Thursday, June 12, 2008

Why Rising Gas Prices are a Good Thing

The faster and higher the price of gas goes the better. Here’s my theory. History has proven that necessity is the mother of invention. Right now we need some serious invention to get the economy on track and develop long term sustainability for our country. Enter the price of gasoline. I believe that the country is largely driven by large corporations, and corporations will always do what’s most profitable; it’s capitalism after all. So when it comes to alternative fuels or vehicles, corporations will not change heading unless they can make more money. Why would Exxon shift focus from making fuel from oil when it’s the most profitable route, they won’t. So if gasoline slowly rises, say to $10.00 in the next 5 or 10 years, they will not be incentivized to do anything about it. In fact, they will likely model out that they will make dramatically more money by dragging US consumers through the mud and slowly bleeding them with up and down fuel prices.

But, if gasoline was at $10.00 say in the next 12 months, or sooner, the economy and consumer spending would come to a screeching halt. In particular any products, services or activities that require the use of gasoline will be avoided at all costs. Therefore the more profitable route for Exxon and GM would be to embrace the need for change, put all of their money into R&D and innovate new products as quickly as possible.

The bottom line is that if we wanted to create a sustainable, environmental friendly, inexpensive and plentiful energy source or if we wanted cars that looked cool, had great features and drove 500 miles per $1.00 gallon of whatever, we could. We have the technology. It’s all about how profitable it would be to figure it out. When it becomes more profitable to figure it out for our big corporations, then they will.

So next time you go to the pump and the price has gone up yet another 25 cents, be thankful. We’re well on our way to radical innovation.
I have much more to say on this topic.

1 comment:

Anonymous said...

you are right about the fact that the economy, people and corporations, will respond to incentives. $10 gas creates very different incentives than we are used to in the US economy. You are wrong, however, to think those incentives won't be just as powerful if it takes several years to get to $10 gas versus several months. On the other hand, if it only takes several months, the likelihood of government internvention to force innovation will be much higher, and forced innovation MAY be much faster, and it MAY create a much less efficient outcome.