Professor Mark J. Perry's Blog for Economics and Finance
Posted 9:57 AM Post Link
I think at least part of the reason the price of oil has come down is because the US has been taking steps to get serious about reducing dependence. I just hope that history does not repeat itself because we become complacent and don’t follow through with our plans. The Christmas card is nice, but $4 dollars/gallon gas prices can come back in a heartbeat.
> think at least part of the reason the price of oil has come down is because the US has been taking steps to get serious about reducing dependence.You'd be wrong, wrong, and, oh yeah, "not even that".Oil prices are down because the expectation for usage is down. This is far more due to the effect of the slowdown of all world markets and nothing to do with silly plans by idiots to make us magically "energy independent" by starving us of energy sources.Being "energy independent" is about as pointlessly silly as becoming "steel independent", "car independent", or "gingerbread independent".Even the argument that we should shift our purchases to "non-terrorist-supporting-states" is ludicrous because it ignores the nature of oil being a fully fungible resource.It doesn't matter where you flinkin' buy it, because someone else will buy it from the place you did not. So the money flows there regardless.And if we were going to make an effort to actually become oil-independent, we'd have to develop electric sources to power some other variety of car -- like fuel cells or hydrogen. And the only effective means for that currently available is nukes. Seen a large media call for more nukes lately?So we aren't actually doing jack sh** to make ourselves "energy independent" by increasing our available electric sources to produce a viable alternative source to energize cars with.All the current calls do are like stapling the stomach of a fat person and *telling* them they MUST eat less...
OBloodyHell – Let me guess; you come on here to argue, spew sarcasm, or contradict someone more than to comment on the post.You say “Oil prices are down because the expectation for usage is down.” Well, taking steps to reduce dependence (as I said) would do exactly that – create an expectation of lower usage. If you don’t think there is a serious chess game going on, I would disagree.You are entitled to your opinions such as “it doesn’t matter where you buy it”, but it doesn’t mean they are right. In my opinion, it very much does matter.
Let this chart say it all! Merry Christmas. In real money terms this means about $200 more in my pocket for my daily commute in January. (For some folks with longer commutes... you do the math)I love your work and have just placed a link on my site. I wrote an article on 3 other "presents" (or cards as you put it) the US Economy gave us this year.http://mast-economy.blogspot.com/2008/12/three-2008-christmas-presents-from-us.htmlHappy New YearThe Good News Economisthttp://goodnewseconomist.com
mwf247,Without $4.00/gallon gas, there is very little incentive to reduce fuel consumption nor to develop domestic supplies that would make the U.S. less dependent on imported oil. Additionally, low oil prices make alternative technologies economically unviable in spite of massive subsidies.Perhaps, you could explain what steps the U.S. has taken to reduce seriously dependence. A couple of approaches have been tried which seem to be a return to playbook of the 1970s:1. Corn based ethanol has converted a food into a fuel that cannot compete either economically nor fuel efficiency with gasoline. Additionally, ethanol is corrosive and cannot be shipped through the existing pipelines but must be trucked. In the process, diversion of corn from the world food supply has distorted food prices as predicted by agricultural economists. With the decline of oil prices, corn based ethanol is set to die a natural death.2. Beefing up CAFE standards. Increased regulatory standards for fuel efficiency has hamstrung an industry during a very challenging recession. It will take years to replace all of the existing cars on the road today with fuel efficient models. Additionally, the consumer behavioral studies indicate that consumers drive more miles not less when they drive more fuel efficient cars. Another challenge to fuel independence is the growing # of vehicles per household. 3. Despite a 4% reduction in gasoline consumption, the U.S. and Canada lead the world in energy consumption. Unless there is a radical change in consumption patterns, you simply can't get to fuel independence using the present approach.4. Wind/solar - High capital costs, high maintenance costs, intermittant and inefficient electrical generating technology, millions in subsidies and additional millions required for grid infrastructure...even ethanol looks efficient by comparison.5. Opening up new areas for domestic exploration is a good idea however, the cost of exploration and development are far greater in the U.S. than in Saudia Arabia. Unless the international price of oil is high enough to justify extraction, domestic operations are not economically viable. One way of reducing consumption would be to raise the gas tax. Although most economists have favor a pigovian tax, we have yet to find politicians who have the intestinal fortitude to consider such a notion. The challenges to replacing gasoline with another fuel remain daunting, namely, one must provide an entirely new fuel infrastructure. This particular step does not appear to be on the table. Perhaps, you could enlighten us on the serious "steps" being taken to reduce dependence.
QT,Consider yourself enlightened. I said “taking steps to get serious”; not “serious steps”. And, so far, those steps have only been talk. That’s my point exactly. I think it would be a mistake to let the $1.50/gal gas prices kill plans to make the changes that we could clearly see were needed at $4/gal, or we will be right back in the same position.
I say that it is one of the best Christmas cards I've seen in awhile. We're all adults, we know how to keep it this way. I don't think the low gas prices will kill the great ideas envisioned some short time ago. I look for us to be completely free from foreign oil within 10 years... barring some strange scenario where Bush remains in office.
wfm247,Good intention are not the same thing as action. Politicians will talk until the problem recedes. Politicians don't actually create oil independence, economic growth, consumer behavior, or new fuel technology; they just take credit for things that other people create. I am less optimistic about technological change coming out of government. Aside from NASA, very few great technological breakthroughs have been created by government.Good luck with that.JamesB,That's what Nixon said and we became more rather than less dependent on foreign oil. Agree with wwf247 that unless there is a concrete strategy for meeting this goal, oil independence will not happen. You have to look at cost to bring a product to market. If it only costs $2.00/barrel in Saudia Arabia vs. $35.00-40.00/barrel in the U.S., the Saudis have comparative advantage that domestic producers cannot match. Unless the price of oil is high enough, drilling in the Alberta tar sands or the Alaska Wildlife Refuge is not economically viable. The alternative is government subsidization of an industry like the coal industry used to be in the UK or wind power in Germany. There is flagging support in Germany for high consumer rates which subsidize wind power at 44 cents per kwH. The cost of nuclear generated electricity is about 6 cents per kwH by contrast.
That Christmas tree needs a star on the top!Question: what market manoeuvres could possibly graph one?Best wishes for the new year.
Post a Comment
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan.
Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
View my complete profile