My Grand Plan

Wow, I've really slacked off on the whole blog thing. StumbleUpon has been my social media medium of choice lately, if for no other reason than it doesn't require me to think much. And it has pictures... ooooh, pretty pictures...

But thinking I've been doing. Some of that was in conjunction with school (another semester down, three more to go), and some of that was as a result of where I think we, as in the good ol' US of A, are headed if we don't pull our head out. Pardon the War & Peace post, but some assumptions need to be explained lest you think I'm whack.

One of my classes this semester was antitrust. I thought it would be good for a would-be corporate lawyer to know how corporations can get themselves into trouble. It seems intuitively obvious that the powers that be frown if you try to take over the world, or your little commercial corner of it, and yet that doesn't seem to stop corporate Dr. Evils from trying to do so. Now don't get me wrong--I still believe in big "bidness" and the wonders of capitalism. But, I think my free market brethren have turned a blind eye to Big Oil, and I fear for the fate of the Republic if we don't take steps now to head off the economic disaster that we're hurtling toward at $4.00 a gallon.

Gasoline/diesel--automotive petrol--is not a "normal" good in an economic sense. Its demand curve is inelastic, which is to say demand for gasoline remains relatively stable regardless of the price, at least in this country. This is because the US is geographically expansive and the dominant form of transportation used to traverse this expanse, namely cars and trucks, uses gas or diesel almost exclusively. Consequently, the price of anything that requires transportation by car or truck will rise and fall (heh!) with the price of fuel. Now imagine the price of goods when the price of gasoline climbs to $12.00 a gallon, as predicted by some analysts. The price of goods in and of itself isn't a big deal if wages rise accordingly, but unless you make your living one job at a time and can raise your rates accordingly, it's almost a certainty that wages won't keep up with the cost of living. No one gets weekly or monthly COLA increases, so this will then impact consumer spending and consumer confidence. For all the bad-mouth consumerism gets, it *is* what drives our economy, so if people aren't buying, companies aren't profiting, resulting in the layoff of the already non-buying people. Vicious circle much?

So, what to do... what to do... I know! The government should get into the gas station business! Well, not the gas station business so much as the energy station business, with energy being the generic term for hydrogen and electricity. Now being the paleo-conservative I am, I loathe government involvement in business about as much as the next sane guy, but there's a time to stick to your ideological guns, and there's a time to acknowledge that sometimes--sometimes--government is the answer. The federal government is good at doing things which are cost-prohibitive for states and municipalities, like maintaining a standing army or building an interstate highway system, and doing things which aren't profitable for business to do, like providing healthcare to the indigent and performing research that has little commercial value. Of course the production, distribution and sale of petroleum is lucrative on a scale few of us can imagine, but no one in their right mind would open a station that sells hydrogen and electricity for alternative-fuel vehicles because there simply aren't enough of such vehicles to make that venture profitable. It's a chicken/egg problem. Let's have the feds create an egg so private enterprise can grow it into a chicken... or a turkey; your mileage may vary.

I propose that the feds start buying out stations, or, dare I say it... use... eminent domain to secure the properties (I am *so* going to lose my standing with the vast rightwing conspiracy™). I don't have a good sense (some say any) as to what the saturation point would be, but I don't think it would take all that many stations to get the ball rolling... say, one station every 20 square miles in a major metropolitan area. Refit these stations with equipment like this (the Danes are way ahead of us on this).

Now it's not enough to simply build energy stations; you need customers. Governments can take the lead in converting vehicles to hydrogen, but that's a mere drop in the fuel cell as compared to what the driving public uses. No, we need to be driving this or this or any number of other hydrogen-powered vehicles as seen on Hydro Kevin's Hydrogen Cars & Vehicles. I might even go so far as to mandate that auto manufacturers produce a certain percentage of hydrogen-powered vehicles for sale in the US market by year such & such.

As a rule, new technology tends to cost more than old technology. Some of that is driven by the lack of economies of scale, and some of that comes from market forces, namely, people are willing to pay a pretty penny for shiny new toys. Hydrogen cars may be more expensive at the outset, but I would advocate a tax credit for their purchase to offset the higher cost. As to hydrogen fuel, the cost of such poses an interesting question--how low do you go when you're selling government-subsidized fuel? Do we want to drive the oil companies out of business? I hope not, but I do want to encourage them to take over the business of producing and selling hydrogen with the same ubiquity as gas. The majority of profit for oil companies and the majority of cost for consumers comes in the sale of crude. At roughly $120 a barrel, about $2.70 of the price you pay at the pump for each gallon of gas went to the purchase of the crude. Problem is, there's not a lot of competition when it comes to producing crude, and the cartel that produces the most is overt in controlling price; cartels are, by definition, anticompetitive. The price at the pump also reflects the cost of refinement, distribution, sales and marketing, but the second largest chunk of change of the pump price goes to taxes--roughly 20%. Taxing goods which are not economically "normal" is great for revenues because government is guaranteed a steady stream of income regardless of what price that good is sold. However, taxing gas when the price of gas threatens to tank our economy is not so great, and it should be stopped or curtailed. Having two goals of encouraging the transition to hydrogen and reducing the cost of petroleum, I would set the pump price for hydrogen at maybe $1.50 a compressed gallon... maybe a buck, maybe two. Yes, the oil companies will scream bloody murder that they can't compete and that the government is trying to drive them out of business. True, they can't compete when oil sells for $120 a barrel, so start selling something they can compete in. With competition, the price of oil will drop. Whether you drive a hydrogen- or gas-powered car, you'll have more money in your pocket under my grand plan.

Of course once we transition to a hydrogen-based economy, we still have some of the same issues we face with petroleum, the primary being a lack of competition. There may be new entrants into the hydrogen market, but just as we have an oligopoly on the production of petroleum, so too is there an oligopoly on the distribution and sale of gas. This is because the market is defined differently. In terms of production, the market is global; in terms of distribution, the market is the corner where you notice you're running on empty. The purchase of gas isn't planned, so consumers are largely dependent on what fuel costs at a given corner. Gas stations act collusively in that they set prices within a penny of each other. Some may see that as perfect competition, but gas is bought on futures contracts, so it's highly unlikely the gas used to supply four stations on any given corner was bought at precisely the same price. If hydrogen were to become the dominant automotive fuel, we could see the same oligopolistic behavior as we do now with gas. It's useful to note that where monopolies are granted or allowed to exist, such as public utilities, they're regulated. If the government were to get out of the energy station business, which it eventually should, some form of regulation needs to be implemented to keep what is the lifeblood of our economy at a reasonable price that allows for producers to profit, but not at the expense of throwing out the economic baby with the bath water.

So there you have it. I'm hoping some politician will steal my idea. In the meantime, feel free to pick it apart.