Energy states must avoid these policy traps

Policymakers in energy-producing states must wrestle with budget problems resulting from the oil bust, while scattered pockets across America continue to struggle in the wake of the worldwide financial crisis.

As they face elevated unemployment, deficits and debt, it is essential that those at energy-state capitols maintain their guard against common influences toward poor judgment that impedes effective policy response.

Some might say “government intervention is the problem,” or “government intervention is the solution.” But any sound-bite solution comes at a high price.

Hidden traps can hobble rational decisions.

At least five such traps warrant “outing,” though others exist.

The first might be called the “consistency compulsion.” It’s the drive to tailor all policies so they are in line with what are regarded as core principles.

The free market conservative views the world differently from the regulatory state liberal. But the compulsion for consistency with basic beliefs and policy choices can produce results antithetical to long-term economic improvement.

The second danger involves what I’ll call the “superlative syndrome.” We’ve all seen this operate in settings where one political party dominates the landscape.

In such circumstances, there is an inclination among that party’s members to outstrip peers by insisting on increasingly extreme positions.

The next danger is what psychologists term subconscious “cognitive biases.”

A small sampling includes confirmation bias (tendency to focus only on information supporting one’s preconceptions), the IKEA effect (tendency to place higher value on one’s own creations than on those of others) and its companion, reactive devaluation (instinct to discount ideas originating from adversaries).

The fourth potential hazard can be termed the “imagination deficit.”

This is when some policy options are never considered because of an absence of ingenuity, disregard for or plain ignorance of other ways of seeing the world, or an oppositional attitude.

By illustration, ISIS would never look to Smith, Keynes, Hayek or Marx to solve economic questions, since only revered religious texts provide its inspiration.

Finally, a fifth factor might be called the “unavailability constraint.”

Here, it is not merely the lack of imagination that results in certain policy choices being left out.

Rather, the existing state of social, political, legal or technical evolution means certain options simply are not yet on the table.

Unless one is prepared to face the world in a mature, sophisticated and grown-up way, our myths, beliefs and traditions will always stifle progress.

There is another matter oil-producing states should keep in mind.

With more than 4,000 already-drilled wells in the U.S. waiting to be “fracked” when prices recover, and with new extraction technologies on the horizon, the future is one in which oil’s upside faces a possible ceiling.

That makes it likely that any state continuing with over-reliance on the energy sector has to be prepared to make do with less for longer.

This story was originally published April 11, 2016 at 5:51 PM with the headline "Energy states must avoid these policy traps."