Average fuel economy is down precisely because many people opt for the large engine, low mileage vehicles, not because alternatives aren’t available. The guy who idles his Suburban and complains about gas prices will not get the connection between many other things in his life either. Rising prices, though, do affect what people choose and you will see a shift toward more fuel efficient cars and trucks and many alternatives as well. The average fuel economy of purchased cars will rise no matter what the manufacturers make because that’s what buyers will drive off the lot. When companies made smaller vehicles some years back, they sat on lots while buyers purchased more powerful cars.

Companies must make a profit to survive and if what they make is not what people are willing to spend money on, they lose money. The long (but getting shorter) lead time between initial design and actual production can cause a mismatch between what is produced and what people want, too, so the better companies are at predicting future trends, the better off they’ll be, and they’ll work very hard to get it right because they have a strong financial incentive to do so. Politicians pursue votes which can be bought with ridiculous promises of regulations based on hot air and nonsense, causing more long term damage which often is not apparent while he or she is in office.

We have been running out of oil since it was first drilled out of the ground in Titusville, PA. As demand rises, prices rise and more oil is discovered and recovered. Now, with prices getting a lot higher, we’ll find still more but alternatives will become economically viable, too. The tar sands in ALberta, Canada will probably start coming on line as oil recovery from them makes economic sense. Electric motors and batteries are making huge advances and you can expect to see more of those technologies sharing the road before long.

My point in all of this (Yes, I have one) is that market prices encourage the changes in behavior necessary to accomplish what many want to force with a law. Market prices also allow individuals to vary their response according to circumstances where government action is cumbersome and inflexible. Market prices incorporate more information than any individual or politician can know and help us move in the best direction “for the common good.” If there are only three people involved you may be able to discuss what is best. When there are 300 million, market pricing works better.

I assume the shepards are people. It’s a long shot and I’m easily confused but I’ll go with that. Then we have pastures and sheep. In the analogy, John speaks in option C about “shared resources.” I’m not sure how to map the ram across to our original post but I’ll assume the pasture is the shared resource which I also assume is supposed to be oil. The sheep they raise are the products of their efforts so I suppose that is the economic output of the various countries.

The pasture here just seems to exist and without any effort everyone can share in the value as it occurs in nature, a value which is immediately obvious to even these primitive shepards. Oil, on the other hand, hasn’t bubbled up out of the ground for a very long time. In order to find it, pull it up from where it lies beneath the surface and refine it, you need a great deal of creativity, drive, ingenuity and persistence or it remains undisturbed. In fact, before you even want to do that, you have to figure out a use for it, otherwise it’s just thick goo. I might also add, you need a stable system of laws so contracts can be entered into and enforced making long term planning of this nature possible.

Oddly enough, the same countries that found the original uses for oil are the ones that use a lot of it. Other countries, due to the luck of geology and geography, happen to sit on large reserves, even though they rely on the ingenuity and creativity of other countries to give these reserves value. The countries that developed huge economies that the rest of the world benefits from are now expected to cut back and conserve this “shared” resource. Isn’t it funny how someone creates value and then everyone else wants to share it?

Jumping back to our analogy, maybe shepard 3 thinks sitting around all day in a pasture is a terrible waste of his life and wants to help his family and many others and gets up and works hard to feed more people. Maybe he wants to improve part of the pasture because if they clear out some rocks and weeds you can raise more sheep on this land. Maybe the other shepards are lazy bums and say, “We’ve always done things this way, who are you to try harder?” Or maybe this analogy doesn’t really apply. Like I said, I’m easily confused.