An energy crisis is facing the great nation of America, and to date, no individual has devised a plan that will without a doubt solve the energy crisis. It goes without saying that renewable energy is by far superior to nonrenewable energy for the pure and simple fact that renewable energy is just that, renewable. Dead end fuel sources like fossil fuels provide benefits for the short term, such as a temporary abundance of fuel, but over the course of time, as the fuel source dwindles, prices sky rocket. By using dead end fuel sources, America, and the world as a whole, has backed itself into a corner because of the lack of research and investment in renewable resources. But what could possibly be done to shift the United States from dead end fuel sources to renewable energy? The answer lies in ten economic principles created by N. Gregory Mankiw. These ten principles will describe the basics of economics and demonstrate how creating and investing in renewable energy is the most economical choice the United States can make.
Mankiw's first principle is "People Face Trade-offs." This principle states a fact of life that every human being is familiar with; choices have to be made. When making a decision, individuals must think about the goals they wish to achieve, and which option will bring the individual closer to their goal. How does this relate to renewable energy? America's main goal is to be free of foreign fuel and be completely energy efficient and independent; If America chooses to invest itself in renewable energy, the country will be closer to achieving its goal of energy independence.
Another well known fact of life is the foundation of Mankiw's second principle; "The Cost of Something is What You Give Up to Get It." This principle introduces a concept known to economists as an opportunity cost. The opportunity cost is simply the option we do not choose. When faced with the decision between renewable and nonrenewable energy, the consequences of the choice are clear. If America chooses nonrenewable energy, it gives up clean, renewable energy. In reverse, if America were to choose renewable energy, it would give up some of the greatest sources of pollution and put an end to the roller coaster of fuel prices. When you compare the opportunity costs of each decision, renewable energy proves the better choice.
When an individual makes a decision, the first factor taken into consideration is which option will maximize benefits. Individuals faced with a decision often make a list of pros and cons, and usually choose the option that will provide the most benefits. This behavior is Mankiw's third principle, "Rational People Think at the Margin." Weighing out the costs and benefits of renewable and nonrenewable is an important process in which both the government and its citizens need to engage. It is true that switching to renewable energy will cost the nation money, but the benefits outweigh the short term inconvenience. Cleaner air, water, and soil for future generations more than compensate for the money needed to make the switch. After an initial period of time, renewable energy has been shown to actually break even with the cost of implementation and can make a profit. A common misconception with renewable energy is that a switch would cost jobs, and nothing could be further from the truth. New energy sources require individuals to create and maintain them, which will in turn create a need for workers, thus providing jobs.
The fourth and quite possibly the most important of Mr. Mankiw's principles is a nugget of common sense; "People Respond To Incentives." The best example of this principle in action is the tax break provided to buyers of hybrid cars. The incentive is the tax break, and people respond by considering and often buying a hybrid. In order for this principle to apply to renewable energy, the government simply needs to provide current energy companies with tantalizing incentives to create and make renewable energy that is widely available.
"Trade Can Make Everyone Better Off" is Mankiw's fifth principle. The greatest benefits of trade are the potential for specialization and a greater chance for competition. Specialization allows companies and countries alike to perfect a certain aspect or process in providing a good a good or service. Healthy competition among companies and countries allows for a better economy and encourages advances in technology to improve efficiency. By applying trade to specialization in renewable resources, a new niche in the world market can be created. If the United States were to specialize in the creation of renewable energy sources such as ethanol for cars, it could partner with a country like China or Japan that could specialize in making automobiles that run on renewable sources. The trade an partnership created by specialization would benefit both countries and would create positive externalities, or benefits, to citizens of their respective countries, and the world at large.
Alice Stoner
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