No pain, no gain: A silver lining from high oil prices

Orlando Sentinel
John L. Evans Jr. and Garrett Jones
Special to the Sentinel

September 20, 2006

Even though the recent discomfort of spiking gas prices finally seems to be easing, Americans must not overlook the hidden silver lining in the throbbing pain of higher oil prices. Accompanying all the distress associated with high energy prices, there is hope.

We have had the promise of permanently higher oil prices pounded into our economic consciousness -- promises of $100-a-barrel oil and $4-a-gallon gas have been routinely splattered across economic news headlines and commentary. Indeed, why not?

Behemoth economies like India and China are shedding their "emerging market" monikers and establishing themselves as enormous "super-consumers" of all things oil. There are daily threats to the stability of the Middle East oil supply. An Alaskan pipeline overhaul may slow already meager U.S. production for years. There exists constant political and social instability in Nigeria and Venezuela. The world is constantly affirming its addiction to oil. Why, with all the noise, one could even paint a picture of $5 gasoline -- and even more pain.

And if there is one thing Americans unmistakably do not like, it's pain.

With higher oil prices, there is an unmistakable impact on our lives. It's like a tax; as consumers, we get to keep less of what we've earned because of higher prices not only at the pump but for virtually every other thing we may need to buy. Remember, it takes energy to make and move that thing from the manufacturer to your doorstep. When it costs the manufacturer more to make it and get it to you, it's simply a matter of time (usually not long) before that cost is efficiently passed on to you. And then -- voila! -- the economic pain we so dislike. Ah, but in the midst of this pain lies the silver lining.

Of all of the great qualities that we as a nation possess, being proactive is not one of them. When given an option, we prefer to play defense. We would prefer to address problems after they actually affect us. Re-act, not pro-act. Alas, if we can all stay clear-eyed and calm, we just may be at the embryonic stages of very exciting developments with respect to our energy needs. Have hope. The pain at the pump that we so dislike may just be enough to conjure up the wonderful reactionary traits of our country. Awaken the sleeping giant; embrace the pain.

It's simple, really. In economics it's called price equilibrium. In psychology, it's the pleasure and pain principle. Regardless of what you call it, it works. When it comes to energy, as long as we don't have a less costly (less painful) alternative, we're going to stick with what we've got. Raise the price (pain) of what we've got enough and be sure that we will find something cheaper and less painful. No pain, no gain.

One reason the American automobile came to be such a smashing success was because of horse manure. Horses and their byproducts overran American cities in the late 1800s. Thank goodness we didn't adopt a conservation policy of only being allowed to ride two days a week. How stagnant, boring, un-American.

No, the stench and grotesquerie (the pain) begot the need for innovation at the time, and the car was born.

Sustained high oil prices may provide the painful impetus we need to wean ourselves from oil. Remember, it was only five years ago that a barrel of oil cost a paltry $18. At that price, as a country and world economy we quietly slurped it up with only casual second thoughts of alternative fuel sources. Fast-forward a few years and inject an additional $52 per barrel and our slurping takes on a different sound -- the sound of hybrid cars rolling off the assembly line. Pain precipitates innovation.

Richard Branson, one of the most dynamic and consequential entrepreneurs of our time, is now investing heavily in cleaner burning fuels, to the tune of $1 billion over the next several years. "With oil prices above $70 a barrel, people want to save on the cost of fuel, and so alternative fuels suddenly make business sense," he said.

We are finding purpose from the pain. Innovation, how sweet the sound.

Politely dismiss the talk about conservation of oil; such action may relieve too much pain.

Now, let's innovate into alternative fuels, corporate America.

Be hopeful. Be very hopeful.

John L. Evans Jr. is a vice president, and Garrett Jones is an assistant vice president, for investment firms in Central Florida.