If you’re like most people, you probably think about your food budget at least a little bit. Most likely, you try to find the best value at the grocery store, perhaps by clipping coupons or sticking to on-sale items, and limiting dining out or choosing restaurants carefully. After all, if you dined out every night at a $100-a-person restaurant you may discover very quickly that you’re going broke just trying to “fuel” yourself with food.
Yet, as a nation, this is exactly what we are doing to fuel our transportation needs. We’re “going out,” or importing, expensive oil at about $100 a barrel, and are losing copious amounts of money in the process. In fact, just last year our oil-related trade deficit totaled $291 billion. In comparison, our total trade deficit accounting for all imported and exported goods and services amounted to $540 billion. This means that our thirst for oil made up more than half of all the money we sent overseas, money that could otherwise contribute to our still-lackluster economy.
The trade deficit is important because it is indicative of the overall health of the economy and the direction in which it is heading. A large, long-term trade deficit could indicate a shrinking economy, or, at the very least, a large drag on the economy, as it shows that more money is heading out than in. Just like with your personal finances and budgets, if you spend more than you make, you will eventually have to cut back. When our economy “cuts back,” that tends to mean that people lose their jobs, or that not enough new jobs are being created.
Given that spending on oil is by far the largest single contributor to the trade deficit, it seems obvious that the best way to deal with the deficit is to confront our oil budget. In fact, as the graph below shows, trade deficit levels appear to be correlated to oil prices. So despite an increase in domestic drilling, a weak economy and improved fuel efficiency that have all lowered oil imports, higher crude oil prices have negated any savings in terms of the amount we spend on oil.
The graph shows that if we want to meaningfully reduce our trade deficit, and thus the amount of money that pours out of our economy, we need to spend less on imported oil. This can happen in one of two ways — we either stop importing oil altogether or the price of oil significantly drops. As I mentioned, increased domestic drilling, better fuel efficiency and a weak economy have all failed to decrease the amount we spend on oil. We simply aren’t drilling enough to meaningfully reduce the price of oil or meet our own demand of about 18 million barrels per day.
As with not having the budget for expensive dinners, we could substitute those meals with more affordable store-bought food; call it an “alternative meal” or a “replacement meal.” Oil has become the “expensive dinner” of the fuel market. Luckily we do have cheaper replacement fuels that have the potential to significantly reduce the amount we spend on fuel, and thus on oil. Fuels such as ethanol, methanol and natural gas could all be used to fuel our cars on a cheaper per-mile basis. Ethanol and methanol can even be produced from renewable sources, ensuring a seemingly infinite supply unlikely ever to be called “tight,” “dwindling” or “peak”, as has been said of oil. Lastly, all of these fuels could be produced entirely domestically, not only negating the need to drain billions of dollars out of our economy each year, but resulting in exponential growth due to a multiplier effect.
