I read a few intersting things today about the state of the automotive industry.  First, some analysts said that the international market might completely fall apart in 2009.  Second, GM’s market cap just sunk to the price of 1950!  A 58 year low, and a market cap of $2.7B.  That’s just remarkable.  Finally, with oil declining (possibly only temporarily, but maybe longer if demand stays low if we’re in for a long recession) the U.S. car companies can’t figure out if they should start rushing to sell profitable trucks and vans again, or if they should double-down on their bets to make efficient cars.  Of course, I’m biased to the second, but I can imagine the tough decisions they face to even stay alive right now.  What challenging times.  I believe there will be many unintended consequences of the housing market decisions we have made, and they just might end up re-shaping the U.S., and possibly the world auto industry.

          With all the news lately about the price of oil climbing, I would like to make a contrarian point –  I believe oil is cheap. 

          I realize American’s can’t afford to take their driving vacations, people in Europe are protesting, the economy is hit hard, and people are complaining.

          My view is that cheap oil was an anomaly, a relatively short-term gift that we really never did deserve, and whether you agree with that statement or not, we can’t replicate it.  So we’d better get over it and move on, and get our energy in new ways.  We need to start making those new ways inexpensively, and if we make them sustainable, then they’ll last, and finally, we’ll deserve it.

          Okay, let me give you some numbers.  Let’s say a barrel of oil costs $143, about what it is now.  That barrel of oil is equal to 1,640 kilowatt hours, or 1,640,000 watts for one hour.  A human, working hard, can put out about 75 watts an hour, and that’s not easy.  Lance Armstrong, when he was younger, could do about 500 watts for one hour.  So us regular people, working all day – if we even could – at 75 watts per hour, would have a hard time powering our lifestyles.  It would take us nearly 22,000 hours to equal one barrel of oil.  Even at today’s minimum wage of $6.55 in the US, that barrel of oil is really worth $143,226 to us!   In other words, it’s 1,000 times more valuable than it costs.

          We expect our energy to be nearly free, and that’s why we complain – because it no longer is.  But we should face those facts, realized how this unbelievably discounted energy we have had – and still have – is what makes us comfortable and productive.  Since it’s only going to go up in price due to supply and demand (the demand side especially from China and India) if we want to continue our lifestyles, we’d better make the renewable stuff scale fast and become competitively priced.  At these prices of oil, it’s starting to get easy, or should I say, possible.  Rather than wishing for something that’s impossible – nearly free fossil fuel based energy again – we should focus on the R&D to make the renewable stuff work.

Yesterday, I heard a very controversial but very interesting talk at the Fortune Brainstorm Green Conference here in Pasadena. It was by Bjorn Lomborg, and he spoke about some of the economic issues of going green. He strongly challenges many of the traditional assumptions people have about what they can and should do to make a difference. The most eye-opening to me was the ideas that the only way we are going to make a real difference is to invest on a monumental scale in new technologies that are wildly disruptive. I had a gut feeling that this was a good way to go, and that’s why I try to work on, but he had some economic arguments supporting his thesis that were very persuasive.

The strongest argument he made — in my opinion, at least — was that rather than have a Kyoto protocol, or carbon tax or cap and trade to spur investment in new technologies, why not just invest DIRECTLY in new technologies. He proposed a miniscule 1/20th of 1% fraction of GDP from all the major countries going into a major $25B per year investment fund to invest in new technologies. He claims that that would make 10 times the difference, and cost 1/10th as much (in other words, 100x more effective) than the indirect method. He also said this would be more fair by country, because countries with much bigger GDP’s would contribute so much more.

It was a very compelling argument. He had 5 others that were compelling. He’s very controversial, but now I want to read his book and test his thoughts with some more rigor.

His talk alone made the conference worthwhile — but there were 50 other great speakers to make it even better. Fortune Magazine did a great job on this one, and I hope Marc Gunther and David Kirkpatrick decide to do this again.

I just read two accidentally adjacent articles in the New York Times this morning. One was on the doubling of rice prices in the last three months, and what great hardship that is placing on people all over the world who rely on rice for their calories. The other was about thieves not stealing cars anymore, but instead stealing the catalytic converters. They’re easy to steal, you just saw them off, and then the platinum in them (which is now up to $2,300 per ounce, more than double gold) causes them to fetch great value on the black market.

Both of these items point out how scarce all of our commodities in the world are becoming, and will continue to become. Both of these point out how we have to use all of our resources more carefully — not just the ones we usually talk about, like coal and oil. In general, we humans are going to have to get a lot better at “doing more with less” to quote a famous engineering dictum. I believe there will continue to be big rewards to those who figure out how to do to more with less. The more we can achieve our happiness and utility using fewer “atoms,” whatever those atoms may be, the better off humanity will be, and for sure, the less resource wars we will have.