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The Price of Tea in China…

August 12, 2005

Today I want to talk about gasoline.

In the last month, prices have shot up almost $0.20.  In the last year, they’ve risen more than $0.60.  That is an increase of 34%.  The national average for a gallon of 87-octane gasoline is now above $2.40.  According to Austin Gas Prices.com, that number is low, and the true average is something closer to $2.47 per gallon.

Good Lord.

Does anybody still remember 1999, when gasoline could be had for less than a dollar per gallon?

Anybody who has talked to me about it knows I have a very distinct theory over the cause of our recent recession.  And no, it was not 9/11.  The economy was already tanking before the World Trade Center came down.  The stock market actually reached its peak in March of 2000.  After that, everything began to slide downhill. 

In my opinion, there were two causes – Y2K and the price of gasoline.  Sure, we can point to the idiotic business models of the dot-com era, but by and large the failures were small and isolated.  The collapse of Webvan was a blip on the employment radar screen, the same could be said for Pets.com and all the other failed web ventures.  They got all the press, but they didn’t instigate the recession.  It comes back to Y2K and gas prices.

I finger Y2K as a culprit because of the amount of money dedicated to it in the late 90’s.  It created jobs, it forced companies to spend on talent and technology.  And then January 1, 2000 passed without the world imploding, and suddenly there was no more "Y2K Industry".  Companies clamped down on spending, workers got let go, well-paid, highly-skilled, tech-optimist employees at that.  Without jobs, they clamped down on their own spending, held off buying that laptop or that online service, and caused a snowball effect that ultimately resulted in the dot-com crash several months later.

At the same time, gas prices began to climb.  I was in Nashville, and remember seeing the price per gallon leap from $1.03 to $1.34 in a week.  The sudden rise in pump prices had multiple effects.  It added to the transportation costs for businesses, eating into profits.  It forced consumers to curtail their driving and squeezed disposable income.  They ate out less, purchased less, and this, too, impacted corporate profts, which led to poor financial results, falling stock prices, cutbacks in spending, and layoffs.  Which in turn led to even less disposable income, less consumer purchasing, and you get the drift.

Since then, we have grudgingly learned to live with higher gas prices, we have dealt with forking over $1.50 per gallon, $1.75 per gallon.  But we are well past the $2.00 per gallon point now, and I do not see us returning to it in the near future.  And, in all this time, average fuel economy remained constant.

We are reaching (or have already reached) the point at which people are being forced to make sacrifices – eating out less, going out less, spending less on discretionary items.  If the housing industry begins to slip, as everyone is convinced it will, we could easily be staring another recession in the face.

Either way, recession or not, something must be done.  Americans are not going to ditch their cars and suddenly flock to public transportation – in most areas of the country it simply is not practical to do so.  Nor will they sharply curtail their driving – they will cut their spending elsewhere.  The answer, as I see it, is simple, if hard to put into motion.  We need to be driving more efficient vehicles.

One way to do that is to abandon SUVs for smaller, more efficient cars.  Many people (myself included) are already doing that, but not enough.  SUVs and full-size trucks continue to sell, and it is foolish to expect a sudden shift to smaller, European sized vehicles.  No, it is fuel economy that must be improved.  Hybrids hold promise, as does the use of lighter materials in vehicle construction.  But hybrids ask a steep premium up front, and materials such as carbon fiber are far from becoming common in automobiles.

For the short term, I think diesel is the best solution.  Diesels burn far cleaner these days, provide plenty of power (especially torque, which is what you feel when you accelerate), and are far more efficient than gasoline engines.  The diesel-powered Liberty CRD averages 26 miles per gallon, double the 13 miles per gallon observed in a gas-powered Liberty.  In addition, because they are already so prevalent in Europe and Asia, there would be no long development of diesel engines.  They could be ready to go in months.

I’m hoping that automakers begin to wake up to the need for better fuel economy.  Some already have – Toyota with its hybrids, Chrysler with the diesel Liberty and displacement-on-demand technology in their HEMI V-8s – but more needs to be done.  Much more.

If it gets done remains to be seen.  For the moment, however, I am very glad that I decided to take the plunge and trade the Xterra for the Protege5.

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