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Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you:

Saturday, August 23, 2008


On May 24, a 16-year-old girl was killed in a car wreck on Interstate 10 near Redlands, California. According to information appearing last weekend on AOL's "Propeller" site and on, the girl had been drinking and was speeding – sad, but these days unremarkable circumstances. At the same time, the incident received publicity, spurred by the girl's mother, because the accident investigation shows another significant factor: moments before, she had been texting with some friends. Her cell phone was found open on the floor of the car, next to her feet. Her grieving mother thought we should all know that. Indeed.

We noticed this news because of some specific driving we do, regular trips the full length of New York's infamous "Long Island Expressway" from Queens in New York City to Riverhead, a gateway to the Hamptons. "Road rage" and unsteady drivers on cell phones populate the road on nearly every trip we take. Surely you who commute on freeways experience these driving conditions on an almost daily basis.

Others are noticing too, and one person, journalist Tom Vanderbilt, has researched our current driving habits and written them up in a brand-new book, called, appropriately, Traffic: Why We Drive the Way We Do (and What It Says About Us)*. Economists are reading this book because Vanderbilt talks about these issues in terms of the incentives we encounter on the road and how we react to them, an "economic approach", if you will. This is an interesting perspective and we'll pursue it further. But the text is above all a hugely cautionary tale about us as drivers, and today, just ahead of the last week of summer vacation and Labor Day Weekend, we want to highlight a couple of his points, which are driven home by the accident story cited above.

Driving is the very definition of "multi-tasking": watching the road, keeping track of your speed, changing stations on the radio, noticing the pedestrian stepping off the curb in mid-block. How we respond in such complex situations was tested in a seemingly unrelated experiment. Psychologists had some people watch a simple game in which basketball players stood in a circle and passed a ball to one another; half the players wore white uniforms and half wore black. The viewers were told to count the number of times the basketball was passed; some people were also asked to specify the type of pass, a bounce or just in the air. In the midst of this exercise, a gorilla walked through the circle of basketball players. Only half of the people watching saw the gorilla. Half did not.

"In driving", Vanderbilt writes, "we do not do such things as tally basketball passes. Still there may have been times when you were concentrating so much on looking for a parking spot that you did not notice a stop sign; or you might have almost hit a cyclist because she was riding against traffic, violating your sense of what you expected to see. And there is another activity, one that we increasingly often indulge in while driving, that closely resembles that very specific act of counting basketball passes: talking on a cell phone."

To say nothing of texting.

What about "road rage"? Vanderbilt helps us understand why it occurs in our driving culture, but unfortunately there don't seem to be easy ways to counter it. His ideas are new to me, but they shouldn't be; they make excellent sense, especially in our over-identified, self-expressive culture.

We get mad on the road because we lose our identity and we are not able to communicate with other drivers. The car or SUV we drive is surely a symbol of our own self-image and we have to have the vehicle display that personality because we ourselves are hidden inside it. No one can see us or hear us or talk to us. It's frustrating to be relegated to personal anonymity, so we drive a flashy or showy car and we drive it in flashy or showy ways. We spend nearly all of the time looking into the rear end of the vehicle ahead, a position elsewhere in life that is associated with subordination. So we want and try to get out ahead.

It's exasperating when the guy passing you cuts you off, and you can't reply. Or when people honk at you because you didn't leap forward the split second that the light turned green, and you can't argue back. Vanderbilt mentions the "informal signals" we use to try to communicate; sometimes these get a message across, but just as often or more, they are badly twisted in translation. Which only adds to everyone's frustration. And brings on more erratic, position-establishing maneuvers. "I'm in front." or "Down in front." or "Take that, you #$%^%!!"

Once in a great while, in a totally confused situation, several drivers will realize that if they alternate-merge, everybody will move better. Such reciprocity is rare, but extremely helpful. Self-sacrifice and patience are virtues in driving as in any other facet of life.

Traffic has much more about, well, traffic. How the Los Angeles Department of Transportation manages traffic lights all over the city on Oscar Night so all 800 limousines can arrive at the Red Carpet on schedule. How new technologies are assisting the chaotic driving tangles in Mexico City, Rome and – perhaps most complicated of all – New Delhi. Who's at greatest risk for "accidents" – which aren't really "accidents", are they? Why more lanes often don't help traffic move more smoothly, they only make more traffic.

A couple of the newspaper reviews of the book suggest that it should be required reading for anyone about to take a driver's test or committing a moving violation or simply renewing their insurance. Probably so. The multi-faceted warning and explanations will make you more conscious of your own driving, every day. A telling phrase is the title of Chapter 2, "Why You're Not As Good a Driver as You Think You Are".

Now, if you'll excuse me, I'm off to the Long Island Expressway!

+ + + + +

*Tom Vanderbilt. Traffic: Why We Drive the Way We Do (and What Is Says About Us). New York: Alfred A. Knopf. 2008.

It's Number 10 on the New York Times Hardcover Nonfiction list this week (August 24). Available from VivaBooks (click here), Amazon and other booksellers.

Vanderbilt blogs on People familiar with Brooklyn might recognize pictures of the BQE (Brooklyn-Queens Expressway) on the home page.

Tuesday, August 05, 2008

Oil Prices: On the Spot and In the Future

Oil and gasoline prices have come down noticeably in the last 3 weeks. We were marveling this past weekend to think that paying less than $4.00 a gallon to fill our own tank felt like a "bargain" – even though it was $3.99! – and there was actually some psychological lift in not being so tense about the prices we would encounter over the course of our specific journey.

Congress adjourned last Friday for five weeks and left Washington without acting on the oil-price issue. In some sense, this is all right: we will be able see how these erratic markets are trending before they enact legislation that has longer-term ramifications. The trade-off that led to a stalemate involved the Republicans who want to lift the ban on off-shore drilling and the Democrats who want to curb speculation in oil markets. We've received some correspondence from readers expressing concern with the latter issue, which argues that the high prices result from excessive investment in the oil markets by investors who are just trying to drive up the price for their own gain.

Commodity prices in general have risen sharply in recent months and it's possible that heavy buyer interest aimed at purely financial gain has contributed. But this gets really tricky, particularly when futures markets play an important role, and curbing "speculation" may constrain participants who perform real economic services.

For instance, one airline that has been relatively successful of late is Southwest. They are known for skilled use of futures markets to limit their exposure to rapidly rising fuel costs. They've bought a contract for a quantity of fuel at a price set today, but they won't take delivery of the fuel for, say, six months. If jet fuel prices go up, they'll save considerably over what they would pay if they waited six months to determine the price. The trick is that the transaction is two-sided: someone has to take the other side of Southwest's bet. Southwest is hedging its fuel costs; the other party is speculating against Southwest. This type of speculating is important in helping markets for commodities trade more smoothly. [If prices fall instead, the airline will over-pay for their fuel, but they'll at least have a fix on their cost structure well in advance. We mention Southwest, not because it's the only airline that does this, but because they have received publicity for managing this pretty well.]

Can increased speculation, though, raise the current price of a standardized product, like jet fuel? First of all, the futures markets in which speculators operate reflect buyers' and sellers' expectations of where prices will go tomorrow or next month or six months from now. Futures prices can be higher than today's cash, or so-called "spot", price; futures prices can also be lower than spot. Over time, the relationship can switch around, a result of movements in either spot or futures or both. So there's no formula linking futures market speculation and spot market movements. You can see that in this graph.

Second, speculators in futures markets never actually want to own any oil. So if speculators buy in these markets as prices might be rising, the speculators must then sell out before the contracts expire, so they don't have to take delivery of thousands of gallons of jet fuel they have no need for. Thus, while their buying might raise futures demand sometimes, at other times, they would push down on the markets with their selling to get out of contracts. See, we said this was tricky. It's become more complicated with a growing number of commodity funds that in fact have as their business buying and selling in commodities. And it's some of those funds that Congress is concerned with.

Let's return to the underlying fundamentals in these markets: good old supply and demand. Here's a graph of world petroleum demand and supply over the last 15 years or so.

We see that demand for the actual petroleum products exceeds their supply. Inventories have been falling relative to demand. Now, if someone were buying oil for the sake of driving the price up, then they would be hoarding the oil and inventories would increase. But that isn't happening. The world is using the petroleum too quickly and supply can't keep up. And in fact, what did happen to turn the prices downward in mid-July was a report that Americans used less gasoline; final demand fell. Then the stock of gasoline went up, but it did so because American drivers were using less, not because someone outside the petroleum industry was hoarding oil.

So we see that speculators are apparently not influencing the day-to-day cash price of oil. If some law were enacted to regulate their participation in futures markets to keep them from pushing up those prices, that might keep them from over-reaching. But it would also interfere with the expressions of price expectations in the markets and with the ability of real oil-related businesses to hedge their upcoming oil needs.

We're not commodity analysts or energy specialists, though, and we don't want to carry this argument too far. What we can offer is that the solutions to our current energy squeeze will likely have to come from all sides and there are no quick fixes. We can hope Americans continue driving less; they are already buying smaller, more fuel efficient cars and hybrids and almost no SUVs. Even China's efforts to cut pollution during the Olympics are probably helping lower usage of petroleum. But with the world economy growing, especially the developing countries, it's also true that we're going to need more supply. U.S. demand for petroleum has decreased 3.4% in the last year, while that in India is up 10.7%, China 5.7% and "developing countries", mostly Africa, up 5.4%. Thus, the price of oil is less and less a problem the U.S. can solve on its own (except to restrict consumption) and more a global issue. Yes, we are developing alternative energy sources, but we also still need to get to more of the oil. In the end, we think the U.S. Congress will see the need to lift the ban on offshore drilling, not so much to ease the U.S. dependency on foreign oil, but to let more of that foreign oil serve other countries, so they can keep on developing.

Monday, August 04, 2008

Prayers for the Travelers to Italy

So Barbara and Q* are off tomorrow! Wow! Ways-of-the-World offers prayer for them in their journey and for their new work. Regarding the second, for the "Mission of the Church", The Episcopalians in Florence are hardly a "mission", but they are clearly a "community of love".

For Travelers
O God, our heavenly Father, whose glory fills the whole creation, and whose presence we find wherever we go: Preserve those who travel, especially Barbara and Q; surround them with your loving care; protect them from every danger; and bring them in safety to their journey’s end; through Jesus Christ our Lord. Amen.

In Thanksgiving for the Mission of the Church
Almighty God, you sent your Son Jesus Christ to reconcile the world to yourself: We praise and bless you for those whom you have sent in the power of the Spirit to preach the Gospel to all nations. We thank you that in all parts of the earth a community of love has been gathered together by their prayers and labors, and that in every place your servants call upon your Name; for the kingdom and the power and the glory are yours for ever. Amen.

The Book of Common Prayer
pages 831 and 838

*and Ben too, of course. Look on Hodgepodge to see how excited he is about going.

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