I'm writing a research paper for my economics professor about how the rising oil prices will affect the United States. Anyway this is a rough draft/outline that I'm submiting to give him a general idea of how my paper is going to be broken up. Of course in my final verison it'll have more data, some graphs, economic analysis, some alternative scenarios, etc.
So any thoughts at all?
A capitalist system by definition always supports most cost effective option given any choice. If two producers sell a product, same in all but price, it is only natural in a capitalist system that the producer with a cheaper product will prevail.
In the early 1970s the Arab states placed an embargo upon Western Europe, the United States, and Japan for their support of Israel during the Yom-Kippur War. As a result of this action oil prices in the United States tripled, and capitalism set in. Just as we see today, the increased price of oil led to suppliers searching among the various options for more cost effective ways to supply energy to their consumers. Of course unlike today alternative forms of energy were not as widespread or as technologically advanced, but what was available was used. The end result was the United States, and other countries suffering embargo, suddenly found it cost effective to acquire oil from spots such as the North Sea and Alaska, when it was not cost effective with a steady supply of Arab oil. Additionally Saudi Arabia, among other Arab states, lost a substantial part of their market share of world wide oil production, dropping from 13% to roughly 8%, because of oil exploration done during the embargo.
Currently it seems that history is repeating itself, although instead of new oil exploration as an answer to new higher oil prices, there is a strong movement for completely new forms of energy production. There is one thing that will spur alternative energy development in the United States, it is not environmental concern, it is not fears of dependency on foreign oil, it is simple economics. The higher of the price of oil becomes the development of alternative energy sources will only become faster and easier to achieve. Creating an electric car that is cheaper to drive than a gasoline using one is near impossible when gas is $1.50 a gallon, but to create an electric car that can be more cost effective than its combustion cousin is much easier when gas is $4.50 or $5.50 a gallon. So any American concerned about: environmental problems, foreign dependency, or what high oil costs will do to the economy can find the solution to their problems in the same technology.
This transition will not easy or smooth, the economy will be shaky during it and people will suffer as unemployment will raise and national income will fall, as is happening now. However the old saying of ?No pain, no gain? is something we all must remember when thinking of such a large scale change in our economy. While a recession will occur when jobs in the automotive industry are lost or when shipping companies are forced to cut back because of rising costs, jobs will eventually be created in industries relating to the new energy and once energy prices fall jobs will return. The truth is undeniable and inevitable, growth will unsustainable with an oil based economy in the future. In fact the economy is already in recession; unemployment is 5.5% and raising, the automotive industry on the chopping block. The government can encourage and facilitate change by funding these alternative energy projects, much in the same way as it funds research for other public projects. Nor does the government need to worry about failed research, and thus wasted dollars, as most alternative energy suggestions are based on proven technology. Lastly, once a cheaper energy source is discovered and implemented the economic growth resulting from such a fundamental change and improvement will be unimaginable.
So any thoughts at all?
A capitalist system by definition always supports most cost effective option given any choice. If two producers sell a product, same in all but price, it is only natural in a capitalist system that the producer with a cheaper product will prevail.
In the early 1970s the Arab states placed an embargo upon Western Europe, the United States, and Japan for their support of Israel during the Yom-Kippur War. As a result of this action oil prices in the United States tripled, and capitalism set in. Just as we see today, the increased price of oil led to suppliers searching among the various options for more cost effective ways to supply energy to their consumers. Of course unlike today alternative forms of energy were not as widespread or as technologically advanced, but what was available was used. The end result was the United States, and other countries suffering embargo, suddenly found it cost effective to acquire oil from spots such as the North Sea and Alaska, when it was not cost effective with a steady supply of Arab oil. Additionally Saudi Arabia, among other Arab states, lost a substantial part of their market share of world wide oil production, dropping from 13% to roughly 8%, because of oil exploration done during the embargo.
Currently it seems that history is repeating itself, although instead of new oil exploration as an answer to new higher oil prices, there is a strong movement for completely new forms of energy production. There is one thing that will spur alternative energy development in the United States, it is not environmental concern, it is not fears of dependency on foreign oil, it is simple economics. The higher of the price of oil becomes the development of alternative energy sources will only become faster and easier to achieve. Creating an electric car that is cheaper to drive than a gasoline using one is near impossible when gas is $1.50 a gallon, but to create an electric car that can be more cost effective than its combustion cousin is much easier when gas is $4.50 or $5.50 a gallon. So any American concerned about: environmental problems, foreign dependency, or what high oil costs will do to the economy can find the solution to their problems in the same technology.
This transition will not easy or smooth, the economy will be shaky during it and people will suffer as unemployment will raise and national income will fall, as is happening now. However the old saying of ?No pain, no gain? is something we all must remember when thinking of such a large scale change in our economy. While a recession will occur when jobs in the automotive industry are lost or when shipping companies are forced to cut back because of rising costs, jobs will eventually be created in industries relating to the new energy and once energy prices fall jobs will return. The truth is undeniable and inevitable, growth will unsustainable with an oil based economy in the future. In fact the economy is already in recession; unemployment is 5.5% and raising, the automotive industry on the chopping block. The government can encourage and facilitate change by funding these alternative energy projects, much in the same way as it funds research for other public projects. Nor does the government need to worry about failed research, and thus wasted dollars, as most alternative energy suggestions are based on proven technology. Lastly, once a cheaper energy source is discovered and implemented the economic growth resulting from such a fundamental change and improvement will be unimaginable.
