Bob Neal
No one, myself included, enjoys paying more for the fuel to run our cars, heat our houses or run appliances in our houses and businesses. But there are a couple of upsides.
First, higher fuel prices can help boost local business since it costs far less to ship, say, bacon from Auburn to Brunswick or a hand-crafted chair from Lewiston to Bangor than to ship either from Arizona. The difference is far greater with overseas shipping.
Second, higher prices can lead to lower demand, which reduces the environmental impact of burning fossil fuels.
First thing first. American manufacturing has been devastated by cheaper, often inferior, products made abroad. Foreign makers constantly shift, and now even China is being undersold by Vietnam, India, Indonesia and Thailand, among others.
Each of these countries has developed a comparative advantage over China, just as China developed a comparative advantage over us in the past 40 years.
“Comparative advantage” is not just a chance pairing of words. It’s among the oldest economics ideas, dating at least from 1817. Comparative advantage says nations (states, too) should focus on making what they make cheapest and buy in everything.
England had a comparative advantage over other countries in manufacturing cloth. So it made sense for, say, Germany, to buy cloth from England and for England to buy from Germany chemicals that England couldn’t produce so cheaply.
China has taken advantage of its oversupply of people to gain comparative advantage over the West, notably the United States, by paying factory hands extremely low wages.
But comparative advantage breaks down where it ignores the cost of transportation. When bunker fuel is $1 a gallon, transportation cost is low. If it rises to, say, $5 a gallon, that cost begins to add significantly to the final price of goods.
Example. A warehouse in Chicago orders 13,000 school notebooks. A 20-foot shipping container (19,000 pounds) costs roughly $3,000 to ship from China to Los Angeles, says BR Logistics, a shipping company. A 100-sheet notebook weighs two pounds. A container holds about 6,500 notebooks packed in corrugated boxes.
Sorry for all the numbers, but you gotta do the math to figure out this stuff. Fuel to ship two landed containers (13,000 notebooks) from Los Angeles to Chicago costs another dime per notebook, so the shipping cost China to Chicago is 56 cents per notebook.
If the notebook were made in, say, Lewiston and shipped to Chicago, the fuel cost would be 17 cents each. So, we can save 39 cents per notebook in fuel cost. As the cost of fuel rises, that difference should rise, as well. America is full of smart people. Some of them should be able to figure out how to make and deliver a notebook 39 cents cheaper than one from China or Indonesia.
The other advantage of higher prices is environmental. Make no mistake. We wouldn’t have reached our level of wealth without fossil fuels. But those won’t last forever, so the less we rely on them, the longer we have to develop environmentally sounder energy.
As prices rise, we tend to use fuel more carefully. Living in the country, my best way to do that is to multi-task trips. So, I never drive to just one place. I can do without, say, mustard for a few days and then combine grocery, hardware and bank visits into one trip.
I live 11 miles from Farmington, so for these errands I’m driving 22 miles in one trip rather than 66 miles in three trips. According to the Environmental Protection Agency, that’s 4.5 pounds of carbon my car didn’t pump into the air.
A similar calculation works for pleasure trips. Twice this year, I took Amtrak to a Maine women’s basketball game, one at Boston University and one at the University of New Hampshire. A round-trip ticket from Brunswick to UNH is $21.60. Gas for that trip is $11.50, plus $10 in tolls. That’s a wash. And trains can emit far less pollution per passenger than cars holding a similar number of people.
As gasoline prices rise, more people will make these calculations more often. Europeans have been doing it for decades. Because of high taxes, gas in the United Kingdom cost $7.86 a gallon this week, in Denmark $8.26.
That may help explain why the UK uses a bit more than a third the petroleum per person than we do, Denmark a bit less than half.
Denmark also provides the shining example of renewable energy. The island of Samso became energy-neutral in 10 years by combining wind, solar and biofuel (some of it surplus hay). Like Maine, Samso has a comparative advantage with wind and sunlight, and can be a net energy exporter.
Europe uses taxation, but the American way mixes market and government incentive. That is happening with subsidies for solar and wind. Higher fuel prices can speed it up.
Bob Neal bit his lip at paying $54 to fill his car tank on Wednesday, but recalled paying more than $130 in 2008 to fuel his refrigerator truck. That eased the $54 pain a bit. Neal can be reached at turkeyfarm@myfairpoint.net.
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