A Not-So-Good Milestone

A long-dreaded event has come to pass. I just paid $4 a gallon - $4.059 to be precise - for gas. My car requires premium fuel, so for the lucky unleaded users it's still below the $4 mark, but probably not for long.

I knew it was inevitable and that it will not be the last painful hurdle (some are predicting $7 a gallon in the not-too-distant future). All indications are that this is not a temporary situation. High prices are here to stay. Gas prices in the US have been relatively low for years. Remember $0.90 a gallon in 1999? In fact, a gallon of gas today costs only about 20 percent more than it did in 1922 (adjusted for inflation).

What are the major factors affecting gas prices?

- The emergence of China and India as economic powers (and the associated increase in oil demand)
- Exhausted oil fields controlled by nationalized companies
- Market speculation (not dissimilar from the housing and tech stock booms)
- Government subsidies in Venezuela, China and Russia that inflate prices elsewhere (the only reason I wouldn't want to live in Norway? $8.73 a gallon gas)

Unfortunately for all of us, years of low gas prices motivated people to buy larger, low MPG vehicles and drive farther and more often. Those who can't or won't (count me in on both) continue to put a sizable portion of their income toward filling our gas tanks will simply have to change our lifestyles.

I bought my 20 MPG car when gas was less than $2 a gallon. My next car will certainly get better gas mileage! I'm doing what I can to drive less, but I've never been much of a drive-around-for-no-reason person.

As consumers, what can we do besides reduce our consumption? Frankly, not much.

On the other hand, car manufacturers can produce cars that get better gas mileage, but they won't unless they're forced to (although the smart ones recognize this as a competitive advantage). This is one of many areas where government intervention is both necessary and effective.

There's little our government can do globally to control oil prices, but they can increase the fuel-efficiency standards (CAFE). The idea of taxing people based on the number of miles driven per year (and other polluting activities) also intrigues me, but I'm guessing that not very many people would like that idea.