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Why You Should Embrace $4 Gasoline

By Morgan Housel - Updated Nov 11, 2016 at 5:20PM

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If you don't, you'll have to party like its $19.99.    

Everyone should want cheap transportation. Everyone should want to return to the days when filling up your automobile didn't incinerate your savings. Your 100-mile daily commute shouldn't consume half of your paycheck. You deserve better.

And that's exactly why you should embrace $4 gasoline.

Huh?
Nearly every "solution" to the current gas situation involves lowering prices. There are all sorts of proposed ideas, from establishing gas-tax holidays to scolding Big Oil companies to building more refineries. Some of those ideas would indeed lower prices. You can't blame people for wanting to pay less.

But reining in the assault on our wallets isn't the only thing to focus on. The ultimate goal is to wean ourselves from our love affair with oil altogether. And by "weaning," I don't mean making it cheaper to commute in Hummers. There's only one ultimate solution to the oil dilemma: to consume less oil.

Beyond the argument over who's to blame for $4 gas lies the reasoning that nothing will happen without higher prices getting us in gear. If gas were cheap, there would be no incentive to change. No one would care about developing new technologies, no one would bother driving more efficient cars, and no one would give a horse's patoot about conservation. If you can convince anyone that lower gas prices will entice people to cut back on consumption and give entrepreneurs an incentive to develop new technologies, you deserve the Ron Popeil award for ingenious sales skills. It just won't happen. Something as engrained in our culture as deeply as gasoline will cling to the "if-it-ain't-broke-why-fix-it" mentality until something, like higher prices, "breaks" it.

You can see the new mindset taking hold already. Ford (NYSE:F) and GM (NYSE:GM) recently announced plans to cut back production of gas-guzzling SUVs. Among the airlines, Continental Airlines (NYSE:CAL), United Airlines (NASDAQ:UAUA), and American Airlines parent AMR (NYSE:AMR) have all announced plans to scale back, all in response to higher fuel costs. So the transportation landscape is already moving in the right direction.  

Easy there
But that brings us to a new road: If reducing consumption means having to walk to work, staying home on weekends, and waiting in longer lines at the airport, count me out. Americans will go out kicking and screaming before settling for a life of immobility.  Unless, that is, they do something about it.

It's been done before
Back in 1798, a British economist and demographer named Thomas Malthus wrote a treatise titled An Essay on the Principle of Population. His theory was depressing: Food supplies wouldn't keep up with population growth, and the future thus held the promise of famine and starvation. Why, more than 200 years later, have his views been proved grossly pessimistic? Because he failed to realize that the same pressures pushing down on food supplies would cause people to push back with new technology and innovative agricultural techniques. The same can be said for energy.  

For example, back in the 1970s, Brazil relied on the rest of the world for 85% of its oil. The result? Debt ballooned, and rampant inflation became the norm for decades. But those high prices pushed the need for change, and change is exactly what Brazil got. Innovation and commitment to overcoming the oil burden pushed Brazil to energy independence today by way of sugar cane-based ethanol (which is, importantly, far different from the corn-based ethanol made in America.) The oil embargo of the 1970s also pushed Denmark, which was 99% dependent on imported oil, to become one of the world's leaders in alternative energy, such as windmill technology. The important thing to realize is that it's highly doubtful that any of this would have happened if higher prices hadn't spurred people to action.

Here at home, higher gas prices will be one of the only things that ramp up both oil exploration and alternative-energy technology. The investment community is paying serious attention to companies such as Capstone Turbine (NASDAQ:CPST) and Sasol (NYSE:SSL), and attention is exactly what's needed to push the energy industry into the next inning.  

Bite your lip. Suck it up.
None of this is to say gas pains are anything to scoff at. It's taking a serious toll on people. The more serious question to ask, however, is what the state of the economy will look like 10, 20, 50, or 100 years down the road if the issue keeps getting swept under the rug -- which is where it'll go if low prices return.  

Yes, $4-a-gallon gas is painful, and $10-a-gallon gas could be catastrophic. That's why you should embrace $4 gas now, and welcome it for the changes it will inevitably bring. Problems correct. Markets work.

Hang in there.  

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Stocks Mentioned

Ford Motor Company Stock Quote
Ford Motor Company
F
$16.18 (2.21%) $0.35
General Motors Company Stock Quote
General Motors Company
GM
$39.48 (2.65%) $1.02
Sasol Limited Stock Quote
Sasol Limited
SSL
$22.27 (2.25%) $0.49
Capstone Turbine Corporation Stock Quote
Capstone Turbine Corporation
CPST
$3.28 (17.99%) $0.50

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