$20 per gallon
Apparently some guy named Chris Steiner wrote a book called $20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better. It’s gathering some chatter from peeps I enjoy and occasionally respect.
$20 a gallon is about the only thing that could unleash the genius of the market in energy innovation. And nothing else will really do anything to abate climate change. Bring it on!
But the transitional impact would be absolutely devastating for most people. Even Steiner admits that whole industries — from airlines to amusement parks to sushi restaurants — would go under. Almost all homes outside urban centers would be simultaneously unlivable and unsellable. Only the independently wealthy would be able to travel abroad. Essentially, we’d set our lifestyles back a hundred years.
Now, to me, this is so typical of liberal vs conservative mindset. I’m not necessarily saying Sullivan is liberal, but with this particular concept, he is.
We have to very clear examples of what this situation would do if it were to happen to some degree. First of all, Sullivan cites this passage from the book:
IPO’s, wild sums of venture money, 23-year-old C.E.O.s — all of it will be resurrected from that movie called 1999.
However, 1999 was part of what is now referred to as the “tech bubble”. It’s no longer the tech revolution, the new economy, the death of bread and mortar. For what Steiner and Sullivan are ignoring is what happened AFTER 1999. The shining example of what hi-tech could do for a comunity in 1999 was of course, that area in California called Silicon Valley. Every community wanted to be Silicon Valley. Hi-tech incubators popped up in about every community trying to figure out how to breed the next Silicon Valley. Only the Golden Triangle of North Carolina I think echoed that boon. However, this is Silicon Valley ten years later:
There was one sign of economic life in the report issued Friday by the state Employment Development Department: a net increase of 400 jobs in the region, mostly in stores, restaurants and bars, perhaps signaling a tentative return of the consumer. And a major employment service reported a cautious return to hiring by some area companies that had cut deep as the recession hit.
Now, it’s retail sales propping up the economy devastated by the hi tech bubble.
North Carolina, more of the same:
Layoffs at Nortel, Lenovo, Sony Ericsson, Cisco, IBM, NetApp, Fidelity and GlaxoSmithKline have helped drown down tech job rolls. But the losses of construction and manufacturing jobs indicate how reliant the region’s overall economy remains on traditional jobs.
Bottom line, the hi-tech boon of the 90′s was not an economic revolution. It has contributed some to the diversification of employment possibilities. But, it’s the leading edge of technology that is most vulnerable to economic downturns. So much hi-tech revenues are derived from entertainment that it really sticks it’s nose out there when things go sour.
So, the very basic premise that the hi-tech bubble was something good for the country in the long run is kind of seriously flawed. Sure, it was great for a hand full of 23 year olds on the cutting edge. But, since then, it’s been absorbed into the very traditional realities of business cycles.
Now, fast forward to Steiner and Sullivan’s utopian future with $20 per gallon gas. You can pertty much kiss the trucking industry good-bye as we know it. They’ll be the first to collapse. Along the way, they’ll hammer the hell out of the commodoties sectors. Groceries, clothing, general retail, they’ll all be hammered to the brink of extinction. Crazy you say? The largest expense of groceries is the transportation of it. How many people do you think will snack on a $10 bunch of bananas? Forget pineapples. Forget rice. Forget, yeah, sushi. Forget anything that’s not totally needed that is grown outside of the US. How many people will be buying t-shirts weekly at $50? Cotton’s not made in the US. Minimum wage took care of that.
Second, we have some perspective to look at here. The dot.com revolution, tech bubble, of 1999, versus the sudden surge in gas prices of 2007. With a whole lot of words:
That’s gas price.
That’s unemployment claims.
That’s gross domestic product.
Now, that was the result going from $1.50 to $4.00. It totally thwarted the momentum from the tech bubble. It sent us into a recession we’re still trying to get out of. And, the really scary thing was the price of gas collapsed when the world demand subsided. So, even though the price returned to normal levels, the damage done hasn’t. Most are speculating it will be 2010 before things start returning to normal.
Now, take that scenario of what has actually happened and multiply it by seven or more. Without trying to be overly pessimistic, the unemployment rate would at least double. The GDP would nose-dive. As far as that utopia goes, the reduction in GDP directly affects the collection of taxes. It not only reduces the revenues states and the feds can collect, it costs them in real expenses as people file for unemployment benefits, entitlements, and crime rates soar. The net result is very real. Funding to universities is cut, research grants are cut, corporate research monies are cut. The industries needed to lead the way in the energy revolution will be the hardest hit. When the big oil companies actually made a profit during the gas price run-up and economic downfall as the result of it, public officials started targeting those corporations for special taxes and penalties. That money I’m quite certain would have been used for research among other things. Secondly, even if the public decides to go green, it takes years to get the technology to do it ready. It just happen with the snap of a finger. And, with all of our money going to OPEC, it won’t be there to push that technology revolution. For example, everyone who has experience working in nuclear plants raise your hands. Go ahead Chris and Andrew, count those hands.
And lastly, the tech bubble occurred during economic great times. That wild speculative start-up money was there to be wasted. In the case Steiner is presenting, it won’t be there to be wasted. He’s talking about completely devastating the economy and THEN investing billions if not trillions of dollars on the new technology. That will have to be done. But, it won’t be done nearly as simply as the dot.com boom and bust. That spec money just won’t be there quite the way it was then. If you suck all of the economy out and give it to OPEC, there’s just won’t be anything left. The technology to do it is already there. That’s not the problem. The problem right now is the expense of taking the chance of trying to convert existing technology. There’s no one standard. And, there’s no one accepted solution. Every solution we’ve pursued has some drawbacks. Some of those drawbacks potentially more dangerous than burning coal. So, which way do we go? And, if the economy is sucked dry, you’re probably going to get one shot at fixing the problem and that’s it for probably 100 years.
So, I’m definitely siding with James on this issue. We need to make the changes. But, we need to make them now when we have the excess capitol to do it. There is no guarantee at all that the excess capitol needed will be there in a time of crisis. None.
Bottom line, if gas goes to $20 over the next five years, our lives will be a hell of a lot worse for a long time.