As gas prices hover somewhere between $3.65 and $4.50 (depending upon where you are and what you buy), and all manner of schemes, plans, and programs are discussed for reacting to that, there’s a simple question:

To Drill or Not to Drill?
 

There’s no question that America has substantial untapped oil reserves: in Alaska, off the shore, under the Great Plains. And new technologies may make recovering even more of this affordable, even at sub-$100/barrel prices. At $125/barrel and above, we’ve definitely got more oil we could be extracting.

But of course, that comes with a price: damage to the environment and treating the symptoms without addressing the disease. Like a junkie facing withdrawal who simply scores more of his chosen poison, we’d simply be feeding our addition, not dealing with it.

So, to drill or not to drill? That’s the question for you all.

Oh, that and the obvious follow-up: whether we drill or not, what else do we do? If you’re pro-drilling, you’ve still got to face that we’re just delaying things. If you’re anti-drilling, you’ve still got to face that spiraling fuel prices lead to poverty and even death for real live people.

So, either way, what do we do after deciding to drill, or not to drill?

As you can tell by reading the comments, my article on hybrids generated a ton of interest and comment. On top of the actual comments, we’ve had a bunch of discussion on our super-secret internal email list. Given the quality of the discussion in the aforementioned article, we’d like to give everyone a chance to continue the conversation.

For those of you who missed the first edition, I basically argued that hybrid automobiles only start to make sense for the typical American driver (as defined by the DOT) when gasoline reaches the economically crippling $10 a gallon. Mere “European” gas prices won’t cut it. Inflation, which is largely driven by gas and commodity prices these days, will not make matters any better as it increases prices across the board. If anything, hybrids are even more screwed.

So what do the 12 Angry Men have to say?

Angry Overeducated Catholic
Right, in fact hybrids in general (even at the SUV level) aren’t yet worth it economically. But they may be worth it for early adopters (who by definition buy such goods before it is economically rational to do so), nerds, and greenies.

Of course it would be far more worth it for the greenies to drive their old, decrepit, smog-producing VW minivan to a rally for greatly increased use of nuclear power, which would do far more to reduce fossil fuel emissions and oil dependencies than any number of hybrids.

But you can’t drive a pro-nuclear rally around to show off to your hippy friends, so that doesn’t work out…

Status good is spot on. (Note: Strictly speaking economists don’t use the term “status good” but such things would be a type of Veblen good.)

Mildly Piqued Academician
Right, in fact hybrids in general (even at the SUV level) aren’t yet worth it economically.

Well, not accounting for externalities. And “worth it” is tricky. It ain’t just gas mileage, or no one would ever get the add-ons to a car… or buy anything but the basic economy vehicle that gets you around.

But they may be worth it for early adopters (who by definition buy such goods before it is economically rational to do so), nerds, and greenies.

Right. If the nerds and greenies (big overlap there, obviously) need to justify their purchase, they can go right ahead. Fundamentally this is no different than the lawyer justifying his purchase of an Infiniti as a sign of having “made it.”As David Brooks has noted, it’s become acceptable to spend lots of money on high end “basics” such as a fancy kitchen among the bobo class, aka the current upper class.

Status good is spot on.

That’s true. But many other goods fall into that camp. Early adopter markets are quite important for the eventual broadening of the market. When fleet vehicles such as taxis, cop cars, etc., end up going hybrid you’ll see a big shift. Third gen hybrid may well push this as it will be cheaper, smaller, and better. In this case, the early adopters did
the rest of the world a big favor. 🙂

Angry Overeducated Catholic
Well, not accounting for externalities. And “worth it” is tricky. It ain’t just gas mileage, or no one would ever get the add-ons to a car… or buy anything but the basic economy vehicle that gets you around.

Right. I meant in simple economic analysis based on fuel efficiency. As you say, very few people buy their car for entirely (or even primarily) economic reasons. Otherwise the Fusion, Milan, and Altima could not all successfully compete—being the same car with different shells and options. Fortunately (for them) external options make a difference.

Right. If the nerds and greenies (big overlap there, obviously) need to justify their purchase, they can go right ahead. Fundamentally thi is no different than the lawyer justifying his purchase of an Infiniti as a sign of having “made it.”

Yes, and there’s nothing wrong with either. Both also signal to one’s peers that one is a member in good standing of the group and agrees with the aims and beliefs of the group, and such signals are of great importance to us naked apes.

As David Brooks has noted, it’s become acceptable to spend lots of money on high end “basics” such as a fancy kitchen among the bobo class.

Yes indeed. Or to spend lots of extra bucks on organic food at faux farmers’ markets like Whole Foods. I suspect part of this a legitimate interest in these things and part is a desire to be able to consume conspicuously without appearing to be a wasteful and evil conspicuous consumer.

That’s true. But many other goods fall into that camp. Early adopter markets are quite important for the eventual broadening of the market.

Yes, and there’s nothing at all wrong with status goods—together with other luxury goods they form a huge component of the economy, after all.

When fleet vehicles such as taxis, cop cars, etc., end up going hybrid you’ll see a big shift. Third gen hybrid may well push this as it will be cheaper, smaller, and better. In this case, the early adopters did the rest of the world a big favor. 🙂

Exactly. If hybrid tech pans out the early adopters will be those who kept it alive long enough to do so. And if it fails, they’re the ones who took the risk (and loss) to give it a try. Entrepreneurs of consumption, as it were… 🙂

Mildly Piqued Academician

Yes, and there’s nothing at all wrong with status goods—together with other luxury goods they form a huge component of the economy, after all.

They always feel a little “dirty” though… Why else would bobos go through so much trouble putting on counter-cultural airs? Why else would people like Richard Nixon famously go on about wife Pat’s “good Republican cloth coat” in the Checkers speech? Honestly I think that the argument that bobo-ism represents nothing more than changing tastes of the upper class is spot on.

Angry New Mexican
So, to paraphrase AOC from the comments of the original article are hybrid car owners
“driving around the block displaying your Goreon commitment to the admiring public,” like the folks who shop at Whole Foods (evidently including Obama… no wonder the wacky left opposes The Clinton Restoration(TM))? Are they really interested in engaging in self-promoting faux-greenery, namely saving the planet without sacrifice (or at least without their sacrifice… the opposition to Tata Motor’s ultra-cheap car betrays this hypocracy)?

Or on the other hand, are folks who buy hybrid just crazy first-adopting geeks (I can relate, I bought a 1st gen Iomega Zip Drive back inthe day), who will eventually help move the technology to the mass market?

Only time will tell… Readers, what’s your call?

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ObFascism Tag: Boboism is nothing new. Adolf Hitler practiced it personally—put on of being a “man of the people” while living in luxury himself—and it’s a part of the denouement of previous romantic movements.

In case you missed my last article detailing my passionate hatred for the latest bit of consumer stupidity, known as hybrid automobiles, I’m back with a sequel piece. Here I’ll be employing the mighty power known as algebra to explain why buying a hybrid automobile makes no economic sense, except in what would be best classified as a nightmare scenario. To illustrate this, I want to compare the Toyota Prius with (in my opinion at least) one of the best inexpensive cars on the market, the Toyota Corolla. The cars are of a similar size and equal seating capacity (5). So what makes the humble Corolla more than a match for the mighty Prius from an economic perspective? The answer is simple: cost.

Consider the following vital stats about the two automobiles:

Car City MPG Highway MPG MSRP Range
2008 Prius 48 45 $21,100 — $23,370
2008 Corolla 28 37 $14,405 — $16,415

According to Uncle Sam, it’s plausible to assume that the average driver puts about 15k miles on a car every year. Likewise, according to the DOT, the average American keeps their car about 4.5 years. That’s not a whole lot of time to recover the cost of the vastly more expensive Prius. But with the price of gas these days, it has to be a good deal, right? Wrong.

Assuming that the cars depreciate at an equal rate (or you just crash them into a tree and get nothing from your insurance company) and that inflation (now pushing 4% per year) drops to zero, here’s where the Prius becomes cheaper as determined by the price of gas (here we only consider the lowest end model of each car):

When the Prius Price of Gasoline (per gallon)
Costs Less $2.00 $3.26 $5.00 $8.00 $10.00
Years 22.8 14.1 9.1 5.7 4.6

So for a Prius to be more economically sensible for the “average” American, gas has to cost $10.00 a gallon. And this is assuming 0% inflation. The numbers get worse when you factor in a 3% inflation rate. Assume that the gas price listed is the price today and that the cost of gas increases inline with the 3% inflation rate (Ben Bernanke and I are both being hopeful). Then the crossover point looks like:

When the Prius Price of Gasoline (per gallon)
Costs Less $2.00 $3.26 $5.00 $8.00 $10.00
Years 36 18 11 6 5

So unless we assume that gas prices are going to head up significantly faster than the inflation rate, it’ll still take $10.00 per gallon gasoline to make the mightly Prius cost-competitive with the humble Corolla. Perhaps that’s something to think about the next time you head to visit the Toyota dealer…

In an earlier missive I addressed some physical constraints to actually constructing a Jedi lightsaber. The task was formidable, not to say impossible. Perhaps some new physics will intervene to assist in the future, but for the moment, I am going to take the challenge to construct a lightsaber metaphorically. I will define the Dark Side of the Force and create a weapon to defend against that Dark Side. And strangely enough, I will be using bosons and fermions.

First we need to discover the lair of the Sith Lord and the Dark Side of the Force. Fortunately, one only needs to look at a few interesting correlations. My two axes are the Economic Freedom Ranking and crude oil production provided by the United States Department of Energy. With a little judicious editing, an abreviated table appears as follows. The economic index ranges from 1 being most free to 157 (North Korea). (For those interested, the top seven are Hong Kong (1), Singapore (2), Australia (3), United States (4), New Zealand (5), UK (6), and Ireland (7)).

Correlation Between Oil Revenue and Economic Freedom
Country Crude Production Ranking Ranking in Index of Economic Freedom Characteristics
Saudi Arabia 10.4 M bbl/day 85/157 Wahabi Islamic Fundamentalism
Russia 9.5 M bbl/day 120/157 Resurgent KGB, Socialist Power Elite
Venezuela 3.4 M bbl/day 144/157 Chavez, Totalitarian, Communist
Iran 2.7 M bbl/day 150/157 Islamic Fundamentalism
Nigeria 2.5 M bbl/day 124/157 Choppa offa your hands

While the correlation is not particularly inverse linear, e.g., Saudi Arabia ranks number one in oil production and revenue but is not the worst Economic Freedom ranking (after all, Kim Il Jung doesn’t produce any oil), when additional factors, such as the Saudi’s urban redevelopment plans are added to the mix, clusters definitely form. Clearly there seems to be a correlation to the use of oil revenues to prop up totalitarian despot regimes. Each of these producers represent the worst elements of the Dark Side of the Force. These are governments which deplete their natural resources on the backs of their populations to further narrow nationalistic aims benefitting only the power elite. “Let’s see: fear, anger, hate, suffering — yup all there.” The difference between these regimes and those listed at the top of the index is that free society governments, where their people are economically free, view their populations as resources, not impediments. And because of the requirements for energy, those free countries must make a pact with the Dark Side to secure that freedom.

So what if we had a weapon that would directly attack these Dark Forces at their most vulnerable point. Without oil revenues, these regimes would collapse overnight. Iran must actually import gasoline. Without petrodollars to spend, Iran would be reduced to selling crappy carpets to fund their Islamic Jihad. Russia, which experienced a brief surge of freedom before Putin, would deteriorate into pure organized crime verses the state sponsored kind.

What weapon is this? Energy independence! By all means, let’s continue with wind power and solar power, and even allow the playing with sawgrass and synthetic fuels; but the paramount effort should be placed in developing an energy source that can replace petroleum. Start with home heating. That is a straightforward application which affects non-discretionary fuel usage. Then let’s adapt that new source to transportation. We probably will not be able to do this directly and will have to convert to electricity first, suffering some loss of efficiency in the conversion, but when we are finished with this effort, petroleum will be reduced to feedstock status for plastics and the chemical industry — which we can supply domestically.

We did the Manhattan project, and the Moon Project. The United States can accomplish remarkable things with the application of the national will. Surely, these despot states are more of a threat than the chimera of a Nazi atomic bomb which started the Mahattan project, of the launch of Sputnik, which started the Space Age. We need to focus. The technologies are out there withering on the vine from inadaequate funding and attention.

When we have these developed, I suggest the entire scientific and political leadership of the United States gather and collectively flip the bird to Abdullah al-Saud, Vladimir Putin, Hugo Chavez, Mahmoud Ahmadinejad, and Olusegun Obasanjo. And afterwards, as much as it pains me, convey and deliver the technology to our European (choke) and Asian allies. And oh, by the way, we do all of this AFTER we have all of our new generators and engines in production. [Might want to short oil futures also as a way to pay for the development.]

The lightsaber is the weapon of a Jedi, an elegant armament of a more civilized time

What could be more elegant that using their own petro-greed against them. Now that is a light saber!

How would you like to make small untraceable donations to Al-Qaeda? Interested in supporting Terrorism and helping America’s enemies win? Then you’re in luck my friend! All you have to do is buy an SUV. That’s right, by purchasing a Sports Utility Vehicle, you too can be a terrorist. In the spirit of Regan’s Trickle-down economics, soulless American consumerism has brought you Trickle-down terrorism. Sure everyone needs to drive, and so some money from US oil purchases will end up in the hands of unsavory types, but by buying an SUV, you can ensure that you are funneling your hard earned dollars into terrorist hands even faster!

Before we really begin to dig into the issues here, I want to preface my argument by pointing out that some people need SUVs, or big trucks. Farmers in particular, who use SUVs and trucks as actual workhorses, are blameless, as are disabled individuals for whom sitting in a car causes discomfort or pain. These people are forced into using SUVs because of their jobs, or personal injuries. But these people are the minority. Most of the individuals who drive SUVs do so because they are hip, shiny and cool, and to help them keep up with the Joneses. After all, if your car isn’t as new and pointless as the one Chad and Buffy Jones just parked next door to your coastal McMansion, you might not be invited to the next shallow cocktail party they throw!

Given that over 25% of our daily oil imports come from countries with known or suspected ties to terrorism (and an additional 13% comes from Venezuela, a country none too fond of Western governments), we should be weighing our consciences to see if driving that new Ford Valdez is really worth the price. The average SUV uses 169% of the gas of a sedan does to move the same distance, and 281% of the gas a hybridized car uses. The cost of this useless inefficiency isn’t just to your wallet. The cost is paid by your children too. By wasting money on SUVs instead of the passenger car you really need, more money ends up in the hands of people who hate freedom.

But how much money ends up in the hands of terrorists each time you fuel up your good old SUV? It’s easy to ignore the costs when they’re just abstractions so I am going to tear away the curtain and force you to pay attention to the terrorist behind it. With the current US gas price of $2.87 and roughly 20 gallons in the tank of an average SUV, we’re talking about $57.40 for a full tank. Of that, roughly 45% of your money goes towards the oil producing countries, or $25.83, and of the money that ends up back at the sources 25% of it goes to nations with known or suspected terrorist ties, giving us the final amount of $6.45. Every time you fill up your SUV, you donate $6.45 to Al Qaeda. Based on DOE average yearly gas consumption, the average SUV driver donates more than $240 to Al Qaeda every year.

But $240 isn’t a lot of money right? Wrong. Your yearly donation to Al Qaeda helps to outfit 24 terrorists in Afghanistan with assault rifles. Or perhaps it will be used to buy 10 Improvised Explosive Devices in Iraq? Either way that SUV parked outside of your house right now means more innocent people dead every year. It is time to do our patriotic duty as Americans, and get rid of our SUVs, replacing them with fuel efficient alternatives. Stop trickle-down terrorism today!

-Angry Midwesterner