Here’s Where We Screwed Up With Gas
A few months ago I wrote about The Long Tail. The main idea behind this principle is that there is a class of commodities that eventually become so cheap they can be ‘wasted’ in order to exploit bigger, more valuable opportunities. Yahoo gives offers unlimited storage to its email customers to entice them to spend on other things - because storage has become cheap enough to give away. Netflix offers unlimited movie downloads for a flat monthly fee, implying an incredibly cheap per-movie viewing cost for heavy users.
If you were to graph the inflation-adjusted per-unit cost over time of the commodities in question - transistors, storage, bandwidth, etc. - you’d see a high initial price in the first years, and a sharp downward slope essentially dropping to zero in the present day. We produce millions and millions of transistors per day for every man, woman and child on the planet. Can the cost of an individual transistor even be calculated now? How about an individual integrated circuit? We measure their costs at the ’system of systems’ level, in memory chips, microprocessors, etc.
And with regard to these products, our behavior as consumers changes over time as well. Cell phones, computers etc. become disposable entities, and we ‘waste’ hard drive space with files downloaded (and sometimes purchased) on impulse. But we don’t view our behavior as wasteful - we get more enjoyment out of these products BECAUSE we can exploit their low cost.
Keeping that in mind, this graph tells us a great deal (click for larger version).
From 1918-1999, gas was on a consistent downward unit cost trend, with the exception of the 70s oil crisis. From 1981-1999 the cost of gas plummetted, not quite reaching zero, but coming close enough to waste in order to get other things.
What did it get us over the past 20 years or so? Not just the usual automotive suspects - bigger engines, more passenger space, better performance. It allowed us to move further from where we work, extending suburbia further and further from the cities. It opened up air travel to casual use. It made it easier to afford vacation homes. It kept shipping costs stable, resulting in lower consumer products costs. And all this helped hold down inflation, keeping interest rates low and fueling a sustained housing boom. We were willing to ‘waste’ gas because it helped us get lots of other benefits, just as if it was entering the Long Tail.
Problem it, it wasn’t, as evidenced by the graph from 1999-present. And as predicted by King Hubbert decades ago. Imagine, if, all of the sudden, a shortage of silicon or fabrication capacity or whatever led to the cost of individual transistors raising to, say, $.00001each. What would be the impact on our culture? We rely on cheap transistors for just about everything - over 600 million of them in a microprocessor. Could we afford $6,000 microprocessors? How would that impact thousands of other activities?
And that is exactly what we are experiencing with $4+ gas. Suburban home prices plummet, demand for large vehicles nearly vanishes, shipping costs increase, inflation kicks in, interest rates will be raised to control it. Economies in resort areas will be the next to suffer as high gas prices curtail vacation travel.
And yet, as I posted before, at the end of the day, this is a good thing. We now have a crisis to solve, and this will spur innovation. Many have recognized that the only form of energy with potential to become a Long Tail commodity is solar. It is free, it is abundant, and it is perpetually sustainable. It will become a Long Tail commodity when the cost of the products used to exploit it become ‘too cheap to meter,’ or more likely become integrated into the other things we buy (roofs, homes, commercial buildings, etc.) for only a marginal cost increase. When we’re using solar energy to recharge our electric vehicles “for free,” only then can we consider that energy has entered the Long Tail.
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Here’s Where We Screwed Up With Gas…
We made the mistake of treating gas like it was entering The Long Tail….
I really enjoyed this article. It’s very eye-opening on how wasteful the US has been in terms of gas use.
What do you think about Hydrogen used as energy alternatives?
Also, while I agree that the current gas crisis will spur innovation for cleaner energy alternatives, what will happen to the consumer in the immediate future if we were to see $6/gallon prices?