The Case for Science, Engineering and Logic

[Steve]

The Case for Science, Engineering and Logic

It’s time to replace the foolish ideological debates with linear, rational thought and action

Special to the Star-Telegram
Oh, the e-mails I get every time the price of gasoline spikes! Stories about fueling cars from saltwater, turning algae into motor fuel, a miracle oil that lets some Canadian get 125 miles to the gallon on his ancient Chevy, a French micro car that runs 125 miles on compressed air. Yes. Pills you put in your gas tank that better your fuel mileage by 25 percent and other nonsensical stuff. People have even written to ask if someday we’ll have solar-powered automobiles. Well, we have solar-powered cars today. You own one; you just don’t think of it that way.

It’s accepted scientific theory that oil was formed when plants died and sank to the bottom of our seas millennia ago; heat, pressure and no oxygen turned them into the world’s most viable and powerful energy product today. Therefore, what you are unlocking when you use energy from oil is the power of the sun that grew the plants that died and turned into crude. Oil is simply nature’s cellulosic ethanol, which took millions of years to cook. From the scientific viewpoint, oil is solar power many eons old.

Let’s look at how others see oil, and how economies and personal incomes are intimately connected to the price of oil.

How Much Oil Can Your Labor Replace?
For most today, "oil" translates to "complaining about the high price of fuel." After all, you only have "X" number of dollars to last until the next paycheck, but the pump price is killing you. But that’s too simplistic: What oil really does is nothing but replace other forms of labor.

Consider this: You live six miles from work and drive a car that gets 18 miles to the gallon, and gasoline costs $3.80; you would use .66 gallons to go to work and home, for a gas cost of $2.51. You can immediately end your $2.51 substitute labor expense if you are willing to replace oil’s labor value with your own labor. You can ride a bike: no oil labor used. Or walk to work, again replacing oil with your own labor. Oil is, simply put, a fuel to replace other forms of less efficient labor.

Another way to look at oil as replacing labor is to study long-distance truckers. Let’s say a trucker picks up a 33,000-pound load in LA headed for Fort Worth — 1,450 miles away. The semi gets 6 mpg, using 241.7 gallons of diesel fuel, meaning it delivers 136.6 pounds of goods for every gallon of diesel used. So the cost of delivering 136.6 pounds is whatever that day’s gallon price for diesel might be; today it would be $4.60. Notice that paying $4.60 a gallon for diesel sounds horrible, but delivering 136.6 pounds of goods for $4.60 sounds cheap.

Now, the other side of this equation: If diesel big rigs didn’t exist, how many horses and wagons would it take to deliver that same 136.6 pounds of goods, and how long? Obviously, the cost of using other forms of labor to move just 136.6 pounds of goods — much less the whole load — from LA to Fort Worth would be astronomical. Not to mention the cost inefficiency of lost time.

That’s the battle over oil pricing one never hears. All you and I care about is the price of the fuel. But those who truly own the oil fields understand its true intrinsic value: It’s a concentrated liquid that replaces other forms of more expensive and less efficient labor.

So, the big secret that’s out there in the open, obvious as can be? The correlation between oil prices and our nation’s economy (incomes) is what statisticians call definite and negative: Historically, when oil and fuel prices are down, incomes rise, and high-priced oil is accompanied by declining incomes.
The correlation is almost absolute in energy-intensive industries. Going back to long-distance trucking: Back in the nineties when diesel cost less than $1.50 a gallon, the net cost of moving 136.6 pounds of goods was $3 less for the 1,450-mile run. Moving the entire 33,000-pound load that distance, the total savings on fuel then was $966.70. Truckers could be paid more for guiding their rigs and goods to markets.

Cheap Chinese Labor
You have to start thinking of oil in a new way. In America, Europe or Asia, there is only "X" number of dollars allocated as reimbursement for labor costs in any given year. If you understand that oil or gasoline is a "labor cost", just like your wages, you understand that incomes rise in decades with low, low costs for oil, and decline when the reverse obtains. Remember, gasoline sold for around the same price in 1969 as it did in some years during the early 1920s. Therefore, as measured against inflation, oil and gasoline declined substantially in price for 40 years — the exact same period in which the entire American middle class was born and grew dynamically.

Now, adjusted for inflation, oil prices have been wildly erratic over the past 35 years; but personal family incomes today, again adjusted for inflation, are about the same as they were in 1973 — the year of the First Oil Crisis. Economists love to point out that American incomes grew like crazy in the nineties, which was when we hit the all-time historical low for oil prices. Likewise, American incomes have declined against inflation in this decade — while oil costs have ballooned.

Never thought of it that way, did you?

This explains why China can afford to buy oil at today’s high prices, yet is growing by leaps and bounds: China’s offset and low cost of human labor is nothing compared to our country’s. Now, to be fair, China subsidizes oil costs to consumers and business, knowing that this helps China increase personal incomes — but that situation cannot last forever. When China finally changes that policy its oil demand growth will likely fall; incomes might then rise naturally; and China’s economic growth as measured by GDP might not remain over 10%.

Only One Answer Right Now

What we need to do is quit debating things that don’t matter, because that keeps us from implementing easy solutions to oil realities. It’s not the Middle East’s fault that they were blessed with all the easy-to-reach oil. Although they do understand that oil is a labor replacement and therefore is worth even more than we are willing to pay for it now, Middle Eastern leaders show great restraint in oil pricing; we just don’t see it that way.

The Middle East’s biggest mistake was dropping the ball: Hundreds of years ago Islamic inventors gave us the piston and valve, while further back in history the Assyrians had given us the wheel and chariot. Yet it was people of European descent that turned these incredible Middle Eastern inventions into the automobile. Yeah, the Middle East could have had all of the world’s great inventions and owned all the cheap oil. It just didn’t work out that way.

So, if oil prices and the monies being allocated for labor costs in America (or anywhere else) are connected, the only way to boost incomes and spending power when oil prices are rising is to find new ways to create more value on less oil energy. Period, end of sentence and nothing more complicated than that.

Do More With Less …

Creating more commercial value using less crude energy forces down the price of oil, which in turn allows incomes to rise. If someone could create a big truck that got 12 instead of 6 mpg, that would immediately free up 50 percent more money to pay the trucker. If you could create a vehicle that uses no oil or gasoline at all, you’d have freed up its owners’ personal income for other consumer goods — forcing up their prices and in turn the incomes of those involved in making and selling them. All the while reducing the demand for oil, thereby reducing pricing pressures on crude.

This is the direction we took in the mid-seventies, and it paid off handsomely for all Americans for decades. To me, smart conservation is not an environmental debate as much as a reallocation of labor costs away from oil to the benefit of the average American family.

So, you can keep dreaming that we’re going to screen algae out of the oceans and turn it into a cheap fuel — enough to power our 220 million vehicles. Or you can debate the problems of the Middle East or Venezuela or China’s rise if you want. But it won’t change anything, and it distracts us from doing smart things that directly help you, your family, our transportation industries, our economy and so on.

The problem with most debates in America today is that they are driven by ideology, either of left or right origins. Ignored are science, engineering and logic, which historically were the foundations of what made this country great. We have an incredible talent for re-engineering what is not working; and the very second that we end the nonsensical debates over things that will never change and use that talent to get on with the logic of what needs to be done, watch America grow again.

Correction: In my two columns on the futures market for energy, I incorrectly identified Professor Michael Greenberger as a former commissioner with the Commodities Futures Trading Commission. In fact, Greenberger was the Director of the Division of Trading and Markets at the CFTC — responsible for supervising futures and derivative trades. Other than that, I stand by my columns as written. —— EW

© 2008 Ed Wallace

[Family Force 6]

The US economic policy over the last couple of decades is major factor in the rise in the price of oil, here is a basic economic lesson:

Oil is priced in US dollars (for now).

The federal reserve has been printing money out of thin air and loaning it to the government at an accelerating pace to help cover our massive gov't debt. (this number used to be tracked and was known as "M3", the government no longer tracks this number)

More dollars in circulation chasing the same amount of oil means that the cost of oil (and everything else you need to live) is going up.

If you believe that inflation is only running 3-5% a year in this country, then I have a gas saving device that will allow you to get 40 MPG out of your heavy duty truck!

Sean