Tuesday, June 3, 2008

Economics at Work

While our lawmakers in Washington keep beating each other over their heads and, in reality, are doing nothing to solve the high price of oil, market dynamics and economics are starting to take care of the problem on its own. This morning, General Motors announced that it is stopping production on some trucks and SUVs (See Full Story). This is a direct result of the consumer moving "away" to high fuel mileage cars to combat gasoline prices. If you are old enough to remember, it was the OPEC oil embargo during the Carter Administration that opened the floodgates for fuel efficient Japanese cars; leaving American automakers in the dust. Ford and Chrysler have already announced similar intentions.

The high gasoline prices are forcing consumers in this country (and the world) to make decisions that will save them money at the gasoline pumps. They may car pool. The may cut back on less necessary trips. But, for sure, they will probably start buying and driving more fuel efficient cars. From a year ago, we are using 5.5% less gasoline than we did a year ago (See Full Story). Some companies are looking a 4-day workweeks for their employees to reduce gasoline consumption. Other are experimenting at telecommuting (employees working out of their homes) as means to fight the pump prices.

Sadly, conservation won't be enough. The problem is that consumption continues tor rise faster than either conservation or new supplies. The problem lies in China, India, and Indonesia. People in those formerly third-world countries are becoming more affluent. They are literally shedding their bicycles for automobiles. The economic boom in their countries means they now have a developing economy with factories and offices. People are driving to places of work as they move from their "home-based" craft and piecemeal economies to an economy that is based on manufacturing. It will take 20 people (at the least) in this country, each saving 5% in fuel usage, to offset one person in a third-world country who now owns a car and has joined the world in driving to work everyday. That's the reality we are dealing with.

Another reality: China, India, and Indonesia represent populations that a over 9 times greater than the population in this country. Based on pure numbers, we would have to be 9 times more efficient in "saving" fuel than those countries are in "using" fuel in order for us, alone, to maintain today's levels of world energy (oil) consumption. In other words, we would have to save 45% in our fuel consumption in order to "offset" a mere 5 percent growth in fuel usage in those three countries. By 2030, the world's demand for energy is projected to be 50 percent higher than it is now. If you do the math, it means we would have to be 450 percent more fuel efficient than we are now in order to offset the world oil usage that is expected by 2030. That means we would have to have "zero" oil usage by 2030. Do you really think that will happen.

As a country, we need two parallel programs. We new exploration by allowing drilling in those "off-limits" areas of our country. At same time, we need a "crash" program to develop alternative fuels that will get us off hydro-carbon fuels by 2030. With oil prices already higher and absolutely going higher, it a matter of economic survival. And, we don't need politics the get in the way of meeting that goal; otherwise, we could be world in serious hurt by 2030.

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