Sunday, September 17, 2006

Spend to Save?

Reduce, Reuse, Recycle. The mantra of conservationists. In this world of limited resource, this is what every responsible person should do.

But are they really the right thing to do in the long run?

Consider the case of oil. a limited resource that is set to run out in the not-too-distant future.

Lets say a significant portion of us decide to cut down on our dependence of oil and its products. Of course, there will always be savers and spenders amongst us. What would happen?

Oil, like every other commodity, is priced by supply and demand and perceived future supply and demand. The supply would outstrip demand. Prices would drop. The spenders would find this ever more reason to be carefree in their spending habits. Perhaps enough (since there are likely to be more spenders) to undo all the savings.

Not exactly what the savers wanted!

Now, on the other hand, what if the savers did the exact opposite? Went on a spending spree. And drove prices up. Wouldn't that provide the economic incentive for some bright soul to come up with a viable alternative to the internal combustion engine? Or atleast force the spenders to rethink their spending?

P.S. Hopefully the bright soul will be successful before we are thrown into the chaos that is inevitable if a major oil shortage were in sight.

P.P.S. Doesn't this sound a bit lie the current energy price situation where developing countries are waking out of their slumber and starting to bid for an increasingly larger piece of the global resource pie?

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