur if we do not make a gradual and smooth transition from oil to better and more enduring energy sources. There is a way to encourage a smooth transition, which can also help secure retirement for the baby-boom generation. But we must give up the illusion that government can decree cheap oil indefinitely.
Despite the discovery of a huge new oil field in the Caspian Sea, announced just last week, the earth's reserves of oil are not infinite. According to Gregg Easterbrook (The New Republic, 5/15/00), global consumption of oil, if maintained at today's rate, will exhaust the world's proven reserves in 40 years. If the current annual rate of increase in consumption continues, known reserves will be gone in 25 years.
Oil prices climb whenever distribution is in doubt, and Easterbrook explains that prices will really go up when approximately half of the world's supplies have been recovered and sold. Consequently, costs could begin to skyrocket in 12-20 years, if not sooner. Optimists believe, of course, that much more oil will be discovered. Pessimists say, "Don't count on it." Regardless of whether we can project 25 or 100 more years of oil availability, costs will go up at a rate proportionate to declining reserves and to the degree of our dependence on oil.
Continued heavy dependence on oil also has environmental and national security implications, portending more conflict, including more Gulf Wars. Oil dependency also portends ever increasing burdens for the economies of poor countries that must import oil.
The good news, according to Easterbrook is that technologies designed to exploit other sources of energy, particularly renewable sources such as sun, hydrogen, wind, and vegetation, are far along in development. Automobile companies have already built electric and fuel-cell engines. Costs will come down and quality will go up as demand increases. Thus, everything the United States can do to encourage more rapid development of the newer technologies will not only benefit our economy, environment, and security, but also help poor countries become more energy efficient and economically self-sufficient.
What can we do today to encourage a positive, gradual transition away from oil dependency that will also help secure the retirement of Baby Boomers?
The next president and Congress should enact legislation that sets in motion the addition, every year, of a penny to the federal gasoline tax until U.S. oil and gas consumption has fallen below 50 percent of total American energy use. All of the new tax revenue should go into a Social Security savings account rather than into the Social Security Trust Fund as just another IOU. The special savings account could be tapped for Social Security expenditures as soon as the 50 percent level of oil dependence is reached.
The generation of Americans that will begin retiring in less than a decade will test the limits of the Social Security system. If at any time between 2010 and 2025 a shock from rapidly rising oil costs hits, retirees could experience severe restriction of their retirement expectations and the whole country could be rocked economically. That is when the younger, still-working generation will need all the help it can get to keep Social Security funded.
A gradually increasing gasoline tax, whose conditional elimination is guaranteed ahead of time, will help slow oil consumption, spur alternative-energy technologies, and beef up Social Security. Cheap oil indefinitely is an illusion. An upcoming era of costly retirements is not. We can pay a little now or much more later on. Now is better.
—James W. Skillen, Executive Director
Center for Public Justice
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Capital Commentary is a weekly current-affairs publication of the Center for Public Justice. Published since 1996, it is written to encourage the pursuit of justice. Commentaries do not necessarily represent an official position of the Center for Public Justice but are intended to help advance discussion. Articles, with attribution, may be republished according to our publishing guidelines.”