C & B report on oil and my requiem for the SUV

The changing prices of commodities are accompanied by costs and benefits--that's macroeconomics 101. Since the price of a barrel of oil has doubled in the past year, these costs and benefits by now should be glaringly obvious.

Some Costs

--Historically high gas prices are capable of sending the American economy (and by extension the world economy) into relative stagnation. Just think of transportation costs alone. The consumables that we import from overseas are brought to port and delivered to us on trucks powered primarily by Diesel fuel at more than five dollars per gallon. And what happens when transportation costs increase? You guessed it. Consumer goods get more expensive.

--People are traveling less, and will continue to travel less as the price moves up. Several years back when a gallon of regular unleaded cost less than two dollars, I took a spur of the moment two-day sojourn to Pittsburgh, Pennsylvania. That is the kind of impulsive jaunt that I will not make with gas at $4.25 per gallon. Many months ago I opined that in spite of the high price of gas, Americans simply had not modified their consumption patterns. That was at $3 per gallon. I think $4 is the magic number--at least it is for me.

--The balance of power is changing. Since political power, globally, is at its core an economic measurement, oil-rich nations in the Middle East as well as countries like Venezuela and Russia now wield disproportionate influence because of one commodity. Think of it like this: how powerful would Brazil be if the rest of the world were as hooked on sugar as Americans are?

Some Benefits

--We all know the adage, "necessity is the mother of invention," and it applies here. The price of gas now MAY BE high enough to force the luke warm hands of our elected leaders. The United States has not had a forward-looking energy policy in my lifetime, so this would certainly be a benefit. Despite forseeable increases in demand from the newly industrializing economies (NIEs) of the world, especially in Asia, our elected officials just assumed that global oil supplies could meet the increasing need--and without new investments on the part of the greatest single consumer of oil. Ideally, electric-only vehicles, Hybrids, and Hydrogen fuel cell-powered vehicles will become standard in the years to come as a result of the oil crunch. But this will not happen until we get serious about investing in alternative forms of energy.

--Americans still produce and refine oil, so the price spike is a dream come true for some. But the need to produce more, at least until we can find viable alternatives, could have the affect of loosening the bureaucratic grip on tapping new supplies. This morning I heard a caller on C-Span's "Washington Journal" say that the American government should prevent American oil from being sold abroad. That will never happen, my friend. Not in a free (though not unfettered) market system. Obviously the idea is to increase domestic supply without uncorking new supplies to lower prices, but we are way beyond that point now. And Barack Obama's plan to tax the windfall profits of oil companies is packaged as a solution but reads more like a political ploy. Consumers always pay for tax increases on business.

--The bell is tolling for the SUV.

My Requiem for the SUV

When I was 18 and 19 years old I had an SUV.
There, I said it--rescind my progressive credentials if you must.
It was a 1990 2-door GMC Jimmy 4x4 with white letter tires and a running board.
My best friend had a 1989 2-door Chevy Blazer 4x4, so we helped each other out with the litany of issues that accompanied SUVs at that time. The price for a gallon back then was between $1.00-$1.25 in Michigan, a state where gas prices are relatively high. And even though my Jimmy burned nearly as much oil as gas, I really loved that truck--the only one I ever owned. But that was in 1998, just before the SUV craze took hold of this country.
My SUV was the size of a shortbox S-10 pick-up, and with the exception of the Chevy Suburban, most SUVS were more or less that size.
Then the floodgates opened with the Lincoln Navigator, the Ford Expedition and Excursion, GM's Yukon and Denali, the Dodge Durango, the Hummer H2 and even Toyota got into the mix with their Land Cruiser.
SUVs increasingly became synonymous with conspicuous consumption. I mean, Ford's Excursion weighed four and one quarter tons!
Back in the fall of 2001, I was taking an American Literature class at Holy Cross in Indiana when my professor approached the class with this: "It's obvious that we don't need to drive SUVs, so my concern is why we want to drive SUVs."
The need was never apparent and now the want appears to be a thing of the past.
I walked around a car lot recently and made sure to check the sticker prices on SUVs and I was stunned by the markdowns. I saw one SUV in particular, a Chevy Suburban, that was marked down $10,000!
Here's hoping it doesn't sell.