High Oil Prices: Good or Bad?

by Dan Schafer

The answer depends a lot on whom we are asking. If it is an Exon Oil executive or an ordinary family with children in Venezuela the answer could well be that high petroleum prices are making their life better. But if we are asking a taxi driver in Bangkok or a commuter in North Carolina who uses a car to get to work every day, their reply is likely to be that it is getting tougher to manage their finances. In general, if we live in a non-oil-exporting country we are likely to be pretty apprehensive about what the high oil prices might do to the economy, and in consequence, our job or our business.

Concern about the economy is valid. Economists look back to what happened in the 1970's and the dive the economy took when the price of oil went out of control. And it makes sense that with all else being equal, people have less to spend on other things if a larger percentage of their income is spent on energy. But in fact, in relative terms, considering inflation to the dollar, oil is not as expensive now as at its peak in 1979 at US$80 per barrel measured in 2004 dollars. Beyond that the economies of the U.S, Britain, Japan and most other major countries are in much better condition now than they were even before the OPEC oil embargo in 1973.

The 250-Year View

But in our last article we asked, How many people are looking at the 250-year view? Perhaps certain environmentalists or others with a somewhat green stripe to their outlook are looking at the future. But is anyone who is in charge of steering the ship looking even 20 years ahead? In a way you can't blame them for their short-sighted view. Politicians in general don't get elected for their long-term vision. They serve a generation of constituents that demands results now. But real leaders are willing to swim against the stream if they know they are right. Historically such leaders are the ones we tend to look to when times are getting tough. To many of us it seems we could use some leaders of that stature now.

It was gratifying to read, in a column by Thomas Friedman, the New York Times columnist, views similar to those we have expressed here in this series. I quote, "We need a president and a Congress with the guts not just to invade Iraq, but to impose a gasoline tax and inspire energy conservation at home. That takes a real energy policy with long-term incentives for renewable energies—wind, solar, biofuels—rather than the welfare-for-oil-companies-and-special-interests that masqueraded last year as an energy bill." (The New Red, White and Blue by Thomas L. Friedman from the Bangkok Post 7 Jan. 2006—originally run in the New York Times, where, incidentally, the article can be found online.)

You may recall that some months ago in an article entitled "Oil: Too Thirsty For It?" we suggested that bold leadership should introduce higher taxes on petroleum products to make the consumer aware of the true long-term value of oil. Then we asserted that the resulting reduced demand would act to slow the rise in the cost of oil imported. Now, instead, as we see, we have high oil prices with all the profits passing to the oil exporting countries. And, as we mentioned in that same article, we find our dependence on those countries' oil takes our international policy hostage. We end up with a pragmatism that forces us to be friends with regimes whose values and treatment of their citizens is opposite to what we believe is right.

Who Loses in the Long Run?

It is not that we begrudge poor countries' economies being bolstered by their oil exports. They no doubt need all the help they can get. But Friedman, earlier in his column, would even take issue with whether high prices for oil are really helping many of them. Again I quote, "Petrolism is my term for the anti-democratic governing practices—in oil states from Russia to Nigeria and Iran—that result from a long run of $60 a-barrel oil. Petrolism is the politics of using oil income to buy off one's citizens with subsidies and government jobs, using oil and gas exports to intimidate or buy off one's enemies, and using oil profits to build up one's internal security forces and army to keep oneself ensconced in power—without any transparency or checks and balances."(ibid) He goes on to add that with high oil profits, this sort of regime does not need to make use of their people's creativity or energy. The conclusion is obvious. The people's abilities aren't used. They are not stretched educationally or pushed to compete economically and end up the losers in the long run.

So, although oil-exporting countries are sitting on top of a very valuable commodity—especially viewed in its long-term sense -- paying them the kind of high prices we are is not really helping them as it ought to now. But is it benefiting the rest of us who are forking the money over? In a funny way, it may be. It should enable us to realise, if even by the wrong means, that this commodity which powers much of the activity in the world is a valuable commodity. It is not too late to make this lesson meaningful. If we began to be really innovative in our ideas and decisions, we could cut the cost of transportation, we could cut the cost of heating and cooling our homes. We could cut the cost of doing business.

Looking for Alternatives

Of course already many people and businesses have questioned why they need to face rush hour traffic to get in to work and drive home again every day, when much of the time the same job could be accomplished on their computer at home. And most of us are very aware that we don't need 250 horse power and three tons of steel to take our children to school. We also realise there are many days those same children could be burning off some of their excess calories if they rode a bike to school. Speaking of which, many of us realise it might help us work off some of that spare tire if we got up a little earlier and rode our bike to work.

But if we really are going to make a dent in the amount of oil that we in developed countries consume we need leaders who think clearly and take a good look at our resources in brain power and technology and give us a vision of how to deal with a very obvious need. The high price of oil has actually given them a great help in selling to us, the citizens, what a little sacrifice now can gain for us in the long run. Because, in fact, by the time oil prices start coming down—and, as we have said before, they will come down—we will have already adjusted to the pain of paying more for fuel. But that is the time to apply the vision and keep prices high without all the profits going to wasteful regimes and oil companies. We have already mentioned in previous articles that for serious investment to be made in alternative sources of energy the people who invest must see it as viable. If they know that we have governments committed to keeping the consumer price of petroleum fuels at a high enough level by means of directed taxation, their investment in alternative sources and technology is likely to pay off.

Postitive Results of High Energy Prices

There are all sorts of positive results that can come from sustained high energy prices. Another is public transportation. We are very aware that it is always those on the lowest income level who suffer the most when prices of basics go up. But if leaders of municipalities and cities get the vision that public transportation is by far the more energy-efficient way of getting people from place to place than big sedans or SUVs carrying one person, even lower income commuters needn't suffer. Of course what makes a public transportation system viable is ridership, and a high cost of private transportation is a kick-start to creating users. But beyond that we really need to apply the minds and energy of our brightest people to find workable systems. There should be no reason we cannot make systems that are a joy for anyone to use. Then we can begin to expect a permanent change in how we consume energy for transport. Our cities could have cleaner air. Our streets could have more room and safety for vehicles like bicycles—and maybe even some space for green grass and flowers.

Energy is a gift. We didn't make the oil and coal. We didn't make the wind and rain. We didn't make the sun that shines so faithfully on this planet. Those of us who are not completely hardened by greed and selfishness know that with gifts comes responsibility. If you are a parent it is pretty obvious to you that you have a responsibility to your children. Even those of us who aren't parents have difficulty looking at little children without somehow feeling that we want life to be good for them. Maybe we ought to start thinking long-term about things. We know we won't always be here, and that fact is one of the first things that needs to register in our long-term view. But those children will probably be here longer than us. And their children longer than that. Both generations will inherit something of the direction our vision has or has not provided. It is something to think about.

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