My main takeaway from my Economic major at Duke University is the law of one downward diagonal line marked "D" and an upward diagonal line marked "S". Yep, the Law of Supply and Demand. In my classes we used this simple model to explain everything from the market for guns and butter to illegal drugs and football bets. But one real-world market seems to have defied S + D: Oil. Especially in recent months, rising gas prices make a lot of people angry, but they seem to keep flying in planes and filling their SUVs.
However new data suggests that the challenge of high gas prices is causing improvement in the form of greater efficiency and conservation. In today's Wall St. Journal, Saudi Arabia's oil minister says that the country is starting to have trouble selling all of its oil inventory. It seems that $70/barrel prices are leading some customers to actually cut back on their demand. Iran is even storing billions of gallons of excess capacity in hopes that demand returns.
The further good news is that while oil demand is declining, the global economy keeps on growing at a strong pace. This is exceedingly rare and especially seen in the U.S.. We should celebrate that we can grow a strong economy while conserving fuel. According to the Wall St. Journal:
"Typically, oil use rises along with economic activity and prosperity. But a 4.8% growth in the U.S. economy in the first quarter of this year, the fastest rate in 2½ years, wasn't reflected in oil demand growth, the IEA said. America's oil use fell 1.4% in the first quarter this year from a year ago...the U.S. trucking and airline industries, major consumers of petroleum, were using fuel more efficiently. Airlines, for instance, reduced domestic departures and increased load factors."
I'm actually a big fan of rising gas prices. The higher the challenge of fuel prices, the more dollars will be invested in new solutions, and the more businesses and households will have incentive to conserve. At minimum, we would reduce pollution and decrease our dependence on foreign oil. At best, we have a chance of reaching a technological breakthrough in clean energy development - all without a single government law or incentive.
In fact, I believe gas taxes should be lifted to a point that includes the cost of the War in Iraq, among other actual costs of bringing fuel to our country. After all, the real and total costs of protecting a foreign oil supply should be reflected in prices. Short of a military draft of all men and women under 21, perhaps only a large gas tax would serve as a massive, personal impact on everyday citizens. This in turn would make the rationale for war and occupation hit home, and we would challenge our politicians to be much more careful about creating expensive and deadly global conflicts.
Couldn't agree more...and data supports it.
#1 - interesting that our gas prices aren't even close to what they are in big European markets. That drives better infrastructure (rail, underground), better community building (corner markets and coffee shops), and maybe even better family units (maybe a stretch but let's see if the far right latch onto it as a way to promote family values!)
#2 - interesting also that the number of E85 car ads has increased dramatically with the onset of $3 bucks a gallon. All that innovation (supply) just waiting for the right time (demand).
To challenge your thinking a little, maybe the US Government should force the challenge rather than letting market forces dictate. Could we have put a high gas tax on consuemrs (while cutting income tax or something) to bring this innovation and demand for it forward. I know you appear to be against the non-invisible hand, but government regulation can help see past the current supply/demand structure and help to anticipate future curves ...and thereby influence the slope and the extrapolation outward of them.
Posted by: Jay Woffington | June 12, 2006 at 09:16 AM
"I believe gas taxes should be lifted to a point that includes the cost of the War in Iraq"
So commuters should pay for the Iraq war? I understand your sentiment of letting supply and demand work by allowing the 'true' costs to reach the consumer. Who, pray tell, will do the accounting on this? Some will tell you American involvement in Iraq is about national security. You obviously think it is only about oil. Would you also tax gasoline for the cost of any economic incentives the US may give to Iran in trade for ending their nuclear program (Iran has some oil, too)?
Assigning international conflicts appropriate categories and sending the bill to the appropriate place is an interesting theory. But it falls very short in practicality-- it would only cause more economic uncertainty as the people in power would wield even more influence on certain sectors of the economy, causing a much more volitile economic environment (remember the people of the US go to the polls every two years for national elections).
Increased fighting (which causes uncertainty) about what line item in the budget picks up which spending items isn't what the Challenge Dividend is about, is it?
Posted by: | June 16, 2006 at 01:57 PM