The reality of sustained $5 dollar (USD) gasoline is fast approaching as it’s so close we could safely add it to the list of perpetual eventualities such as death and taxes. As one can argue and moan about life being unfair, it is a reality of a capitalistic life style that the knife cuts both ways as what is given, can also be raised in price when driven by opportunity. While still the best economic system out there, it does suffer one major flaw and that is education as even when growing up, my “public school” education only taught me that “capitalism” was all about competition driving prices down and it favored the consumer.
To insure these capitalistic truths there was born the FTC (Federal Trade Commission) to ensure the likes of no one company dominated a market to a point we they could “fix a price” or create an artificial economy. Then there is the “Justice” depart to guard against and punish companies for winking one too many times at each other in a loving way to insure to “set prices” in a non-competitive manor. In essence the list goes on to the likes of the SEC (Securities Exchange Commission) who protects us from the false hoods and wrong doings of those that make the market, so on and on.
Yet what that public school teachers forgot to explain is that the “consumer” is also a “competitor” for products and services as capitalism is a “zero sum” game in that there is only so much gasoline, money, cars, etc to go around so distributions will not be static as they live in a semi-chaotic system thus they just cannot. As if I’m willing to pay more for a product, why shouldn’t the company sell it to me and not you?
As written in prior posts, China in 2011 & 2012 as the foreseeable future will be the new kings of automotive purchasing and what will all those cars need? Oil changes and new tires, yes however more importantly they will need gas and lots of it as there will be lots of them to burn it. In addition, unlike the United States where the fixed base of cars is relatively steady meaning when a new car is purchased, typically somewhere down the chain one is removed from the road to be retired to the scrap yard to rest in pieces. So in essence [fuel] consumption is steady and actually since the retired vehicles are older models and less fuel efficient then the newer ones, the overall average improves.
Yet in China, there is an important difference as not only is their burgeoning middle class buying gasoline powered cars, these are additional units in the greater scheme “adding” to the existing world demand for oil rather than just holding the party line on existing capacity. Also since the price of gasoline will be high to them also they will buy more fuel efficient cars and the math would seem to favor economy that would be false as this will simply drive up usage on an individual basis because it will be “more affordable”. However when you do the math and multiply the “effect” across all the units (cars) we will find our ole friends the power laws kick in to yet drive aggregated consumption even higher, faster. Its as the old wives-tale goes, if all the butterflies in China flap their wings at once, you will get a hurricane…