Monday, July 07, 2008

Gas prices - Conservation

I hope you had a good fourth of July weekend. Since it fell on a Friday, most people had a three day weekend. Normally, this would lead to a lot of folks on the high-way, but with gas prices so high, predictions were that most people would stay close to home.

I had to work on Sunday afternoon. "Work" in my case was visiting a customer 100 miles away. So I was one of the folks on the road. To my surprise, the roads were not empty. It's not scientific by any means, but there seemed to be as many as I would have thought for a 3day weekend. I noticed a fair number of SUVs (don't recall any hummers), and RVs. Also trucks pulling campers home after a beach or mountain trip.

Which leads me to post on conservation. Of course I had planned this anyway, so it fits.

The idea is real simple, if gas prices are high because of high demand, we can lower demand by using less gas. Which means driving less. As demand drops, gas prices will drop (or stabilize, or increase less). Supply will go up, we'll send less money to the Middle East and our country will be stronger. We'll have more money to spend on other things, like apple pie, motherhood and all in the good ole USofA. What could be better?

If I sound sarcastic, I'm sorry. I don't mean to be. Conservation is truly one way you can make a difference in your personal gas bill. If you're spending $50/week on gas and you cut your driving by 10%, you will save over $250/year. That's real money you can use to make your mortgage payment and avoid foreclosure.

The problem is, I don't think Americans want to conserve. In a recent post I showed that people were as upset about gas prices after Katrina (at $3/gallon) as they are now (at $4/gallon), but a year after Katrina, they were buying SUV's again. My prediction then and now is that we'll see SUV sales back up next summer.

We can mandate conservation. Congress can create laws that force Detroit/Tokyo to have a higher gas mileage on cars. Detroit will scream, Tokyo will be quiet. Over the last 15 years, gas mileage has doubled, there's no reason to believe that won't happen again. Even though I typically am against government interference in business, this is one exception. I think it's a good idea for the government to gently push the automotive industry.

However, new cars with higher mileage won't solve problems quickly. It will take 15 years to take full effect on new cars and longer than that for all the old cars to be off the roads. As pointed out in my post on drilling, starting today is better than not starting.

But there's also another side of conservation. Suppose that we all conserve and prices drop. Once prices drop, people will start driving again and end conservation. Prices will go back up. Conserve again. Prices drop. Can you see a pattern here?

One more oddity, then I'll close. Reports are that people have cut their driving, there is a waiting list for Prius' and other hybrids. For now (maybe not for long), people are actually conserving. The point on this is that $4 gas may actually be accomplishing what conservationists want. And that's not all bad.

As before, if you have comments about this specific post, please put them here. If you have comments on other areas related to gas prices, they are welcome too, but please post them under my initial post on gas prices here.


john said...

More nuke plants, more drilling, more money for alternative sources that could be viable within the next 25 years (something along the lines of the X prize), etc.

There is no good reason why we can't get gas back down to $2 a gallon or less.

Randy said...

Yes, and if we have a good alternative fuel, who cares what gas costs?

But that's for my next blog post..