America at five (or more) dollars a gallon: Well on our way to a paradigm shift in services and society

Where will America be when gasoline prices continue to rise, and the transportation costs of goods and people become exponentially bigger than expected? North America is roughly twice the size (42 million Km^2) of Europe (10 million Km^2) but has about a third the density (29.3 v. 69.7 people per kilometer) of population. This explains in some small way the car culture of America and the rampant urban sprawl that city planners are often talking about. Sprawl and suburban living is a relative luxury when not associated with light rail or other public transport. What luxury services will fail or fall behind the times as fuel prices rise? What social justice or societal changing projects will be abandoned because they become relative luxuries? Perhaps oil and crude prices will decline as they have in the past and the new fuel price status will become accepted. Cliché of boiling frogs flits through my mind. Those pundits who go around screaming pulling their hair out to make a statement may get more attention, but the end of the world is likely to be a whimper not a bang.

Energy is singular component of the economy that affects nearly everything around it. Petroleum fuels and their associated costs at some level affect just about every element of the commerce process within the American economy. Fuel prices are especially linked to most items within the economy that are not locally produced. America has created system after system that relies on high-speed luxury services that are beholden to petroleum fuels. Air travel, over night package delivery, regionalized and nationalized farming industries, specialized luxury goods, and so much more require a robust transportation system that is high speed and just in time. Customer demand, corporate advertising, just-in-time inventory systems, quarter-to-quarter corporate profits forecasts, and hyper-competiveness have led to systems in the transportation sector that can not be sustained in a market where fuel prices rise dramatically. Transportation companies are already in trouble and profits are taking a beating (1), (2), (3).

Public transport
In the land where the automobile is King, Los Angeles workers swap cars for public transportation, but are frustrated by an aging infrastructure and limited routes. They have a subway that does not go anywhere. As ridership increases services have not and the infrastructure likely can not sustain a massive shift as riders move from cars to public transport. There are other impacts to the way people are thinking about job hunting and how public transport is enforcing a hub and spoke model or centralized system of transport. People are increasing their ridership but they are also looking for inexpensive transportation solutions and jobs that allow them to use those public transport solutions. I do not think I will see a huge swing to the Vespa motor scooter but in my small rural neighborhood the scooter is ridden by all ages, and the car is staying in the driveway.

In 1998 the New York Times reported that Air Line travel had quadrupled (578 billion passenger miles) and rail travel had peaked and was declining (5.1 million passenger miles). Of course in 2001 exactly the opposite trends were reported, but increasing costs will have an effect that negates the relative ease of airline transportation. This was in 1998 but it shows how new technologies based on economic surplus and low fuel prices allowed for the luxury of high cost low efficiency travel. In 1998 fuel prices were below a dollar a gallon. What will the situation look like as prices eclipse five dollars a gallon for fuel?

Soaring fuel prices have substantive effects throughout the food supply chain. Fuel prices are having a huge impact on fisherman who clashed this last week with police the French are talking about a bail-out on fuel prices but that is only a short term fix. Fuel prices are not expected to substantially decrease anytime in the near future. Farmers in the Midwest are already experiencing a “late” spring planting that could negatively impact crop yields. Fuel prices will drive the price of fertilizer, production, planting, and transport even higher. With the onerous pressures of ethanol already driving increased prices two interesting vectors may converge. The price of corn for ethanol may further drive the price of food crops up, but more importantly the relative advantage of ethanol as a traded fuel may evaporate as costs skyrocket for production.

Will the social luxury of school busing become a thing of the past? Rising prices for fuel and the cost of shipping items are having dramatic effects on the school cafeteria. This is leading to school districts to consider raising the prices of school lunches. Centralized kitchens for school districts or outsourcing of kitchen services may be contributing to the rising prices. Though mandated busing for integration may be already on the downswing it is not far beyond the realm of possibility that the costs are already becoming prohibitive. Social justice concerns and ethnic and racial leveling of school systems will end in short order when fuel prices make busing all but impossible. School systems already chronically under funded shipping students across towns when they have a school they could walk to in their neighborhood will seem silly as prices rise.

The wave of megalithic high population centralized high schools that have been a fad in the last decade are starting to not look so rosy. Placed in out of the way spots requiring busing for large volumes of students (or everybody) any cost savings will be rapidly eaten up by fuel costs. The centralized high school with thousands of students may not be a economically viable or sustainable model for instruction.

Inflation through shipping
Companies are seeing huge spikes in the cost of delivering goods by any means. Already there is a move from trucking, to rail, and more importantly maritime shipping as a companies choice of shipping methods can have dramatic effects on the bottom line. With quarter-to-quarter financial reporting mechanisms in publicly traded companies the impact of increased shipping will be known by September as mid-spring, to early-summer impacts are reported. The inflationary spiral has already started being noticed by consumers. Companies are using clever camouflage on products sold in the same size container with less product for the same price as previous fuller iterations of the product.

What we can safely say is that we are not awaiting impact on the average consumer it is here. Transportation costs are only part of the issue as a weakening dollar is sure to be impacting prices too. But, the weakening dollar should only impact foreign goods substantially unless foreign owners of U.S. companies are ramping up the profit margin to make up for a lean dollar against foreign currency.

Crumbling infrastructures and a way out
Fuel prices effect the ability to raise taxes and in Canon City Colorado the price of gasoline is creating a situation where the infrastructure is being left to crumble . The fuel taxes that normally would fund certain projects are being left behind as the cost of raising taxes for new projects simply would not be political reality.

What is a Manhattan project for clean renewable energy that includes a substantial consideration for the economic viability of the suggested solutions. Any solution that is considered is going to require an economic carrot to the stick of failure. There have been many papers written on the costs and issues with sustainable energy. In the end the best we might hope for is that the government doesn’t make things more difficult on the consumer. The sea change appears to be happening in the market place as people change their behaviors. Now what we need is for government to either help or get the heck out of the way. Coddling “big oil” likely is not in the best interest of the United States. Neither is running “big oil” out of town as so many other products required it.

What we need is regionalized or localized energy production that has secondary or tertiary benefits or energy products. What we need is a multiple methods and a heterogeneous reliable set of strategies that result in fault tolerant energy production. The technologies exist, what has not existed is the political will power to make these things happen.

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