DYLAN: Welcome to episode 38 of Radio Free Dylan. Joining us once again is one of our favorites and one of the men in this country who not only has the expertise but the audacity to express himself about his expertise. His name is Peter Morici. You're probably familiar with the man, but if you are not, you should become familiar with him, and this is one way to do it, listening to the conversation today. Peter, of course, is a professor at the Smith School of Business, University of Maryland and former chief economist at the US International Trade Commission.

Peter, we've talked extensively about the rigged trade and US multinationals, basically as Chinese companies in American clothing. But specifically, I asked you to join us today to talk about the run-up we're seeing in energy prices and the direct threat that poses to job creation in this country as the core issue, the lack of jobs, the core issue with the dysfunction in our economy. How do you connect the dots?

PETER: Well, essentially if oil prices stay at their present level, that's going to be about 50 cents more a gallon than economists were planning on or the administration, and that translate into a much slower economic growth. It’ll probably cost us 50,000 jobs, 600,000 jobs over the course of the year.

DYLAN: Is there a solution?

PETER: Well, near term, it's tough. But we need to get away from the notion of near term solutions. We have to decide we're going to develop more domestic oil and gas and better use the abundant natural gas we have so we import simply less oil and we're less vulnerable each time these things happen in the Middle East.

DYLAN: The other issue that I love to bring up and again I said this earlier -- recently on the show. I've said this a number of times also I guess we talked about this at the Hoover Dam is, we are incredibly inefficient in the way we use the energy that we burn whether it's natural gas, oil, hydroelectric nuclear wind, solar I don’t care what it is. 66% of the energy that comes out of our transmission grid dissipates, never makes it to its destination. I could come up with similar statistics to reflect the amount of oil or natural gas or whatever that's burned just heating a house that just goes out the windows; that's burned moving a car that just radiates off of the engine. Meanwhile, we watch a 90% efficiency ratio for power generation in Japan, similar ratios out of Germany.

How do we address the massive inefficiency in the way we burn a bunch of oil and other energy resources that never actually turn into electricity or move over the ground or heat for the house or whatever it may be? And for that matter, do the domestic development that you and others recommend, how do you do that? In other words, is that a central government policy? Is that a marketplace environment? What do you see is the environment that's likely to lead to the attempt to solve the problems that we all know exist?

PETER: Well, on the supply side, it's a government problem. I mean, essentially, the democrats in the house and the senate have been unwilling to let Americans drill. Whether Bush is in the White House or Obama is in the White House, there's been a lot of resistance to opening up the gulf completely to drilling. Now President Obama has virtually shut it down. We're only drilling in half the gulf, drilling off the coast to California and so forth. Now, this is not environmentally sound because we just sent the drilling abroad where environmental regulations are even less stringent. Putting aside the debacle on the BP platform, we're in a much better situation in the United States to monitor what's going on so drilling is going to happen. The question is do we do it here?

Now, with natural gas, there's a lot of ways we could deploy that in cities. For example, all the cabs we ride in, in places like New York, Los Angeles, and Chicago should be natural gas and they're not. The cars we drive, we can't use natural gas for regular Suburban vehicles very easily because the range isn’t quite long enough, but we could be driving much more fuel efficient vehicles. I mean there's no reason to be building luxury cars and SUVs with 350, 450, 550 horsepower.

DYLAN: If you were to look though at the responsibilities that need to be addressed, in other words, if you would like to defer to the market but if the marketplace doesn’t reflect the real cost of energy.

PETER: It doesn’t because it doesn’t factor in the fleet protecting the Persian Gulf --

DYLAN: Then how is it a marketplace, right?

PETER: -- and so forth. It just doesn’t and the elasticities are too low. The elasticity is so low that in order to really dramatically reduce --

DYLAN: What does that mean, “elastacities”? Educate us.

PETER: Well, the demand responsiveness of a price increase. The price of gasoline would have to go to $5 or $6 a gallon before we had a radical change in gasoline consumption in the United States without some form of government intervention. That would simply tank the economy. We're going to have to ease our way out of this mess. Also, it's going to take some time to develop all that oil and gas.

DYLAN: Where would you begin when you look at the massive inefficiencies, you look at the opportunity to try to figure out the way to develop it and the mispricing of energy because of both the subsidies and the failure to add the necessary taxes to reflect the cost of the wars and all the rest of it when it comes to extracting fossil fuel?

PETER: Well, recognizing the taxes is going to be hard to push through. I would suggest that we have much more stringent regulation on the size of automobile engines and the horsepower and mileage requirements and things like that so we could dramatically improve the efficiency of the fleet. I would mandate that for intercity transportation, fleets of various kinds, delivery trucks, cabs, and so forth, that we move to natural gas. Now to meet the demands, we have lots of East Coast natural gas where the Appellation Mountains come down into the coastal plain that isn’t adequately developed, and we have lots of oil and gas off the coast of California and in the gulf of Mexico that is not being developed. We certainly want it to be done safely, but it can be done safely we just have to have the resolve to get it done. Finally, with regard to electricity, we haven’t been building nuclear power plants. The fact is they're environmentally safer. They're safer for the workers. They're safer for the population than say, coal-powered plants. We need to do what the French have been doing for the last 20 years, have a steady program of building out nuclear power.

DYLAN: All of that comes from government or the private sector?

PETER: Well, it's the government clearing a path by reducing regulatory barriers, and to some extent it's the government mandating that you and I as drivers use more fuel efficient cars and that fleets use more natural gas. It's a combination of the two. It's the government working with the market to make things happen.

DYLAN: What about mandating efficiency standards for things like stationary power generation which right now are an embarrassment?

PETER: Oh, I think that's fine. That will work. That's good. There are lots of things that we could do, and there's all kinds of political barriers to doing it because organizations of various kinds lobby against it because of the initial switching cost. But longer term, this economy will be better off and all the businesses that are here will be better off if we're not vulnerable to these Middle East disruptions, and we don’t have to spend so much money keeping the Persian Gulf open.

DYLAN: Would not the best way to go about doing this -- really the only way that would work is if you started to reflect the real cost of energy?

PETER: Well, you can do that one of two ways. You can just require people to use energy more effectively or you have to raise taxes quite a bit. Now, Dylan, it would be a rather significant tax increase, and I would want an assurance that that money just wouldn’t get spent but rather would run down the deficit or that we would cut some other tax.

DYLAN: Well, what if we did this? Here's my idea while we're talking about gas taxes. What if we were to tax the cost of fossil fuels or energy, however you want to call it, we'll call it oil for purposes of simplicity. But the money was presented as a so-called freedom dividend so that the money while it's taxed from the energy consumers, it never even goes to federal coffers but is split-up ala the Kuwaiti government or for that matter Alaska and paid out on an equal basis to everybody in America. So if I, crazy Dylan Ratigan, decide to spend hundreds of thousands of dollars a year on fuel for my fleet of Hummers and my seven airplanes, which I don’t have, well then I pay a lot in taxes; and if Megan, my producer, decides to walk to work and ride her bike everywhere, she and I get the same size check, and if crazy Dylan spends a lot of money on energy, somebody like Megan actually makes a little profit on the deal.

PETER: Doing it on a per capita basis makes the most sense. That's a brilliant idea. It's a wonderful idea. It's a sort of idea an economist would embrace.

DYLAN: Unlikely politically?

PETER: We don’t need more taxes in this country. We need to spend less. The budget problem is another issue. So to keep the government from just squandering the money, just divide it up and give it back to every soul in America, every man, woman, and child. That way the bigger households, the larger families, that need more space and maybe might need a little bit more energy are going to get more of the money back, and they'll still have the incentive to use it more reasonably. If you did that, then you could tax energy across the board, and it would make some sense. I mean that's the way of doing it.

DYLAN: But the problem is -- and again there are millions of ideas like this that come up with anything we talk about, they don’t see it -- they never make it into the theater of where the problem-solving happens.

PETER: Yeah, I wouldn’t say this. If you're going to do this sort of thing, you have to remember, we have certain energy intensive sectors, and so the tax has to be applied to imports as well.

DYLAN: 100%.

PETER: 100%. For example, if you're importing aluminum and obviously aluminum producers would pay a high tax because they use a lot of electricity. Then the electricity implicit in that should be taxed on imported aluminum or any other basic material that comes into the country so that American manufacturers are not put at a competitive disadvantage. This is one of the problems with the carbon tax. You have to be very careful that you're not slipping into a carbon tax here even though you're giving it back because, I mean, if you don’t have those taxes over in China, then you're just going to ship a lot of industry over there, and it's going to become self-defeating.

DYLAN: Where from an organizational standpoint, understanding that basically Washington and the status quo corporate interest are obviously not going to do anything that we're talking about, where do you see as a good place for grassroots organizers to start?

PETER: Oh, I think they need to start with the White House and make it clear to them that we don’t want to import all this oil. I think that they have to start putting pressure on the White House because that's where the leadership is going to have to come from, and to make this the kind of issue that cutting and spending was in the last campaign so that the President starts to see this as a vital issue in his life. This is the only way it's going to get done. Influencing a few congress members is not going to affect real change.

DYLAN: Yeah. Listen, Professor, it is always a pleasure. Thanks for the time.

PETER: Take care.

DYLAN: All right. Peter Morici again, Professor at the Smith School of Business, the University of Maryland and former chief economist at the US International Trade Commission and a friend of the Dylan Ratigan undertaking, if you will, on MSNBC, the web, and obviously on this very podcast.

Again, if you watch the TV show, you know that I like to focus on what I call the trillion dollar problems; the healthcare monopolies and fee-for-service where you pay twice that anybody else in the Western world pays for healthcare even though we don’t get the same quality of care for the people in this country or the banking complex. We talked with George Goehl about that recently and the problems associated with that.

Energy is one of those trillion dollar problems. Half of our trade deficit which is money leaving our country is because we buy foreign oil, Mideast oil. If you look at all the trillion dollar problems; the military, industrial complex, banking, healthcare, and the multinational trading pirates with the rigged China, which I look at as really the five big trillion dollar problems. If there's one that we're in a position, we can really solve and really get after that creates jobs, security, and cash for America, in my opinion, it is energy. Although in my personal opinion I might argue that the banks are more important and somebody else might argue if you don’t deal with healthcare, you haven’t solved the problem. And they might also be correct.

But we don’t live in fantasy land, and if you look at the issue presented by energy because of the rising gas prices on a street level with the American people, and the opportunity to look good by creating jobs and solving these problems; energy may be actually our best bet of the trillion dollar problems for one that we could actually tackle.

That’ll do it for me today. I am Dylan Ratigan. This has been another episode of Radio Free Dylan, and we look forward to talking to you next time.