Eight Reasons Higher Prices Will Do Us a World of Good

<div class='quotetop'>QUOTE </div><div class='quotemain'>SAN FRANCISCO (MarketWatch) -- For one of the nastiest substances on earth, crude oil has an amazing grip on the globe. We all know the stuff's poison, yet we're as dependent on it as our air and water supplies -- which, of course, is what oil is poisoning. Shouldn't we be technologically advanced enough here in the 21st Century to quit siphoning off the pus of the Earth? Regardless whether you believe global warming is threatening the planet's future, you must admit crude is passé.

Americans should be celebrating rather than shuddering over the arrival of $4-a-gallon gasoline. We lived on cheap gas too long, failed to innovate and now face the consequences of competing for a finite resource amid fast-expanding global demand.
A further price rise as in Europe to $8 a gallon -- or $200 and more to fill a large SUV's tank -- would be a catalyst for economic, political and social change of profound national and global impact. We could face an economic squeeze, but it would be the pain before the gain.
The U.S. economy absorbed a tripling in gas prices in the last six years without falling into recession, at least through March. Ravenous demand from China and India could see prices further double in the next few years -- and jumpstart the overdue process of weaning ourselves off fossil fuels.
Consider the world of good that would come of pricing crude oil and gasoline at levels that would strain our finances as much as they're straining international relations and the planet's long-term health:

1. RIP for the internal-combustion engine
They may contain computer chips, but the power source for today's cars is little different than that which drove the first Model T 100 years ago. That we're still harnessed to this antiquated technology is testament to Big Oil's influence in Washington and success in squelching advances in fuel efficiency and alternative energy.
Given our achievement in getting a giant mainframe's computing power into a handheld device in just a few decades, we should be able to do likewise with these dirty, little rolling power plants that served us well but are overdue for the scrap heap of history.

2. Economic stimulus
Necessity being the mother of invention, $8 gas would trigger all manner of investment sure to lead to groundbreaking advances. Job creation wouldn't be limited to research labs; it would rapidly spill over into lucrative manufacturing jobs that could help restore America's industrial base and make us a world leader in a critical realm.
The most groundbreaking discoveries might still be 25 or more years off, but we won't see massive public and corporate funding of research initiatives until escalating oil costs threaten our national security and global stability -- a time that's fast approaching.

3. Wither the Middle East's clout
This region that's contributed little to modern civilization exercises inordinate sway over the world because of its one significant contribution -- crude extraction. Aside from ensuring Israel's security, the U.S. would have virtually no strategic or business interest in this volatile, desolate region were it not for oil -- and its radical element wouldn't be able to demonize us as the exploiters of its people.
In the near term, breaking our dependence on Middle Eastern oil may well require the acceptance of drilling in the Alaskan wilderness -- with the understanding that costly environmental protections could easily be built into the price of $8 gas.

4. Deflating oil potentates
On a similar note, Venezuela's Hugo Chavez and Iran's Mahmoud Ahmadinejad recently gained a platform on the world stage because of their nations' sudden oil wealth. Without it, they would face the difficult task of building fair and just economies and societies on some other basis.
How far would their message resonate -- and how long would they even stay in power -- if they were unable to buy off the temporary allegiance of their people with vast oil revenues?

5. Mass-transit development
Anyone accustomed to taking mass transit to work knows the joy of a car-free commute. Yet there have been few major additions or improvements to our mass-transit systems in the last 30 years because cheap gas kept us in our cars.

Confronted with $8 gas, millions of Americans would board buses, trains, ferries and bicycles and minimize the pollution, congestion and anxiety spawned by rush-hour traffic jams. More convenient routes and scheduling would accomplish that.

6. An antidote to sprawl
The recent housing boom sparked further development of antiseptic, strip-mall communities in distant outlying areas. Making 100-mile-plus roundtrip commutes costlier will spur construction of more space-efficient housing closer to city centers, including cluster developments to accommodate the millions of baby boomers who will no longer need their big empty-nest suburban homes.
Sure, there's plenty of land left to develop across our fruited plains, but building more housing around city and town centers will enhance the sense of community lacking in cookie-cutter developments slapped up in the hinterlands.

7. Restoration of financial discipline
Far too many Americans live beyond their means and nowhere is that more apparent than with our car payments. Enabled by eager lenders, many middle-income families carry two monthly payments of $400 or more on $20,000-plus vehicles that consume upwards of $15,000 of their annual take-home pay factoring in insurance, maintenance and gas.
The sting of forking over $100 per fill-up would force all of us to look hard at how much of our precious income we blow on a transport vehicle that sits idle most of the time, and spur demand for the less-costly and more fuel-efficient small sedans and hatchbacks that Europeans have been driving for decades.

8. Easing global tensions
Unfortunately, we human beings aren't so far evolved that we won't resort to annihilating each other over energy resources. The existence of weapons of mass destruction aside, the present Iraq War could be the first of many sparked by competition for oil supplies.
Steep prices will not only chill demand in the U.S., they will more importantly slow China and India's headlong rush to make the same mistakes we did in rapidly industrializing -- like selling $2,500 Tata cars to countless millions of Indians with little concern for the environmental consequences. If we succeed in developing viable energy alternatives, they could be a key export in helping us improve our balance of trade with consumer-goods producers.

Additional considerations
Weaning ourselves off crude will hopefully be the crowning achievement that marks the progress of humankind in the 21st Century. With it may come development of oil-free products to replace the chemicals, pharmaceuticals, plastics, fertilizers and pesticides that now consume 16% of the world's crude-oil output and are likely culprits in fast-rising cancer rates.
By its very definition, oil is crude. It's time we develop more refined energy sources and that will not happen without a cost-driven shift in demand.</div>

Source: MarketWatch

 

Shape - you like the idea of $8 gas?

1. I guess we can go back to the horse and buggy. That's progress!

2. There's been incentive all along to develop alternate forms of transportation. There's a nice chunk of the auto industry revenues to be had, after all, and always was. If big oil and big auto have squashed innovation all along, as some people claim (e.g. by buying out and sitting on tech), then companies like GM would be saving themselves from financial ruin right now by bringing that tech to market.

I also find it rather stunning that the authors call for investment in tech they can't identify but is sure to have nothing but good effect. Somehow. As I posted in another thread, why don't we invest in tech to defend ourselves from invasion from aliens from other worlds? Surely it'll make jobs and lead to groundbreaking advance!

I'd point to the ethanol experience as what to expect. Rippling effects not expected that cause the price of other important goods to rise - like food.

3. I'd criticize our energy policies over the past 30 years for this one (Middle East Clout). We stopped building nuclear power plants, which efficiently and cleanly make vast amounts of power in a small footprint. We stopped building refineries, and we stopped exploring for oil where the oil is here at home.

Conservation is nice and all that, but the real economic boom would occur if energy were unlimited, rather than rationed.

4. What a strawman! Castro and Mao didn't gain similar clout among their people through anything to do with oil.

5. The measure of the effect of mass transportation is negative, not positive. Empty buses pollute plenty, and that's just what is going on with mass transit. Not that I oppose it, but I do not see that it's particularly convenient in many places.

6. Another strawman. And I don't see the benefit of forcing everyone to live in cities. In fact, cities have infrastructure that ages and is very expensive to maintain. Chicago has the highest taxes in the nation, yet you see their infrastructure crumble before our eyes. Remember how the loop there was flooded (in 1992) when a tunnel beneath the river broke open?

7. You don't have to spend $20,000 to buy a car. When there was fiscal sanity, when national savings rate was rising back in the 50s and 60s for example, people had two major expenses in their lives - home and car.

8. Ironic, isn't it? Do as we say, not as we do.

 

<div class='quotetop'>QUOTE (Lavalamp @ Jul 15 2008, 10:43 AM) <{POST_SNAPBACK}></div><div class='quotemain'>Well I do think Mass transit definitely can help a lot, if gas prices continued to rise and rise, more and more people would consider taking it, especially if it is a fast and well designed one.

Motorcycles are cheaper on gas.</div>

I actually think there's great potential in electric cars. Even with today's tech, you get 60-150 miles on a charge. If you're charging the batteries with nuclear power, you're not polluting somewhere upstream. If you have outlets for recharging in parking lots at the malls and at work, you just plug in and recharge while you're not driving.

It's not good for people that need to commute, say, 100 miles each way, but for a lot of people it would be great, and removing some significant % of the autos from the road would mean less demand for gasoline and less pollution.

It only works if you have something like nuclear power, which is a cheap, clean, and plentiful energy source.

It'd also be nice if they retrofitted urban areas with moped paths

 

I don't think speculators are the problem some people are making them out to be.

Futures trading is there for a reason; they're a hedge against uncertain (and likely higher) future prices.

The futures price has nothing to do with the actual price of a barrel of oil. If a speculator doesn't sell his contract, there's going to be a few tanker trucks showing up at the speculator's house asking him what he wants to do with the oil. Someone has to get stuck with the contract when it expires, and that someone doesn't have to be an oil company.

In fact, oil companies right now should be buying oil at spot price if the futures prices are out of whack.