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Jan 12, 201504:01 PMTransportation Matters

with Craig Thompson

The impact of lower gas prices on transportation? We’ll see …

(page 1 of 2)

The dramatic drop in oil prices has widespread implications for everything from geopolitical relationships to the world economy to our domestic economy to whether a vacation may end up being feasible after all.

Not long ago, many experts were telling us that the price of oil — and therefore the price of gas at the pump — had reached a new normal and wasn’t likely to sniff $2 a gallon again. Now many experts are telling us that lower oil prices are likely here to stay for the foreseeable future.

The U.S. has played a significant role in these developments, with increased deep-water drilling and the so-called “shale revolution.” Wisconsin has also been a player due to a unique type of sand in the western and northern part of the state that makes hydraulic fracking economically feasible. The U.S., as a result, has transformed from a major importer of oil to a rising exporter.

On the demand side, the International Energy Agency (IEA) estimates that consumption in the IEA countries is 60% lower today because of improvements in energy efficiency over the past four decades.

And for the first time since 1973, when President Nixon declared the U.S. would be energy independent within 10 years, that goal seems very attainable.

So what does this all mean for international affairs, the environment, the economy, and transportation?

In one of my favorite movie scenes, from Charlie Wilson’s War, Philip Seymour Hoffman’s character, a CIA officer, warns Congressman Charlie Wilson (played by Tom Hanks) not to be too sure of the implications of what they had achieved in helping drive the Soviets out of Afghanistan. To make the point, the CIA agent tells the story of the Zen master and the little boy:

There was a little boy, and on his 14th birthday he gets a horse. And everybody in the village says: “How wonderful, the boy got a horse.” And the Zen master says: “We’ll see.” Two years later, the boy falls and breaks his leg. And everybody in the village says: “How terrible!” And the Zen master says: “We’ll see.” Then a war breaks out and all the young men have to go out and fight, except the boy can’t because his leg is all messed up. And everybody in the village says: “How wonderful!” And the Zen master says: “We’ll see.”

You can check out the clip here. (This was Hoffman’s best role ever, by the way. If you haven’t seen the movie, you should.)

(Continued)

Jan 19, 2015 08:49 am
 Posted by  Anonymous

The big story is not the prices, but why it has been so easy for Saudi Arabia to push them so low and undermine the viability of recent American petroleum ventures. The answer is obvious to anyone with college economics: low demand elasticity. Low demand elasticity is what causes prices to explode more during shortages, and for the bottom to drop out of the market during gluts. Elasticity in turn is influenced by how convenient it is to find alternatives to consuming a particular good like gasoline. For gasoline, "alternatives" means non-motorized transportation infrastructure.

Mr. Thompson should be well-versed in the lack of alternatives in Wisconsin. Not only did he hear that fact from the people of Wisconsin, but he also voted against increasing the funding for those alternatives in the TPF's final recommendations.

So when Saudi Arabia is done creating a glut, we will go back to shortages and price spikes and it will be people like Craig Thompson who have worked to build the system that makes those price spikes so intense.

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About This Blog

Craig Thomspon is the executive director of the Transportation Development Association of Wisconsin. Founded in 1971, the Transportation Development Association of Wisconsin promotes the vitality and safety of the state's transportation system, including public transit systems, public-use and general-aviation airports, railroads, commercial ports, and roads. Thompson also serves as secretary for the referendum committee Vote Yes for Transportation. www.TDAwisconsin.org and www.VoteYesforTransportation.com.

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