Tuesday, 2 October 2012

Slapstick economics and insensitive fun with the fuel price

At this point, you may be tempted to go out and buy a hybrid that saves fuel and the environment. Think carefully...

The good news is that the fuel price will go down, and most people will get a lot healthier. The other side of the story will take up the rest of this column. Have fun.

There is a thing called the law of supply and demand. It is expressed with two curves on two axes called X and Y, that cross one another. Ignore that. It's kind of mind bending and involves shifting the curves from time to time, depending on whether the economist is in a good mood or not. Qualitative is where the real action is at. The simple fact is that the more you and everyone else is prepared to pay, the more you will pay, and vice versa.

The implication of this is that if you are not willing to pay a lot to fill up, you won't pay so much. Obviously you will need to drive less and, depending on the general level at which you maintain your tank, you may have to push the car from time to time.

If enough people agree with you and don't fill up much either, the price of fuel should drop as major oil producing nations desperately try to maintain their standards of living, or corruption as the case may be, by selling oil cheap.

And if enough people don't fill up enough, then the general health of nations will improve with substantial ramifications for the global health spending. This is known as a 'ripple effect'. In this case it will be a result of pushing cars to the garage to fill up. You get fit doing that, though my personal advice is to make sure that you use the last drop of fuel before your car judders to a halt to get to the top of the nearest rise. Pushing downhill is easier. I know from experience.

Of course, you won't want to give up your car, so here is what will happen until you get to the point where pushing seems like a viable alternative.

The good news is that dieting won't be such a problem and you will effortlessly begin to eat less. Eating less, in this case, will either mean eating less good or enjoyable food, or eating less entirely. There will be four reasons for this.

Firstly, you will spend more on transport which will take a bite out of your food budget and any other budget you are still wealthy enough to have. Secondly, the cost of food will increase due to the rising cost of fuel that is needed to transport it. Thirdly, as people grow more and more biofuel crops, food will become scarcer and, more expensive. In the fourth place, shops will start going out of business as people spend less, driving up inflation and unemployment, which will push the price of food up even more.

Actually, all this is happening right now. You don't need an economist to corroborate it. Just ask a cleaner or manual labourer or any other person who doesn't earn much.

At this point, you may be tempted to go out and buy a hybrid that saves fuel and the environment. Think carefully...

The premium on the hybrid may be somewhat more than the savings that you make on fuel. The amount of carbon released into the atmosphere while manufacturing it, will probably exceed the amount of pollution prevented by driving the thing. The fuel it burns is typically some form of petroleum which causes pollution while it is being manufactured. And there is the small matter of the acid in the batteries. All of this has been documented.

The sensible alternative is to buy a small second hand car. The fact that it has already been manufactured means you won't be adding new pollution to the environment in a vainglorious attempt to cut costs and save the environment in the first place. If it has trouble starting and you need to take a lift, all the better.

Or you could walk more. Or ride a bicycle. And get fit while doing it. And you will save on gym fees. Which means you will be able to eat better. And ultimately, if there are enough of you, the fuel price will fall.

Economics is so much fun, it ought to be illegal. But unfortunately, it is reality. As I said, have fun.

No comments:

Post a Comment