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12/01/2008: "Oil and the Future"

Today marked the first time the average price of gasoline in the United States hit $4 per gallon. There are two competing theories to explain the escalation of prices.

First, spending on the Iraq war and federal spending in general has lead to inflation, driving down the price of the dollar. With that, oil-rich nations prefer not to exchange oil for dollars, therefore limiting supply for now until the time at which inflation comes under control.

The second situation creates more of a permanent situation. We’re on the downside of the peak oil slope and from this point forward we’ll have a diminishing supply. Combine that with increasing reliance of emerging nations on oil, and prices will continue to rise.

Of course, we’re not out of oil as much as we are out of cheap oil. Even if we are on the down side of peak oil, at some point when prices meet the point where more of the expensive oil can be extracted profitably, we may see a plateau in prices. With higher prices, there’s also some lessened demand. These factors will combine with increased consumption in China, India and other places to determine how fast prices rise.

It does seem certain that in the long-run, prices will continue to rise, and this has the power to change the world.

Changing the Means of Travel

Already we have seen a decline in driving and an increase in transit-use in the United States. For the bulk of the country, however, there is no choice but to drive. There simply isn’t an alternative in place.

In the short-term, car-pooling, hybrids and even bicycles may take up some of the slack, but when oil gets to $8-$10 a gallon or more, new transit systems will be needed.

In the air, many routes and planes are already becoming obsolete and the costs of flying are likely to increase. This will make the most efficient form of moving people and goods, rail, more advantageous. Securing the necessary funding for Amtrak or instigating additional private rail service is the key to a smoother transition.

Rebuilding the Suburbs

With new transit systems, suburbs will be abandoned or rebuilt. While the short-term pain is real, in the long-term the necessity for rebuilding could be a positive thing for the economy, just as rebuilding everything to accommodate automobiles was from the 1950s to 1990s.

Not having a system in place, however may be an advantage. When completed, our system of public transit could be the cleanest and most-efficient in the world. It would also allow us to export the technologies developed during the course of building anew.

Moving Production

Higher fuel prices of course don’t just impact the way we get around and the way our neighborhoods look, but they impact everything that’s moved, from raw materials, to computers and food.

High shipping prices may bring manufacturing back home. With that to some level will come pollution (we haven’t eliminated our polluting factories as much as moved them to China), yet this also creates opportunities to build anew cleaner and better.

Changes in Lifestyle

The changes upon us could have as much impact, or not more than the advent of the automobile. Combined with impacts from global warming and our world in the next fifty years may record the most rapid amount of change since the dawn of the industrial revolution, or ever.

We’ll be forced to live closer to work, to walk or use bicycles and to buy locally. Once presented with these options, I suspect we’ll come to like the changes. With them comes more time to read, to enjoy life and well, more time to work if that’s what we choose to do.

In economic terms, today we look at the change sin terms of costs, but if we could just take a portion of the time we spend in traffic and put it into learning, buying or building, our economy will be all the better for the transition.

Eric Miller, on 12.01.08 @ 10:49PST