Friday, June 13, 2008

Gasoline, pain, feedback, consensus

Speaking of sustainable energy solutions ...

The price of gasoline is rising, as you've no doubt noticed (if it happens to drop today, it seems likely to return to its upward path tomorrow). People are protesting the high prices for the personal and business pain they cause, and politicians (at least some of them) are floating plans to reduce the pain. Manufacturers and retailers are trying innovative approaches to lightening the load on our household budgets.

While the pain is real, I've noticed a strange consensus recently. Both Thomas Friedman and Charles Krauthammer have advocated for using governmental means to keep gas prices high. In Truth or Consequences, Friedman noted that putting a $4 a gallon floor on gasoline prices could be a great cornerstone of a national energy policy to help us lower consumption, which brings with it all sorts of benefits, including our investment in more efficient infrastructure (different means of transportation, for example) and reduced greenhouse gas emissions. In At $4, Everybody Gets Rational, Krauthammer calls for taxes to keep that same $4 a gallon floor and to increase taxes by $0.50 every six months for the next two years.

What we're seeing are feedback effects. As prices rise, we drive less, reducing demand. As demand drops, prices moderate in an attempt to balance supply and demand. (Over the long haul, that's problematic with a non-renewable resource.) Of course, it's a bit more challenging than that, but that simple balancing loop describes the basic mechanism at work.

In a free-market society, as the one we have crafted, the primary feedback signal we have to adjust behavior is economic. When that feedback kicks in, it causes both pain and changed behavior. It would be nice if you could get changed behavior without the pain, but we don't seem to have mastered that as well.

What do you think we ought to do about this? I wrote a possibly pertinent posting three years ago with almost that for the title. Glenn has an idea on The Oil Drum. You may have your own idea.

As a closing note, I've noted before that exponential growth of physical things always has limits, and likely the price of gasoline or petroleum is subject to the same laws. For one idea how the price of oil and gasoline could evolve, see Ugo Bardi's review of the price of whale oil when it was becoming scarce.

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