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Devil’s Advocate: Give Me High Gas Prices!

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[For the next couple of weeks, I'm going to mix in a few devil's advocate posts in here. It's been done a few times in the personal finance space, but I think it breaks up a little of the monotony of the everyday post. I've only got a couple of ideas to start, so it could be a short-lived series. If you have some ideas you'd like me to cover, please contact me. Finally, let me warn you in advance this article is a little two articles in one. You'll see what I mean.]

In this month's Kiplinger's magazine (well October, 2013 since magazines seem to live a month in the future), I noticed an interesting article about fewer buyers for cheap gas. The author, Knight Kiplinger, states that every time gas prices go up people drive less and conversely when they go down people drive more. This is not amazing. In fact, it's common sense.

He thinks that's going to change. That caught my attention.

The nerdy folks in Kiplinger Business Forecasting Group think that oil prices are going to drop 30% by 2016... which would lead to about a similar price drop in gas prices. If all goes according to the prediction we'll have more money from the savings. Awesome. Kiplinger thinks you won't put that money into driving more, but instead towards other expenses.

In the discussion of one of my article published this week, Are We Financially a “Lost Generation”?, readers noted that the price of health care has sky-rocketed. As a military family, I'm thankfully insulated from the rising costs, at least for now. My friends mention seem to mention it at least once a month. It wouldn't be a surprise to see any money saved on gas to go towards their health care bills.

Give Me High Gas Prices

In thinking about the gas prices going down, a small part of me was disappointed. Over the last few years, I've had some conversations with my friend Kevin and he's convinced me that high gas prices are a good thing.

Why could high gas prices possibly be a good thing? When the price of gas gets high, people and companies adapt. Companies put more money into hybrids and giving us more MPGs because the people are buying those cars. It sparks change. Change for the better as we invent new solutions to combat the problem.

If gas prices stay low for an extended period of time, there's no urgency to improve. Things stay stagnant. The need for progress is limited and the money goes towards other things.

So give me high gas prices now. Get them high enough that manufactures are doing whatever they can to put a SUV out there that can get 50 MPG (or MPGe), even if it means I have to plug it in over night. Let's see smaller cars consistently get over 75 MPG. I want to a super-efficient solar panel on the roof of the car and a wind turbine on the antenna. Give me some sort of magnetic system in the engine to reduce friction. Give me whatever is going to get us there even if these somewhat far-fetched ideas can't.

And when we have cars that are super efficient, I'll take lower gas prices please. Then we'll be able to go 500 miles on $15. Our wallets and the environment will love us.

Last updated on September 19, 2013.

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Devil's Advocate

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7 Responses to “Devil’s Advocate: Give Me High Gas Prices!”

  1. Big-D says:

    I agree with you yes and no (wouldn’t be that simple huh :) I think that what you are seeing is two forces that are driving the gas prices up (three if you believe that all big oil colludes to squeeze us to death). One is the unequivable thirst for power and speed in the American drive set. Coupled with the need to expand our drives and sprawl many miles from where we work, we then drive a lot more than many people in other countries, and we have to do it faster, with more power, and greater speed. Thus we use more gas.

    On the flip side we have the government telling the car makers what to do. When the government gets involved, they get involved in two ways: dictating environment friendly car restrictions or dictating design choices. One thing I hear a lot from people is “My 1989 Toyota Corolla got 55 mpg, why can’t we get that car again?” Well your congress critters made that car effectively illegal to sell in 2004 by changing the laws to such that no car can be sold without anti-lock brakes, 300 pound doors, steel crossbeams in the engine compartment, dual airbags, and loads of other things. That Toyota Corolla now was almost 800 pounds heavier just from the safety features our government mandated. That means to get near that power/speed that people demand in a car (point above) they had to put a bigger engine in it. Now that 55mpg car is now getting 42mpg. Same thing goes for environmental changes. Look at the Diesel Particulate Filters (DPF) and Urea tanks on diesel cars. Due to emissions standards, our government made illegal to sell a car that does not get below XX% of NO2. While that is good for the environment, that means starving diesel engines of oxygen and thus burning more diesel to get equivalent power out of an engine with DPF filters. So now the car that got 35 mpg with a diesel now got 28 (BTW – I am not making these numbers up).

    So back to your devil’s advocate question. I wish there was only one external force on our car industry. Because higher gas prices, while would do everything you stated, when the government comes in, and buyer preferences come into play, you now have a crap shoot. How can a car manufacturer meet CAFE standards when when no-one wants to buy a woefully underpowered econobox car when you can spend a little more and get one with a bigger engine and decent gas mileage? Welcome to the modern world where many people have competing interests and nothing is going to solve it until we get less people with their hands in the pie.

  2. anon e. mouse says:

    IMO, you are both right and wrong.

    It seems that your goal is to decrease energy consumption. That is a laudable goal. But high /gas/ prices will only shift energy consumption.

    If we assume that we want to decrease /energy/ consumption (i.e. drive additional efficiencies everywhere), then one should support higher energy prices across the board.

    What you’re really asking for is a tax on externalities. See Pigovian tax. Economists would agree with you.

    Also, re: your last paragraph, see Jevons paradox; to wit there is a body of evidence that increasing energy efficiency, absent higher energy prices, will result in a net increase in energy usage.

    Despite being generally anti-government-regulation and in favor of lower taxes, I actually fully support a higher energy tax *SO LONG* as it is applied without exception to all energy consumers.

  3. Tommy Z says:

    I don’t mean to be blunt, but your friend Kevin is an idiot.

    Sure higher gas prices will make it more economically feasible for more fuel efficient transportation, but Kevin is not factoring in the added upfront cost of purchasing more fuel efficient vehicles. The price of fuel efficiency vehicles is increasing faster than inflation!

    For instance, a 1990 Geo Metro got you 43 city/52 highway for just $5,995 brand spanking new (about $10k in today’s money). Now, a Prius hybrid that gets similar mpg costs $19k – 90% more AFTER adjusting for inflation. Sure, you can argue the Prius is a better car than the Metro, but is it THAT much better to justify paying nearly double the cost after adjusting for inflation? No way!


    • Lazy Man says:

      I have no problem with being blunt, but he’s one of the smartest people I know. His Princeton degree and high managerial positions at Amazon are a couple of indications of that.

      As an earlier commenter noted, there’s a big difference in cars in the early 90s as there are increased requirements safety and emissions.

      I think a Prius Hybrid is easily worth double the cost of a 1990 Geo Metro. What about comparing the Geo Metro to the Tata Nano that costs around $1500 and gets around 55 MPGs? (You have to dig in the Wikipedia for the MPG information in US terms.)

  4. Steve says:

    I (surprise surprise) agree and don’t. You and I can afford to absorb higher gas prices. We can shift money from more discretionary budget categories, make capital expenditures (aka buy a new, more efficient car), etc. So it’s easy for you, I, and Kevin to sit around saying it would be good for us.

    Meanwhile the vast majority of people in this country are living paycheck to paycheck and could not absorb that cost, even over a (relatively) short term.

  5. Sean Sullivan says:

    Lower gas prices don’t encourage stagnation in the realm of innovation. It just gives people more money to spend on something else which grows another part of the economy. Gas is one of the few things that is considered a priority to most people. So it will get cut from the budget last. Sure people will drive more when prices are low, it’s just like getting more meat at the grocer when it’s on sale. But everyone has to get to work some how and biking is soooo hard for most people.

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