Archive for April, 2008
First, let me make one thing perfectly clear: I do not hate cars. I actually like cars quite a bit, and I still would love to someday own a BMW Z4. What I hate is what cars have become. It seems to me that the sort of pure enjoyment of a drive through the countryside, or pushing a high-performance vehicle to its limits just to see what it can do have been replaced by the car as necessity. I’d love to be able to keep that Z4 in the garage most of the week and just take it out for a spin when I feel like it.
Unfortunately, in the pursuit of some mis-begotten “American Dream” of living in a single family detached house well away from the city center, suddenly the car has become perceived as an absolute necessity. In a city like Columbus, to do pretty much anything other than sit at home in front of the TV, you have to drive somewhere.
Obviously I do my part to offset this a little by riding my bike to work whenever I can. Although even the simple act of riding a bike 5 miles over relatively flat land is seen as insanity by the majority of the residents of this city. Also, I’m fortunate enough to live within walking distance of several fine grocers, as well as a short bus ride from all sorts of entertainment. I’m not going to say that I take full advantage of this, because I am also addicted to my car. But at least I’m aware of the addiction, and they say that’s the first step, right?
Well, now we’re facing the prospect of $4.00 per gallon gasoline by Memorial Day weekend, and all the other addicts are starting to come face to face with the same reality. We can’t continue to live like this. Honestly, the main thing about this that bothers me is that it will most likely prevent us from taking our normal summer vacation back to the northeast. But a trip that used to cost about $150 is now pushing well over $400, and we just don’t have that sort of scratch right now.
Like most addicts, the first thing most people seem to want to do is blame the pusher. Sure, the first one was free, but now you gotta pay! And most people see the big oil companies as the pusher. After all, it’s a conspiracy between the big oil companies that have driven up the costs of gasoline, right? They’re gouging us to line their own pockets!
Sorry folks, that’s not it. Big oil is more like the Columbian drug lord in this story: far removed from the addicts in the streets. Clearly there are issues with big oil: things like persuading governments that invading countries in order to free up a previously restricted flow of oil is in the national interest, or attempting to take over a pristine wilderness to tap the oil underneath. But I never thought there was a conspiracy to raise the price of oil. It’s clearly the market at work. The one thing I thought we could blame the oil companies for was their record profits. When I heard about Exxon making 400% profits as the price of oil skyrocketed, I thought we were on to something. Get them to lower their profit margin! That’ll help the price!
But recently I was reading a discussion that pointed me to this website, and I realized that I had forgotten one important element in the oil companies’ profits. Profit or loss is a result of how much you take in compared to how much you spent to produce your goods, right? The catch is that the initial investment the oil companies made to retrieve the oil that they are selling now was made on the assumption that they would be selling the oil for $15 a barrel, not $110. If the oil companies had made no additional investments in the meantime, they would actually be clearing over 700% profits. In other words, not only did they just make a very good investment, they actually are reinvesting quite a bit back into their businesses. As those initial investments made on the assumptions of $15 a barrel oil peter out, the profit margins will decrease. So we really can’t force the oil companies to give up some of their profits, because eventually they’d be losing money.
At what point in time did we forget Adam Smith in all this? This is clearly a case of supply and demand. Regardless of what OPEC does or how much oil we can put on the market, this is a limited commodity. And demand continues to grow and grow and grow as we all try to support driving our Hummers 45 miles to work every morning. So if you want the gas prices to go down, decrease the demand for gas.
And I’m not just talking about switching to bio-fuels or hydrogen or some such nonsense. That’s not really decreasing the demand, it’s just moving it around. Biofuels still require some petroleum in order to work, and they just increase the costs of food which still doesn’t help our bottom line. Hydrogen requires massive amount of electricity to produce, which is more often than not going to take some sort of petroleum product to produce. (Yes, I know most electricity is produced by coal in this country, but there are plenty of oil plants as well.)
What we really need to do is change our lifestyle. Make driving a luxury again. Let’s all go back to the cities we used to live in, where you could walk to a corner grocery for everything you needed. Where the car stayed in the garage unless you felt like a Sunday afternoon drive or if you really needed to make that 700 mile trip back home. We don’t need to drive clear across Franklin County for some doodad that happens to be on sale. And we certainly don’t have to live in Delaware county if we work in Columbus. Not only will the costs of fuel go down, but we’ll probably all be a lot more relaxed and happy for it.