The tragic explosion that killed 11 people and led to millions of gallons of oil spilling into the Gulf of Mexico has many people, even die-hard auto enthusiasts, arguing that we should undertake a crash program to find alternatives to petroleum to fuel our transportation system. While it is nice to fantasize that some sort of “race-to-the-moon” research program will uncover magically new energy sources and technologies, realistically it isn’t going to happen.
Here is how the world works. You use the cheap resources first. The income you make from using those resources allows you to build up wealth. When resources start getting more expensive, you don’t hardly notice because you are wealthy enough that the higher-cost resources actually require a smaller share of your income than the low-cost resources once did. Eventually, you find new technologies and substitute resources that would have seemed prohibitively expensive when you were starting out, but now their adaptation causes barely a hiccup in the economy.
Oil critics will argue that, when the environmental costs are counted, oil is more expensive than first thought. That may be. But instead of trying to pay those costs from the outset, we first became a wealthy society, thanks in part to cheap oil, and then applied some of that wealth to reducing air pollution and solving other environmental problems. As bad as the Gulf oil spill may be, I suspect BP will eventually cap the well (update: looks like it has already happened) and, no matter how many billions it may cost, largely restore the ecosystems and compensate those who were harmed. This may add a few cents per gallon to the world price for gasoline, but consumers will absorb that just like they absorbed the cost of catalytic converters and other technologies aimed at reducing air pollution.
