Prices in Motion

On the way back from the library I stopped off for gas. I go most everywhere on foot, so I only fill up once every 4-6 weeks. The last time I stopped, premium was about $3/gallon. Today, pleasant surprise!, it was $2.43 - almost $0.60 less than the last time I bought it.

I'm not really sure what would have caused such a dramatic drop - but then, the dramatic rises didn't make too much sense at the time either. There are experts on these issues, and I'll leave the explanations up to them.

I just wanted to say that I'm not so sure drops in the price of gas are a good thing.

In the short term, of course, they definitely are. All major world economies are heavily dependent on oil - and maybe none more so than the US economy. Small fluctuations in gas prices can have significant effects on things like job creation, prices, and so on. So certainly the cheaper transportation and energy are, the better off we are.

However, it would be nice to be free of oil dependency. I mean this mostly in a political sense. Whatever one thinks of the environmental questions, there is little doubt that lots of money from oil profits funds some of the world's most dangerous regimes. I'm thinking here specifically about Chavez, who simply wouldn't be a political force in the world without Venezuela's oil reserves. But it also includes, obviously, the Saudi Royal Family, the Islamic government in Iran, Qaddhafi's Libya, etc.

I do not believe that environmental regulations will do much good in spurring the development of alternative energy sources. Regulations, artificial things that they are, tend to either be easy to flout, or else they result in unintended and unanticipated consequences. Modern economies are flexible and complex entities. Trying to deliberately game the system is usually asking for trouble.

But I'm certain that high oil prices will. If a commodity is in short supply (i.e. is expensive), there is nothing else to do but find alternatives. There are no congressmen you can bribe to get you out of it, and there are no artificial realities that you can take advantage of. When the price of a commodity is high, there is an implicit and lucrative economic reward for anyone who can figure a way to economize on it. There is a HUGE such reward for anyone who can figure out how to do without it entirely.

I wonder if maybe we shouldn't hope for higher gas prices. But the question really hinges on whether the Hubert peak oil theory turns out to be correct - or, if correct, what its specifics turn out to be.

If there is no real "peak" - or if, as some have estimated, we have only gone through roughly 1/4 of the world's oil to date, then we have plenty of time, and we'd hope for lower prices. If, on the other hand, there is such a thing as a looming oil peak, then the sooner we get off it the better. The economic pain of scrambling to find alternatives once the supply is seriously starting to peter will be vastly greater than making some headway now.

Obviously economic considerations have to come first. There is no sense in planning policy around indeterminate environmental scenarios, and Chavez is, of course, always replaceable. (Meaning that even assuming the industrialized world stopped using oil and so Venezuela tanked under the weight of poor economic policy, as it no doubt will do when the wells run dry, and Chavez went to a much-deserved death by lynch mob, someone, somewhere would find a way to take his place as thorn in civilization's side. Or at least, that's a real possibility.) Accumulated wealth wantonly destroyed takes time to reaccumulate, however, and real people lose real jobs in the meantime.

Left to markets alone, I suppose the question sort of answers itself. If peak oil is real, prices should (hopefully) start to rise in advance of the dwindling of the supply. If it is not, then they will keep falling, and they will stay low for years to come.

All other things being equal, though, I should think we could "hope" that peak oil is true, and that there will be some kind of economic motivation to switch to another energy supply. And in this sense, I'm actually kind of disappointed to have saved $6 on gas today.