Sunday, April 02, 2006

Gas Price Tipping Point

While filling up today, at approximately $2.70 per gallon, I was reminded of a comment Robin West made at a luncheon at the magazine last summer; that $3 per gallon gas was the political tipping point. In particular, he noted that the American pattern of exurban development would start to come under serious pressure if gas prices moved above the $3 mark.

I have run across real optimists in Washington who insist that what goes up must come down, based on the price cycle of the 1970s and 1980s, but I can't see a real fall in the price unless India and China moderate their demand; Iraq comes back fully online; there is no instability in Nigeria or Iran; there is a constant move towards shifting to alternative liquids (as James Schlesinger noted in our winter 2005/06 issue, the energy crisis is a liquids crisis, the problem of powering our transporation infrastructure).

And I don't know if we are doing enough to 1) take measures to weather short-term crises and 2) to really prepare for the transition away from oil. These are issues that we will try to address in the summer issue of the magazine.

Nick, you make a good point about pressures on exurban development from high gasoline prices that will have economic and political consequences. Another factor to consider is that a large part of the American population outside metropolitan areas relies on car transport. Many working people outside coastal areas drive considerable differences for jobs that don't pay especially well. Sustained higher gas prices makes it uneconomical for them to work. Plains states like Nebraska and the Dakotas or the Rocky Mountains give obvious examples of this dynamic, along with regions where depopulation has an economic impact. Similar cases can also be found in the Midwest and South, where blue collar workers also cover greater distances to find work than in the metropolitan northeast.

Political courage to raise gas taxes as Paul Krugman and Tom Friedman envision it, is really the political courage to raise costs for people who often live on a fairly narrow margin. Public transport is not feasible. Telling people to move where the work is strikes me as adding insult to injury. Perhaps this is another chapter in the alienation of middle America from the coastal elites.

Politicians won't raise gas prices artificially through taxes not because they lack courage, but because they have more information than the pundits. But sustained higher gas prices for other reasons that cannot be fixed politically will create economic dislocation in communities and a consequent populist backlash against whomever is considered responsible.
Where is congress on this? Why are'nt they investigating price manipulation. We want to sneak in the cheap slave labor for the rich but god forbid we question the oil companies, what gives? We need this controlled. Why do we get screwed every summer, this needsto be addressed.
Raymond B
Part of the problem involves bottlenecks in the supply and production lines. A Saudi diplomat--I believe al Jubeir--apologetically noted that no matter how much oil they send, it still has to be refined and distributed. Refineries are concentrated regionally, and Katrina showed what that could mean. Different states have emissions that require "boutique" gasolines that fragment production capacity. There are other related factors that a specialist could list. The bottom line is that the market is less responsive than it could be, and shortages with price spikes follows. Unfortunately, there's not much that can be done in the short term.

Bernard Munk has a recent piece on related questions of energy independence vs. energy security on the FPRI webpage that might interest readers here.
Will--can you put the hyperlink to the FPRI piece?
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