Life on the Plateau

The New York Times had a piece over the weekend that looked at the political risks to the Obama administration due to rising gas prices:

Rising gasoline prices, trumpeted in foot-tall numbers on street corners across the country, are causing concern among advisers to President Obama that a budding sense of economic optimism could be undermined just as he heads into the general election.

White House officials are preparing for Republicans to use consumer angst about the cost of oil and gas to condemn his energy programs and buttress their argument that his economic policies are not working.

In a closed-door meeting last week, Speaker John A. Boehner instructed fellow Republicans to embrace the gas-pump anger they find among their constituents when they return to their districts for the Presidents’ Day recess.

“This debate is a debate we want to have,” Mr. Boehner told his conference on Wednesday, according to a Republican aide who was present. “It was reported this week that we’ll soon see $4-a-gallon gas prices. Maybe higher. Certainly, this summer will see the highest gas prices in years. Your constituents saw those reports, and they’ll be talking about it.”

I can confidently predict that any resulting political debate will have very little to do with the actual causes - the plateauing of global crude oil production since 2005.  But none the less the story does vindicate those of us who've been saying for a number of years that this would be an effect of the plateau - whenever the economy starts to improve - as it has in the last quarter - oil prices would have a tendency to increase and start to choke off the improvement.

In particular, this means that future growth in the US economy is highly contingent on it becoming more oil efficient.  Fortunately, the world's auto-makers do seem to be getting this right.  Another piece in the NYT surveys all the current or near future pure electric cars or plugin-hybrids:

Americans bought 19,874 plug-in cars in 2011, according to LMC Automotive. But the research firm expects the number to surge to roughly 70,000 this year, to nearly 170,000 in 2013 and to a healthy 250,000 by 2015, representing a significant 1.5 percent of a 16.5 million vehicle market.

About a dozen new plug-in models are scheduled to reach showrooms this year, and another dozen in 2013. Most new models adopt a standardized plug that delivers stronger 240-volt current, filling the batteries in three to eight hours — though models can also charge on a standard household outlet, which can take up to 24 hours.

I highly recommend reading the whole thing (with a view to choosing your next car!) Probably most of these cars will fail as the market sorts out what is actually the right combination of features that people will pay for at this point in time.  Indeed if we faced a future of $50 oil, probably all of them would fail.  However, with $200 oil this market would really take off.  Needless to say, over time I consider the latter a lot more likely than the former and the auto-makers are smart to position themselves for it even if the going is rough in the early years.