Economic Report of the President

outside government, both at home and abroad, can form a cleareridea of what is to be expected. A further inescapable difficulty is thatstrong political pressures arise to influence structural policies whenpotential gains or losses to particular sectors are at issue. More powerfultechniques to enhance transparency can serve not only to improvethe quality of decisionmaking, but also—by making costs andbenefits clearer—to stiffen the resistance of governments to unbalancedpolitical pressure.Energy PoliciesIncreased investment in alternative energy sources, efforts to promotemore efficient use of existing supplies, and measures to reducevulnerability to supply disruptions are needed to improve growthprospects over the longer-term. So long as oil supplies are scarce anduncertain, and energy markets lack the flexibility to absorb disruptionsin the flow of oil, the risk of recurrent oil-price shocks cannotbe avoided.While the market incentives provided by sharply higher energyprices will furnish the major impetus for many of the needed adjustments,government actions will also be needed in some cases. Thedevelopment of some new sources of energy, for instance, may requiregovernment participation because of the long lead-times, verylarge scale, and technological risks associated with them. Furthermore,the building up and management of petroleum stockpiles requiresa government role since private stocking provides insufficientprotection against oil-supply disruptions for the reasons discussed inChapter 2.There is also a strong rationale for a broader international coordinationof energy policies. The potential gains from a more rapid expansionof U.S. coal production, for instance, are increased if othercountries, anticipating the increased availability of coal, at the sametime increase the capacity of their electric-power systems to use coalinstead of other fuels. More broadly, part of the social benefits thatarise when one country increases its energy production or reduces itsenergy demand accrue abroad, since energy consumers in all countrieswill benefit from the resulting reduced pressure on worldenergy prices. Joint projects and other forms of international cooperationmay therefore be particularly appropriate in the field of energy.The rationale for international coordination of government policiesis especially strong with regard to oil stocks. If countries attempt toincrease their own security by bidding for stocks and thereby createconditions of excess demand, all countries will suffer the consequencesof sharply higher oil prices. Conversely, the willingness ofone country to use existing stocks in times when markets are tightmay depend on the extent to which other countries do the same. A197