The surge in oil prices is playing to investor's worst fears about inflation and recession. It is very frustrating that policymakers have not prepared more effectively for the rising demand for energy and the risk that supplies could be restrained or interrupted. A change in policy direction that commits to build nuclear promptly, subsidizes renewable energy immediately, and permits drilling quickly in known offshore locations would likely place downward pressure on oil prices now.

Politicians have made absolutely dreadful choices, many of which were obvious even at the time. There was no scientific or economic justification for subsidizing domestic ethanol production based on corn, particularly when sugar-based ethanol could be imported at lower cost from developing countries. With farm incomes already strong, subsidies on ethanol provided farmers with windfall profits, missed an opportunity to reduce the budget deficit, and raised food prices, thereby worsening measured inflation. Instead, the same dollars could have been devoted to stimulating even greater investment in wind farms or solar energy production facilities, with much better economics, better environmental effects, and larger net gains in energy production. Instead, politicians went for votes.

Off-shore drilling remains stymied by political games. Leases have been sold by the government, but permits to drill have not been issued, while politicians coyly argue the oil companies should drill or lose their leases. Environmentalists wish to maintain pristine environments, such as in Alaska's ANWR, or to protect tourist locations, such as the beaches of Florida, or to protect water supplies in New Jersey, as argued by former NJ Governor Jim Florios editorial in The Record on Sunday. In fact, drilling accidents are rare. For years, environmentalists opposed nuclear power, but they now support it, as coal has proven itself to be more destructive to the environment. Sadly, politicians created the conditions for $4 gasoline by opposing new energy development.

New policy direction is needed immediately. Solar and wind are being adopted rapidly by the private sector, but redirecting subsidies from ethanol to wind and solar would accelerate the adoption of these renewable energy sources. Drilling off the coasts in areas known to hold gas or oil could be exploited more quickly. But just launching such programs would quickly convince investors that we have finally become serious about energy policy and should start lowering energy costs, which would also benefit the economy, lower inflation and help stocks prices.

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