Tuesday, June 10, 2008

When Reality Bites-- Gas Prices

I have a few thoughts on gas prices.

1. We were warned, we should have seen this coming. Beijing alone sees 20,000 new cars every month. Other East/South Asian countries are rapidly growing, and with middle class prosperity comes a car and a car demands gasoline. Even if much of the most recent increases are a purely speculative bubble, we knew that some day soon enough oil prices would rise high due to rising world demand and an ever decreasing world supply of oil.

2. I've said repeatedly on this blog: We pay less at the pump than most other nations. According to NationMaster, U.S. gas prices are #102 in the world (out of 140 countries) and well below the world average price. This is partly because our government doesn't tax gasoline as much as European countries do.

3. We should have been paying $4 for a long time now. If we really care about easing congestion, reducing pollution, and improving fuel efficiency among manufacturers, a consumption tax is the most efficient way to do this. That's why thousands of economists and politicians are giving their support to the Pigou Club. The taxes could pay for improved road and transit systems, reduce the ballooning federal debt, or pay for reductions in payroll taxes.
As Charles Krauthammer wrote the other day (HT: Greg Mankiw, of course):
Unfortunately, instead of hiking the price ourselves by means of a gasoline tax that could be instantly refunded to the American people in the form of lower payroll taxes, we let the Saudis, Venezuelans, Russians and Iranians do the taxing for us -- and pocket the money that the tax would have recycled back to the American worker.

4. Suing OPEC is probably the dumbest idea I've heard, it made me angry to hear Republicans getting blamed for higher prices on the evening news tonight simply for refusing to vote for bad legislation. Sen. Hutchinson was on the mark when she said an energy bill that says nothing about production and simply says "Sue OPEC!" creates a windfall tax on oil companies, and studies price gouging will do NOTHING to help reduce gas prices.

5. Since Americans have been dumb about piling up personal debt, maybe these gas taxes will cause us to think and do some math. Here's a website that will help you calculate if it's worth it to drive to a gas station where the price is cheapest (beware the popup ad). Yesterday, I figured out that even though gas is 14 cents cheaper at a station 8.5 miles from here, it cost me more to drive there and back than it would to go to my expensive neighborhood station.

5a. Suggestion: Google your car's MPG if you don't know it. Halve it if you plan on running the A/C and heavy electronics (note: this might be a myth, but you do get some reduction in your mpg if you run the a/c). Then, use Google Maps to get the distance from your house to your favorite destinations. Then, calculate how much it costs you to drive to them. Reschedule your day to make your driving to these places more efficient.

6. On ABC News last night they profiled a man who converts gasoline engines to diesel. Diesel engines can run on vegetable oil, get more horse power, and double the gas mileage of an unleaded gasoline engine. A few months ago we heard of a man who was getting free used cooking oil from restaurants at the end of every day. He was filling his tank with it, essentially like free gasoline, and getting great mileage. Hopefully, Detroit will start producing more diesels and more people will figure out how to switch to vegetable oil. That will help reduce demand for gas and reduce the price.

7. Buying a hybrid probably won't help. You'll probably not save enough on gas to make it worthwhile for the higher price of a car. And then your battery will need replacing, costing you another $10,000.

8. We have bad energy policy. We subsidize corn ethanol, a very energy inefficient product, which is helping drive up food prices all over the globe. We (well, Democrats actually) put trade barriers up against importing cheaper, more energy-efficient sugar cane ethanol from Brazil. We don't hardly look at switchgrass and other efficient possibilities...

9. September 11 didn't change our oil-guzzling ways, even though so much of the money we pay for oil indirectly goes to fund Al Qaeda through the $billions$ that the Saud family give to Wuhabbist organizations. Our President goes and begs the Saudis to increase production. For me, that was the real low point of the past month. "Your highness, please produce more of the good we desperately need. We know the money you'll make will eventually go to train terrorists who will later kill our soldiers, but please make more." Why all veterans and families of veterans who have died to fight the war on terror aren't outraged at this, I'll never understand.

10. Department of Energy produced this chart. What do you think has fueled economic growth from the 1980's to today?
Must have just been Reagan/Bush tax cuts, right?

10. Because of the above, I'm very pessimistic about the future. With the expected exponential increase in federal outlays further increasing the debt, oil and other resources becoming more limited and harder to attain with an entire American infrastructure built on low fuel prices.

Example: I look out at my neighborhood and the houses are wide and spread out. The suburban neighborhood is miles away from the nearest towns and the only means of getting there is by car. There is no public transit. Even if you live in one of those towns, you might live 10 miles from work and have no quick way of getting there besides by car. You don't own a car, you don't work. If you can't afford gas, you don't go to work either.

That's America. We don't have efficient railway systems, for the last 50 years it's been cheaper to transport by 18-wheeler so we have developed interstate highways. Only medium/large cities have bus systems, but those don't travel everywhere. Do you even know where your nearest Greyhound station is if you wanted to get to another city cheaply? European nations have great infrastructure to absorb high prices of gasoline. They've made it that way with consumption taxes. Unfortunately, America isn't nearly as well prepared. The NY Times had a good article on how rural America is having problems coping with higher gas prices. How does someone from Podunkville go to the Big City without a car if Greyhound doesn't even come nearby?

Our entire society just isn't built to sustain $4.50/gallon gasoline.

And with governments already strapped for cash, an overhaul of mass transit systems into rural areas just isn't going to happen. Unless we quickly take a different route (Using alternative fuels, junking our SUVs, using mass transit, etc.) then consistently high prices will end up crippling us. If we don't change our ways, demand for gasoline won't fall quickly and so neither will the price.

We built this nation on cheap gas, now what do we do?

1 comment:

Keith Walters said...

Great thoughts having studied agriculture I am glad you noted energy inefficiency of ethanol and its effect upon the global food market.