High Gas Prices Are Good For America – Part II

In part one of this series of posts, I explained that I am against our government intervening with the rising prices at the pump. But, that isn’t my main point. I really believe that high energy prices will be beneficial for America.

Before I get started with this line of thought, let me address a couple of things that have come from my first post. I’ve received some input that our government is subsidizing the oil industry. I did some web research, and I couldn’t find anything conclusive. If its true that oil companies are receiving money to help offset the expense of pursuing new oil, then that should stop immediately. Those funds should be used for something else, maybe to research alternative energy.

Now on to my main point. First, understand that we are the third largest population in the world. China is the largest, India is second, and then the United States. In fact, India’s population is almost four times greater than ours. To put that another way, if our population were to triple in size, we would still be number three on this list.

Next, know that the United States currently consumes about a quarter of the oil produced in the world. The second place is China, consuming less than a tenth. In fact, if you combined the oil consumption of China, Japan and Russia they would still be less than America’s. This does not take into account our consumption of coal or natural gas, though we’re also high on those lists.

We are comparatively small in the world population, yet consume more energy than any other country. Putting all of this together, if energy prices increase, we will feel the pinch more than other countries. If we’re going to get all lathered up about gas prices, to the extent that our government is considering intervening, then it just makes sense for us to also consider cutting back on how much we use.

My source for this data is GeoHive. I did find the same information on other sites, but this site in particular had it available in a very concise way. Before you start questioning the accuracy of my numbers, understand that I am only concerned with the magnitude of the ratios. In my mind, my argument would be equally valid if we were twice our size and consumed half as much oil as we do.

This is where I think high energy costs become an asset to our economy. We’ve all felt the pain at the pump as we fill up our cars and trucks. But, I believe this is going to become even more expensive for us.

Until this point businesses have absorbed their fuel costs. The various products we use on a daily basis have not increased in price, though the cost of getting those products to us has increased along with the higher fuel costs. Companies cannot cover these costs indefinitely, at some point this expense is going to be passed on to the consumer via higher prices.

For the sake of clarity, I’m not saying that the sky is falling. I don’t believe that this is doomsday, or that America is on the brink of financial mayhem. But, I DO think that America’s market for large SUV’s and four door pickups is waning, and the market for smaller, more economical models is increasing.

Detroit has been putting out large SUV’s and four door pickups for years now. And I certainly don’t mean for that to be an indictment on the manufacturers, because the public has wanted them. There’s a good reason why long time car makers like Volvo, Honda, Volkswagen and Porsche have added SUV’s to their lineup.

European and Asian countries have been dealing with high energy costs for years now, so their auto makers have a leg up on America when it comes to efficient cars. Japanese auto makers are doing a great job of making hybrid vehicles appealing by offering both small economical and high end luxury models with this technology. European manufacturers are also contributing by advancing diesel technology. We’re behind in the game.

What is the solution that American auto makers have proposed? Slashing profits to draw buyers with incredible deals. Last year GM offered employee pricing to America for about six months. Dodge and Ford followed suit. For a while it was less expensive to buy a brand new car than it was to buy a two year old model.

This year several American auto makers are offering free gas for the first several months after you purchase the car. This can’t go on forever. At some point they’re going to have to start producing cars that people actually want, at full price, without incentives.

Meanwhile, what are Japanese engineers doing? Experimenting with everything from aircraft engines to organic soybeans, in an attempt to stay ahead of the competition in advancing new technology. According to one news source, Honda and Toyota each spend ~$3000 per vehicle in research. Compare this with GM’s budget of ~$1600 per vehicle. Heck, I’m pro-American cars, I drive a Ford, and this stat alone makes Honda more appealing to me.

How does all of this add up to benefits for America? First, energy costs drive the price of living in America up. Everything from gasoline to computers to groceries becomes more expensive as the fuel costs are factored into the final price of our goods.

Next, the average American citizen can either no longer afford, or no longer wants to spend $400 per month in fuel costs, so the market for economical cars increases. This prompts Detroit to start pursue new technologies for efficient cars.

If Detroit got behind the effort to conserve fuel, and started producing quality cars that are efficient, it would give America a boost. First, a company like Ford or Chevy would begin to pursue new technology. Engineers & scientists would be hired for research and development. Small companies would be formed to support this new technology, on both sides of the table.

On the front end, engineers would need to develop the technology, which involves a lot of research, done by teams of people. And, typically, smaller businesses play a supporting role via consulting. On the back end, mechanics would need to be trained on how to support the new technology. So this is a win, win, win. The auto makers win. The American public wins. And small business wins.

And in the process of all this research, as is typically the case, we’d come up with new technology apart from hybrids and fuel cells, which fosters more good business as that new technology advances to other auto makers. It trickles over to other industries like aviation and ship building.

America is very familiar with how to do this. We not only started, we set the standard for quality production aircraft. And computers. And internet technology. And copiers. And many others.

And the American public is the primary benefactor; better jobs, which means more incentives for education, more opportunities for small business to bloom, and long term economic viability.

$1.25 per gallon fuel is gone, and its not likely to come back. I personally don’t see this as a bad thing. But, we can’t afford to be lazy, we have to act. Until this point, American industry has done very little other than complain. If congress caps fuel costs, I believe it will ultimately cost us far more. I say its time to accept the fact that fuel costs are higher, and find ways of making it work for us. Lets embrace the change and search for sustainable solutions.

17 replies on “High Gas Prices Are Good For America – Part II”

  1. Ugh. This blog entry is terrible. It is long and contradicts itself. It draws far to much comparisson between america and china that shouldn’t be drawn.

    First off the entry talks about how auto makers continue to make SUV’s and people continue to buy them because of cost. Currently, the 2006 GMC Envoy has a starting msrp of $26,080.00, while the 2006 Honda Civic Cpe has a starting msrp of $14,560.00. No auto dealer will bring down the cost by $12,000 just to sell a car.

    The blog entry goes on further to state that if the retailers were not offering discounts like this, then people might get the cars they want. Does it mean that people aren’t buying the cars that they want? Believe it or not people still like buying SUV’s and Trucks.

    The artical goes on to further note that the increase in gas increases the cost of buying everything in the economy. I would agree with that idea, but I would go as far to say that would be a good thing for the economy. When the cost of everything increases, the value of the dollar goes down which creates inflation. Inflation is not a good thing because it makes it hard/impossible to live off a fixed income.

    The blog entry also say that an increase in fuel cost will cause for more innovation in the in car engineering. Though, eventhough nessessity is the mother of innovation, it doesn’t mean that enginneers are going to sit on their butts all day waiting to find a problem to fix. Engineers are notorious for fixing things that aren’t broken.

    How is paying more for something that America doesn’t actually produce good for the economy? Paying more for gas is not putting money back into the American economy, so therefore America looses when the price of gas increases.

  2. Paying more for gas in the past few years has made us realize that we need to start increasing our efforts to find alternatives. America’s (the worlds really) greatest weakness is out dependence on the middle east.

    So what can we do? As average people we can start riding our bikes or walking if the distance is a mere few blocks. Heaven forbide we use the bus to take us a few blocks 😛 What we need is for the government to start pushing hybrid cars. Thats the first step. Yes, we need a new fuel source, and people are working on that throughout the world, but for now, hybrid will cut back on how much gas we use. If the government could somehow give incentives to GM, Ford, Dodge, Toyota, Honda, etc, etc so that their hybrids are cheaper, add to that the fact that manufacuring costs decrease over time, and you have cheaper hybrids.

    I dont like paying more, and its coming down in my area and is at a steady $2.84 right now which is great! But i would much rather pay $2.84 than $3.59 😉

  3. Grant,

    You make a lot of good points, but I think you missed the purpose of Lenwood’s argument. You’re right, “paying more for gas is not putting money back into the American economy” …currently. The main point of the essay (as I understand it) is that we should turn the current negative situation into a catalyst for innovation, instead of a soapbox for complaints and arbitrary price-caps. Innovation is the long-term solution to a long-term problem (like it or not, limited resources and instability in the world will continue to keep oil prices high). This essay is about leveraging the current pinch on our budgets to move beyond the current problem into a future, sustainable solution.

    Sure, we Americans still “like” our SUVs. However, there comes a point for many families when they can’t just buy what they like; they have to buy what they can afford. I’m an example of that. I wanted to buy an SUV, because 1) I can see better when I’m driving, 2) I would be safer in a heavier vehicle if I were in an accident with a truck or SUV, 3) I could carry all my “gear” for the various sports I do, and 4) I just think they’re cool. Well, I had to compromise. I bought a sedan with a high safety rating and high MPG. The bottom line was that I couldn’t afford an SUV b/c of the high sticker price (it was 2004 and the various incentives weren’t being offered yet) and the cost of gas. Furthermore, the cost of gas made me decide to by the 4-cylinder model instead of the V-6 that I wanted. Despite those who can still afford to buy SUVs, there are plenty of families making the same decision I did. That doesn’t even address those families who can afford to buy SUVs, but they decide to buy a hybrid vehicle for environmental reasons.

    You’re also right that “Engineers are notorious for fixing things that are not broken.” The question, however, is not “if” but “when” and “who.” I vote that it be American engineers who come up with viable ways to conserve energy, and I vote that it be sooner than later. The fact of the matter is that engineers have to support themselves and their families, just like people in every other profession. If there are more dollars being put into research and development for alternative fuel sources, then more people can focus on the problem. That doesn’t guarantee innovation, but it gives it a fighting chance. If Lenwood’s stats are right about the amount of money being spent per vehicle by the Japanese companies VS the amount being spent by American companies, then the prognosis is not good for the USA.

    Even though I don’t like paying higher prices for gas, I have to agree with Lenwood’s conclusion that we have a lot to gain if we leverage the pain of high gas prices as a catalyst for innovation.

  4. @Grant
    I’ll address your concerns one by one:

    Ugh. This blog entry is terrible. It is long and contradicts itself. It draws far to much comparisson between america and china that shouldn’t be drawn.

    I’m certainly open to your input. Part of my purpose in posting this was to have my ideas critiqued to see if they stand up. The only thing worse than being a fool is not realizing it, so if I’m wrong then I want to know. You aren’t winning me over with this introduction, but I’ll roll with it.

    I’ll agree that this post is longer than most that I write, but I felt it was a topic worth some consideration, and there are a lot of points to be made in support of my argument. As I was writing I didn’t feel that I was being repetitive, so I didn’t stop. I’ve reread my post a couple of times, if I’m contradicting myself I don’t see it. You’ll have to help me.

    You also mention me comparing America and China. I may have been misunderstood. My intent was to contrast the two. China has the world’s largest population, yet uses far less energy than we do. I’ll anticipate someone saying that they live in abject poverty, and that’s a fair argument. But it doesn’t get us off the hook for consuming as much as we do. And here’s where we may differ in opinion. I believe that cutting back on consumption will be beneficial.

    First off the entry talks about how auto maker…

    I don’t really understand what you’re saying in this paragraph, so I can’t answer.

    The blog entry goes on further to state that if the retailers were not offering discounts like this, then people might get the cars they want. Does it mean that people aren’t buying the cars that they want? Believe it or not people still like buying SUV’s and Trucks.

    My intent here was to show that yes, people do enjoy driving large trucks and SUVs. But, Ford and Chevy are having to offer special incentives to stay afloat because they’ve staked the future of the company on this marketing strategy. Meanwhile, Honda & Toyota are posting record sales. No wild incentives, no campaigns to save the company.

    The artical goes on to further note that the increase in gas increases the cost of buying everything in the economy. I would agree with that idea, but I would go as far to say that would be a good thing for the economy. When the cost of everything increases, the value of the dollar goes down which creates inflation. Inflation is not a good thing because it makes it hard/impossible to live off a fixed income.

    Here you’re making my argument for me. If the price of everything increases, this by definition is inflation. And yes, its bad.

    The blog entry also say that an increase in fuel cost will cause for more innovation in the in car engineering. Though, eventhough nessessity is the mother of innovation, it doesn’t mean that enginneers are going to sit on their butts all day waiting to find a problem to fix. Engineers are notorious for fixing things that aren’t broken.

    Hmm, well, first, I’m not arguing that American automotive engineers are idle. What I AM saying is that engineers for Honda, Toyota, Audi & Mercedes Benz are working on technologies that make cars more efficient. Fuel cells, hydrogen batteries, hybrids and diesels are technologies that will draw new talented engineers, produce sales, and trickle over into other industries. And until very recently, Ford, Chevy and Dodge engineers have not been looking at these technologies.

    How is paying more for something that America doesn’t actually produce good for the economy? Paying more for gas is not putting money back into the American economy, so therefore America looses when the price of gas increases.

    Okay, NOW I feel like I’m being repetitive.

    It isn’t good. This is inflation. But America doesn’t seem to want to deal with this issue in a productive way. If paying the middle east too much money for oil is what it takes to wake us up and face this issue, then I say bring it on. Do something, anything, other than bitching to Congress about gas prices. But I hear more people griping than proposing solutions. Meanwhile, other countries that have been facing high energy costs for decades have come up with some pretty good solutions, and they’re profitting from it. If you don’t believe me then check the stock prices for Ford, Chevy, Honda & Toyota.

  5. I just want to make sure that Liz and Lenwood’s comments were directed towards Grant Byrne, and not myself 🙂

    All i know is that there are plenty of ways to solve these problems. Solar power has been around for how long? Hydrogen fuel? Hell, i even heard about how we can use compressed air to power engines. Its just a matter of actually puttin gthe effort into developing these solutions. And that, in my opinion, is up to the manufacturers from which we buy our vehicles.

  6. Ok, sorry to spam, for some reason when i first read the comments, i didnt see the blockquote actually working, just the code. Nor did i see ‘@Grant’ either…sorry.

  7. @Elessar
    I can’t speak for Liz, but my comments were in response to Grant. Your comment was thoughtful and informative. Thanks for stopping by, I appreciate you coming back to read the responses to your comment.

  8. lol, well, i dont think there were any responses to my comment. Very good read though, your post. Its truely sad how people can focus on less important issues yet completely overlook issues important to the U.S. economy.

  9. Elessar,

    I’m new to the blogosphere (actually, I’ve been reading them for a while, but I only recently started posting comments), so I tend to respond in my head instead of posting a comment. After I read your comment, my head said “right on!” and then I visited your blog to see what else you think/write about.

    We as Americans (myself included) are reluctant to give up the autonomy and comfort of our own cars, thus the abysmal state of public transportation and the hours of traffic jams on our highways. I don’t think we can afford to continue to ignore the effect our lifestyle has on the environment (either b/c of financial reasons – increased gas prices as demand exceeds supply – or b/c of actual harm to the environment – air quality, etc.). However, it’s not only the government and auto industry that’s going to have to be a part of the solution. Employers are going to need to help foster a change, too. I am an avid cyclist, and I would be happy to ride my bike to work. Unfortunately, I don’t have anywhere to shower when I get there. With local temperatures routinely in the 90’s and humidity frequently above 80%, I need access to a shower. It is not acceptable for me to do my job sweaty and grimy.

    Just as employers have been pressured to be more accommodating to mothers who work (childcare on site, working from home, flexible hours, etc), we need to pressure them to accommodate employees who run or cycle to work.

  10. @ Liz

    I completely agree about the cycling to work and such. Thankfully i work from my apt. but my college is about a 15-20 minute walk away so if it rains, i have to drive. But with the summe rin full swing, about the only place i drive to is the grocery store and home (30 minute drive away). I dont have a bike, havent ridden one in years 😛 But im thinking about getting one to speed up those walks to class.

    We need more people to ride a bike or walk if its withing 20-30 minutes. The fact is that cars are necessary, for people such as youself or for those who live more then 30 minutes from their jobs. We really need to find a cheaper, more environmentally-friendly mode of transportation, and fast. I beleive it is hydrogen fuel cars that produce water as a by-product…?

  11. I’m inlcined to agree that the higher prices are good IF and only IF it encourages Americans to reduce consumprion and become more conservation-minded. Driving smaller more fuel efficient cars and seriously investing in sustainable alternative energy will do wonders for environmental improvement/protection. I think future generations will thank us for that. The other advanatge is that if we can position ourselves to profit from new energy technologies, our economy will continue to boom as the rest of the world catches up.

    And oh, I think I’ll have a slice of the chocolate pie in the sky…:)

    Good posts on this subject by the way.

  12. Hey Grant – ever heard of Midland, Texas? Talk to some of the oil guys out there and tell them “Paying more for gas is not putting money back into the American economy…” I wonder what they’d say in response.

  13. i think that high gas prices are very stupid because many people have to survive and ppl want to raise gas prices very stupid!

  14. While surfing the net for information, I came across your post. Just wanted to say thanks for the information and keep it up.

  15. this does not help me!!!!!!!!!!! i am going to the county soc stud fair and im 11 and i cannot understand any of this crap!!! I hate you!!!!!!!!

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