- The Washington Times - Thursday, September 25, 2008

ANALYSIS/OPINION:

ANALYSIS/OPINION:

OP-ED:

World financial markets are in an economic fetal position. A senior administration official laid out the harsh realities. The system is choking, he said; normal buying and selling activities of financial instruments ceased. Last week, no one was lending; no one was borrowing. Investors were paying the U.S. government (instead of vice versa) just to hold their money as a safe investment. As a result, government securities yields dropped into negative territory for the first time since around the Great Depression. Clogged capitalism caused American finance to do a face plant.

It’s getting ugly on Robert J. Samuelson, Congress can dawdle and invite financial panic or act quickly and create a financial or even political monster. Some say fast action is required to pull our economic bacon from the fire - kind of gives new meaning to putting lipstick on a pig.

Washington’s response to the current economic storm opens a window on how the system works - or doesn’t. It reveals some dirty little secrets about the limits of Congressional policy making and regulatory oversight. But it also raises another question: Can Washington learn from this crisis? Especially when it comes to other issues - like energy independence - where the costs and answers are better understood and the consequences of inaction equally devastating. Do we have to live by gun-to-the-head legislative politics to produce needed reforms?

The current crisis exposes some ugly realities about the policy-making process and how it addresses big problems. The consequences of dependence on foreign oil could cause the next economic calamity. But unlike the financial crisis, which took several years to develop, this one goes back to the Carter administration - or earlier. Do we need an economy crippling energy shock (bigger than gasoline spike we’ve already experienced) to spur legislative action? Why can Congress and the administration invest so much time, focus and attention in reaction to the financial crisis but not take steps to proactively avoid a similar calamity when it comes to dependence on foreign oil? Here’s why.

First, Washington excels at enacting consensus, but struggles producing it. Second, lawmakers seldom preempt problems — they react to them. Third, partisanship and egos usually stall action. In this case, a potential financial Armageddon seems to give lawmakers no choice — do something or die. Finally, spin — “we need to encourage home ownership” and “packaging mortgages creates more liquidity” sometimes trumps prudent judgment, like “what if home prices fall?” These are enduring features of the American system of government and will not radically change. But could the crisis teach us some lessons? Many critical issues will lack attention due to no consensus, no pro-active response, no bipartisanship, or no out-of-the-box thinking. That’s baked into the cake of our government. But can’t anything change after our near-death encounter with the bond market vigilantes, as one Wall Street maven calls them? The perils of dependence on foreign oil are clear and present dangers. We know the risks, we know the costs and we know the solutions.

For example, yesterday the group Securing America’s Future Energy (SAFE) unveiled a plan articulating much of this growing accord. It clearly draws the link between energy security and national security. It proposes a balanced set of measures, including more electrification of the transportation sector and greater use of nuclear energy. Others have proposed similar “all of the above” approaches. Another sign consensus is near - Democrats in Congress now look like they will allow the legislative moratorium on offshore oil drilling to expire next month. And unlike the obscure world of financial derivatives, the potential consequences of, say, a major Saudi oil disruption is clearly understood.

Some problems creep up because no one understands the scope or the contours of the solution. Greed, uncertainty, incomplete information, misjudgment, an outmoded regulatory structure - and factors about which we are still learning - all contributed to the current financial mess. Crisis policy making is understandable in this instance. But Congress should learn from the mortgage/credit debacle. “Worst case scenarios” happen - sometimes more often than we like. Brinksmanship, when it comes to lowering dependence on foreign oil, is both unacceptable and avoidable. The economic and security costs are too high and the solutions too close. Lawmakers are rightly concerned about financial bailout vote perceptions - too much for Wall Street, not enough for Main Street. Reducing dependence on foreign oil could help Congress show Americans whose side they are really on.

Gary Andres is vice chairman of Dutko Worldwide.

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