Wednesday, May 28, 2008

The Cold Hard Truth About Gas Prices

Over at the NY Times Thomas Friedman dreams of a presidential candidate telling America the truth about gas prices:

For starters, he or she would explain that there is no short-term fix for gasoline prices. Prices are what they are as a result of rising global oil demand from India, China and a rapidly growing Middle East on top of our own increasing consumption, a shortage of “sweet” crude that is used for the diesel fuel that Europe is highly dependent upon and our own neglect of effective energy policy for 30 years.

Cynical ideas, like the McCain-Clinton summertime gas-tax holiday, would only make the problem worse, and reckless initiatives like the Chrysler-Dodge-Jeep offer to subsidize gasoline for three years for people who buy its gas guzzlers are the moral equivalent of tobacco companies offering discounted cigarettes to teenagers.
He then goes on to promote a government mandated four dollar floor price for a gallon of gas. While some think its a bad idea whereas I think its a useless idea. I say that because I don't believe that gas is going to go down. Ever. Period. The Chinese and Indians aren't going to stop buying cars. Nations that are becoming industrialized aren't going to suddenly hit the breaks. There may be some downward fluctuations but I'm guessing that within a year we'll be looking at four dollar a gallon gasoline wistfully. Americans are already starting to drive less due to the current price of gas.

He goes on to state that America needs to convert totally to electric cars. The problem is that the current power grid can't handle the additional load. For that to be a reality homeowners would have to shell out another 10K dollars to add solar panels to their homes. Couple that with the cost of an electric car and you see just exactly how unlikely that is to happen. Not that there isn't hope. Because as market forces drive the price of gas upwards those same forces also create a demand for an alternative to gasoline. (Hence all of those crappy ethanol subsidies.) A car powered by compressed air is due to be released in Europe shortly. Technologies like solar shingles promise to eventually drive the cost of solar power down thereby making electric cars more viable. Waste and grass based ethanol is gaining support not to mention the possibility of producing oil from algae. Plus there's that guy in Florida who figured out how to burn salt water. Who knows what innovations that could lead to.

But the fact is until we have a viable alternative to one hundred percent gasoline in our cars Americans have a choice of driving more fuel efficient vehicles, driving less, or paying out the nose for for gasoline. That's just the reality of the situation.

Mr Friedman's idea would only be another unnecessary and useless government mandate given current market trends. I like Thomas Friedman because frequently he can see the forest for the trees but truth be told I wouldn't give him any matches.