I find such posts as this one by Andrew Sullivan to be incredibly…well stupid. Are terroristis benefitting from higher oil prices? Probably. Are SUVs to blame? In a marginal and fairly insignificant manner I suppose so. The high oil prices are not a direct result of SUVs. After all SUVs have been around for years and it has only been in the last few years that oil prices have been going up.
Basically I see people who make these arguments and arugments about drilling in ANWR (Sullivan makes this argument too) as people who don’t seem to grasp the concept of a global market. What matters for the price of oil is that the U.S. consumes a large amount of oil (and now other countries are increasing their consumption too while at the same time increasing production is somewhat difficult…hence a rise in the price). Even if we drill in ANWR and start using that oil will it do much to decrease the flow of petrodollars to terrorists? Maybe a little bit, but over all not much. Why? Because drilling in ANWR is going to have only a slight impact on the global price for oil. Would driving economy cars help? Sure, but not all that much either. Oil is used in a wide array of consumer goods not just gasoline. So exactly how much less oil will we consume if we all switch to SUVs? Funny that Sullivan and those who think like him can’t answer that question. Lets see if we can help Andrew out here. Suppose we could go back to 2001 and magically put everybody in an SUV into a passanger car. Further, suppose we could constrain everyone to drive the exact same miles in that passanger car that the drove in their SUV (SUV drivers don’t drive as many miles as people with passanger cars). Now, according to this website that would mean we’d have about 84 million new passanger cars (vs. other 2 axle 4 tire vehicles). These cars would drive on averge 11,140 miles and they’d consume 532 gallons of gasoline vs 633 gallons of gasoline for a net savings of 101 gallons of gasoline. Over all this would reduce gasoline consumption by 8,502,951,236 gallons. How much is that in terms of our overall gasoline consumption for 2001? About 6.7%. That’s right even if we could get every single person out of their pick-up truck, SUV, mini-van, etc. and into a passanger car back in 2001 there would have only been a 6.7% drop in gasoline consumption. And this is probably an upper bound since people would see their marginal cost/mile go down they’d probably drive more. Now, assuming that gasoline is pretty close to unit elastic (that is the price elasticity of demand is -1, meaning that a 1% increase in price leads to a 1% decrease in demand) we’d expect the price of gasoline to fall by about 6.7% as well. So if gasoline is $2.25/gallon then after this massive switch we’d expect to see gasoline prices at about $2.0925/gallon. In terms of money saved, it would be about $1.34 billion, not chump change, but when you have a $10 trillion plus economy it isn’t that much.1 [See Below for Correction]
Moreover, oil is a cheap source of energy despite the recent price increases. The best way to reduce the flow of petrodollars to terrorists is to stop using oil. But what will take its place? Most alternatives are not currently capable of providing the same level of energy and they are more expensive. This idea of using less oil is sort of like cutting off you nose to spite your face. Sure we could have a solar panel put on every home, and switch over to electric cars or some such, but unless that also resulted in less energy consumption (i.e. we drive less, use less electronics, etc.) we’d merely be subsituting one energy source for another and the new energy source actually costs more. In this sense it would very much be like raising taxes. At which point we have to wonder why guys like Sullivan and those who share his views don’t advocate for an energy tax. Slap another $40/barrel onto the price of oil and boy-oh-boy would people consume less and thus result in fewer petrodollars for terrorists. Maybe they aren’t serious about their argument and are just interested in kooky propaganda.
Update: Hmmm, only one comment so far, yet James’ post had over 20 last time I looked. Funny, when we actually put some numbers to this issue all the blabbering seems to go away. While at the Bureau of Transportation Statistics look up the numbers on the wasted gallons of gasoline due to traffic congestion and the lost hours and the imputed cost, it makes this SUV issue look like a complete joke.
Update II: Oh, boy did I mess up my calculation on the savings. I should have calculated it as follows. First there is over 8.5 billion gallons that wont be bought if we got rid of every “other 2 axle 4 tire vehicle” at $2.25/gallon. That comes out to about $19.1 billion in savings right there. On top of that, everybody who buys a gallon of gasoline saves $0.1575/gallon. That means there is an additional savings of about $18.6 billion in savings. In all the final savings is about $37.7 billion (rounding to hundred millions). Now that is much, much larger than my initial calcuation. Still, we have to look at where that money goes. Not all of it is going to go right into the pocket of Osama bin Laden and other terrorists. First U.S. companies are going to take their cut for employees, shareholders, operations and management, etc. Then comes in Uncle Sam to collect his share in taxes as well. Then part of it will be divied up between all the countries the U.S. companies buy oil from (and according to the Energy Information Administration, the U.S. imports about 18% of its oil from the Persian Gulf–warning an Excel document). Then these various governments are going to spend the money on things to keep their populations happy such as cheap goods and services. So I think it is still, despite my rather embarassing error, ridiculous to conclude that SUV drivers are indirectly funding terrorists or killing U.S. military personnel.
Other posts on this topic:
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1Keep in mind that these numbers are somewhat impercise in that they are using 2001 figures for gasoline consumption, consumption by vehicle, and then approximately current prices for gasoline. This isn’t supposed to be a rigorous analysis in the sense of a peer reviewed article, but to help put this issue into some sort of perspective in terms of the amount gasoline used/saved and the total dollar amounts.
