Bless Those High Gas Prices...

...And Keep Them Coming

By
Jay Morehouse,
July 3, 2008


A few days ago I was leaving Sam’s Club on a warm, sunny June afternoon. Next to my vehicle, an empty space between, was a beautiful, shiny green, full size GMC Yukon Denali, the kind that could tow your mother to Florida, including her condo. It caught my eye because the engine was running, although it was closed up and I saw no driver. The air conditioner was cycling on and off. Curious, I ambled up to it only to be startled by the rapid, high pitched yapping of a small dog (the kind missing its muzzle). I was amazed and looked about. The store was pretty far away and I saw no one around. Irritated I left the owner a note under the wiper suggesting that in the future they leave their dog home (and some other things that suggested they were the cause for the entire energy and economic crisis we now face). In fact, I wasn’t totally exaggerating.

How high does the cost of gasoline have to go before that little dog has to wing it alone at home? The underlying tragedy in our energy debacle is that we have operated under an economic model that free market supply and demand will determine price, and that price in turn will self-correct available energy resources and alternatives. The reality is that the dynamics at play for both supply and demand are so fixed and expansive, relatively, that it requires the issue be addressed with long term planning. No where is that more important than in the United States where the per capital use of fossil fuels exceeds the rest of the world stratospherically. Our government, which we fondly refer to as We the People, has failed us (or does that mean we failed ourselves?). Perhaps by incompetence, callus disregard, political expediency, or in bending to the will of those who benefit financially by short term gains (I’m leaning mostly on the last…because in the end money talks and too many listen) we are in trouble, regardless of the reasons. Of course, that wasn’t always the case.

In the oil embargos, and resulting gas shortages (and price increases) that took place between 1976 and 1980, the administration of Jimmy Carter took some pains to look at the big picture. The Carter presidency was rife with poor judgment, much like the George W. Bush Administration, but without the ignorance, arrogance, and self-dealing we’ve come to be in awe of with our current President. Despite its shortcomings, the Carter Administration arrived at two important conclusions which were actually correct. First, that cheap oil was finite, and second, that the only way to transition from oil to other energy alternatives was through the combination of conservation and the public financing of alternatives. The reason was as obvious then as it is now; the infrastructure of our oil based economy is far too rigid to be changed by ordinary forces of the free market if cheap oil suddenly stopped (or even slowed down). Conservation by definition requires sacrifice and as business leaders can tell you, especially those in the oil and auto industries, if given a choice between sacrifice and self-interest people will always choose the latter (or would they just be speaking for themselves?).

The poor judgment used by our government in the late 70’s was to argue their case through the use of fear. We the People were told that we needed to begin to act as a new collective to address the realities of energy (and also pollution) by changing the way we used resources - that was good. However, they chose to convey that message and gather support for legislation by taking the roll of Chicken Little. Oil and natural gas, we were told, were going to run out and we would soon be living in our big empty-tank cars, surrounded by garbage, if something wasn’t done right away…at least that’s what I remember hearing. It was all going to happen in a time frame to affect the WW2 generation and younger. This drumbeat was nicely amplified by record high gas prices (only just recently surpassed in constant dollars) and high inflation.

Carter’s administration was actually gaining some traction with a variety of legislation which began to move the nation toward a more efficient demand. Whether it was auto mileage (overall MPG improved more in those 4 years then they have in the following 28), auto usage (reducing speed limits), electrical usage, mass transit, fiscal policy (tax incentives and credits on alternative energy), or simple conservation (from the bully pulpit), the general public, fearful of a future that was one big blackout, accepted the changes grudgingly. But like the Emperor’s New Clothes, there was one little boy out there who was about to point out that Jimmy Carter was stark naked, his name was Ronald.

When Reagan took office in 1981 one of the first actions he took was to deregulate domestic oil pricing, which had been suppressing domestic production. He also had skillfully worked out, prior to his taking office, the release of the hostages in Iran, which took place the day after his inauguration, and instantly added new stability in the Middle East. With both these acts the Middle East oil cartel fractured and the supply of oil mushroomed as the speculative price of oil plummeted. It’s been Katie-bar-the-door ever since, to the point that even as late as 1998 gasoline could be found for less than $1 per gallon, making it cheaper, in constant dollars, than at any time since Henry Ford began to mass produce his Model T. Conservative Republicans, Reagan included, accepted the Carter axiom that cheap oil was finite (as does every relevant study since the mid 20th century). The argument has always been ‘when’ the wells would begin to dry up, and Reagan knew for sure it wouldn’t be happening on his watch.

The long term energy considerations and conservation efforts of the 70s virtually evaporated. Thousands of small businesses and initiatives in the alternative energy field became defunct or were viewed as laughable. The American auto industry began its assent to produce the biggest, heaviest, most profitable behemoths that have ever crushed pavement on the American highways, and the foreign auto makers eventually followed suit. There has been no coherent, long term energy policy pursued by any administration or either political party since the Carter years, despite continued political rhetoric about “energy independence”. And why should there be? Guided by the free market, the American people have not had any incentive in the last 28 years to address what everyone agrees is inevitable. Certainly the lobbied leaders in Washington were not incented either, or were they incented to the contrary?

George Bush said we were “addicted” to oil, and he should know, being a key supplier of the petroleum equivalent syringes, rubber hoses, and cooking spoons. As Obama and McCain campaign around the country, I have not heard from either even the slightest glimmer of energy reality, only the same old, tired energy rhetoric. Neither has spoken to the true realities of our “addiction”. I could expect it from the pragmatic McCain, but I was hoping for something more from Obama. It appears both aspire to the old adage; the first job of any politician is to get elected. Obama at least calls for increased mileage standards from automakers, yet hedges on the goals. Has either called for an immediate and enforced drop in speed limits which would virtually overnight reduce US oil consumption by tens of millions of barrels annually? If they don’t have the confidence to advocate the obviously simple, how can we feel confident that either can lead the nation to more substantive changes?

The current spike in oil and, therefore, gasoline is difficult to decipher. An economic trend that is disproportionate to its relevant influences (world demand for oil for example, although continually growing, has not doubled in the last 6 months) normally will correct. We saw that with the dot.com insanity of the late 90s, and again with real estate in the first half of this decade. In both cases the demand was out of proportion to the true value. In both cases it was fed by erroneous speculation. Could oil be the same or are we actually experiencing the beginning of the end of cheap oil? The Peak Oil theorists (and there are plenty of respected scientists in that camp) have been proclaiming for some time, like bearded prophets on street corners, that the end is near. Even if they’re wrong, we still know there will be an end and we really don’t know when that will start. What is it that will make the world, and especially the American people, sit up and take notice on the off chance it isn’t actually too late? Clearly our leaders will not take the lead.

Will it be the $4 a gallon gas prices we now experience, or will it take $5 or $8 a gallon? What will it take for that SUV owner to leave his peka-whatever in the doggie bed at home? I know if I were King, aside from proclamations regarding industrial re-tooling and restrictions on energy wasting behavior, I would sign into law that the price of gasoline could not fall below whatever the price was that made people sit up and take notice. If that price was $5 a gallon then there it would stay. If the cost dropped below that price then the profits would be taxed 100%, with that revenue going directly toward rewarding success in the production of alternative energy and conservation, and providing assistance through tax credits to those truly impaired by the cost. The expectation of decreasing demand would cause the underlying price to drop and the resulting input of billions into new industries would spur economic growth.

But I’m not King (thank goodness), nor are we in a Kingdom. We have a government Of the People, but unless the representatives of the people are willing to look beyond their own elections and the profits of their well endowed constituents, we may continue to air condition our dogs with 475 horsepower V-8 engines until the cool air runs out.