The high price of gas

Once again, gas prices are climbing and approaching all-time highs and that is good.

It is not good for the commuter, of course, especially those of lower incomes who, having to choose between medication for their children or gas to get them to their job, can ill afford to give up either. But it is good, nonetheless, for oil company executive and those of us who can peer into the future with the bigger picture in mind. And in fact, in the long run, it is better for us far-seers than it is for the short-sighted oil company executives.

This is, perhaps, a peculiar outlook for a lifelong Democrat, but it makes perfect sense as I shall explain.

An oil-based economy is a precarious one and always has been. There are several reasons for this. First of all, there is the detrimental effect that the burning of oil (or oil processed as gasoline) has on the environment. The fact that oil companies make money off of gasoline (much as the cigarette companies make money off of smoking) makes it very difficult for them to look into alternative energy sources. But with millions of cars commuting billions of miles every day, consuming unimaginable quanitities of oil in the process, the damage to the environment is unavoidable.

Second, the moment that most of the world’s oil reserves were discovered to reside beneath the deserts of the Mid East, the United States became dependent on the goings-on in that regions, which has lead, in one way or another to two wars in a decade or so. The United States argues that it has to protect its national interests. This is another way of saying that Uncle Sam has to protect its national addiction and is not very different from a junkie mentality. Of course when we are the junkies in question, it might be hard to see it in this light, but that doesn’t mean it isn’t so.

Finally, there are limited oil supplies and while they may seem rich now, they will one day dwindle. Oil, like coal, is called a fossil fuel, for the very reason that oil is a product of the decayed bodies of life that roamed the earth millions of years in the past. The supply of fossil fuel is being drained far faster than it can be resupplied, even with the population explosion of the last century.

So how does this make high gas prices good? If we look beyond the short-term (something that is, unfortunately, an all-too-American condition) we can see several reasons.

Economics pushs the price of gasoline higher. Gas companies are free to raise the price of gas as they please. At the same time, gas consumers are free to pay whatever they feel that gasoline is worth. As it happens, gas companies have raised the prices rather high, but as much as we grumble, we are still willing to pay those high prices. In a free market economy price will rise to the level that the market is willing to bear and no more. Obviously, we have not reached that point. Yet.

However, we may be getting closer. What would happen if the price of gasoline rose to such an extent that people finally became unwilling to pay those prices? It is hard to imagine such a scenario, but let’s try. In the early stages, I would suggest that we would, at first, see the market step in to provide alternatives. These alternatives would be fairly crude at first, but they would easy some of the burden. And, in fact, we are already beginning to see this. Many car manufacturers are stepping in with “hybrid” cars. These are pretty crude, but such vehicles are still in their infancy. A car that gets 35 or 40 miles per gallon, however, is far more economical than one that gets 25 or 30. These cars can do more with less and that means they are cheaper in the long run. It also means that it slows the degree to which we consume fossil fuels. This in turn makes allows the remaining supply to last longer, while at the same time, somewhat easing the detrimental effects on the environment.

But as I said, we are only in the early stages. Where does it go from here? Let us imagine that gas prices continue to rise steadily, past four, five, six dollar per gallon. At what point will people stop paying for gasoline? What effect would this have? In some cases, the effect would be bad for people. For people who depended on gas to get to their jobs might indeed be in trouble. The prices of gas may be too high to go into work. People will lose their jobs because they can’t make the commute. Others will look for jobs closer to home. Some of this we saw happening toward the end of last summer when the price of gas rose to nearly $4/gallon. Taken to an extreme, however, this begins to effect business. If it is too expensive to work, people quit jobs or don’t go into work. It becomes equally difficult for business to find people to do the work that needs to be done. Businesses are forced to raise wages in order to offset the expense of the commute.

Or they develop the technology to make it possible for more and more people to work from home. Some jobs, like mine, for instance, could reasonably be done from home. But what about service jobs? Is it possible that we will see a future where fast food restaurants are completely automated? Instead of a staff of a dozen or more people on each shift, there may be one person to oversee the operation, with everything else run automatically, by computer or even by robot. While such a change might lead to unprecidented unemployment of the lower classes, it would also greatly reduce the demand for gasoline. High gas prices could not be maintained in such as greatly reduced demand, but by then, hopefully, it would be too late for the gas companies. In fact, some of this too has begun to happen. Walk into any grocery store and you will find more “self-checkout” lanes than cashiered lanes. How many fewer people do grocery stores have to employ because of these “robotic” checkouts?

Free market economies can be a feeding frenzy. Companies see enormous sums of money being spent on oil and gas, and each wants a part of it. One way to do it is to get into the oil game. But this is largely a good ‘ol boys club, the membership of which is very difficult to achieve. Another way to cut in on the action is through alternatives. People are beginning to get fed up with the high price of gas, but they continue to pay because there is really no alternative. A far-seeing company, however, might invest in alternatives. Car companies are already doing this with hybrids. Other companies might investigate other fuel sources, or improving the efficiency of existing ones. Dreams of dollars siphoned off of oil rigs help to fire these dreams.

I, for one, believe we have already passed the point of no-return, but have not yet recognized it. I do not believe that the oil companies will survive (in their current incarnation) the next fifty years. Fifty years hence (reasonably with my lifetime) alternative sources of energy will rule the day: hybrid, electric, solar, hydrogen, and who knows what else. The transition won’t be without pain, but almost nothing that is good for you is. Quitting smoking is a painful process, but in the long run, is far better for you.

So it is good that gas prices are high, and that they continue to rise. The quicker they rise, the quicker I believe this will force the market to seriously investigate alternatives. Who knows, a hundred years from now history books may retroactively praise oil company execs as unwittingly transforming our economy from an inefficient oil-based economy, to something far cleaner and far more efficient.

So I shall hope.