The only way to kick our oil habit

At the risk of becoming the most unpopular person in the suburbs, I have to admit that my feelings about the recent discovery of a vast new oil deposit beneath the Gulf of Mexico are mixed.

This new find, in what is known as the Jack field, will sharply increase US oil reserves. That is a good thing. Our dependence on Middle Eastern oil is far too great, given the region's instability. The new find may also sharply decrease the price of gasoline. That is the part that bothers me.

No, I am not an environmental radical or an oil company executive. I am a generally conservative American automobile driver, and a trained economist. As an economist, I understand that price movements in free markets send signals to consumers. These signals speak more clearly than all the rhetoric Washington, D.C., can muster, and change behavior more effectively than the finest of moralizing.

And when it comes to oil, America's behavior needs to change.

I see the ugly face of America's oil addiction every day in my hometown of Dallas – lines of large automobiles, one occupant each, stretching toward the horizon. And this is only the part I can see. The rest I can only imagine – a web of asphalt crisscrossing the nation, an uncountable mass of cars coursing along it, burning gasoline, emitting exhaust. As an economist, what bothers me is the inefficiency of it all, and the opportunity costs.

I am as much a fan of rapid transportation as the next person, but the traffic jams to which I am frequently a party are anything but rapid. I would be afraid to estimate the amount of oil we use, the pollution we create, and the dollars we send to the Middle East, without even moving our cars an inch.

Another example of our inefficient use of oil is found in the immense size of many of our automobiles, a result of cheap gas. One person going to work in a vehicle built for eight requires much more oil than should be necessary to get that person from point A to point B.

Oil, along with its partner the internal combustion engine, has been our blessing, but also our curse. It is part of a broader technological revolution that has effectively shrunk space. It has drawn our economy closer together, powering growth.

But cheap oil encourages wasteful use. It pollutes the air. It may be heating up the entire atmosphere. It has nurtured a relationship with the Middle East that is so dysfunctional that lives are lost tragically on both sides every day.

And what are the opportunity costs of our oil addiction? According to the Bureau of Economic Analysis, Americans spent over $280 billion on gasoline and oil in 2005. How much of this money could be saved with smaller, more efficient cars, more gas-electric hybrids, more and better mass transit? For argument, let's say half. That would be $140 billion that could be used to meet more critical needs.

To illustrate the possibilities of such an incredible figure, consider that economist Jeffrey Sachs, in his book, "The End of Poverty," has estimated that extreme poverty in the world could be eliminated in 20 years with $80 billion of additional international aid per year. Whether or not this is true, I do not doubt that the resources freed up by a less wasteful transportation system could accomplish some truly amazing things in a world where tragedies of scarcity play out every day.

Oil has its substitutes. Biofuels, solar power, electric automobiles, renewable-source electricity generation, and other technologies exist and are waiting to be developed further. But they cannot compete with oil as long as it is cheap. Until these alternatives can compete, they will not be improved as rapidly as they could be.

Moralizing will not break our addiction to oil, but sustained high prices certainly would. People would respond to such a market signal by slowly changing their behavior – cars would become smaller, more efficient. Better mass transit would be built and used. More people would live close to their workplaces. Traffic jams would shrink. The air would clear.

The discovery of a new oil source in the Gulf of Mexico makes that scenario less likely. An oil supply close to home is a good thing, but cheap oil has a downside. Gas prices at $4 per gallon might be the only way to break America's oil addiction. With the news from Jack field, $2 per gallon is more realistic. The former looks like the better bargain to me.

Paul McDonnold is a freelance writer and adjunct economics instructor for the Dallas County Community College District. He is the author of the novel "5 Pillars, 7 Sins."

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