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Page added on August 15, 2014

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Peak mileage and the diminishing returns of technology

Peak mileage and the diminishing returns of technology thumbnail

Peak mileage and the diminishing returns of technology

This graph, from “economonitor,” is very interesting because it contains so much relevant information. (However, note one detail: the title of the graph, “Miles Driven” is somewhat misleading; it should be “mileage”, as the text of the post clearly says.) The relation of mileage to hourly wages is a parameter worth examining because it tells us a lot about the “systemic” efficiency of road transportation. What kind of efficiency can we actually afford?

Now, the graph shows a clear “peak mileage” which occurred around the year 2000, when Americas could afford the highest mileage from their cars in history. It was an efficiency peak of the road transportation system. But then, this efficiency diminished. How can we explain that?

The data of the graph depend on three factors 1) the cost of gasoline, 2) the average hourly wage, and 3) the average mileage of cars. Let see first the behavior of oil prices, which determine gasoline prices.

You see how oil prices spiked twice during the past 50 years, with the first and the second (ongoing) oil shocks. Amazingly, after the start of the first oil crisis, the mileage per hour worked increased, despite the steep price increases. But the opposite took place with the second oil crisis, mileage per hour worked rapidly decreased. Something must have compensated the price increase during the first crisis, but that is not occurring during the second. Why?

Of the other two parameters involved in the mileage curve, hourly wages play only a minor role. In real terms, wages have remained more or less constant in the US since the early 1970s, as you can see in this graph (source: income inequality)

What changed a lot in this period is the technology of cars. The first oil shock in the 1970s was, indeed, a shock. People reacted by actively seeking for technological solutions which would increase the mileage of their cars. And these solutions were easy to find: simply reducing the size and the weight of the monster gas guzzlers of the 1960s did the job. Look at these data (source):

You see how quickly mileage increased throughout the 1970s – it nearly doubled in less than 10 years! And you can see how quickly people forgot about the oil problem once prices collapsed in the second half of the 1980s. The graph also shows that, with the second oil crisis, mileage restarted to increase, but by far not as fast as in the 1970s. There is a reason: it is difficult to optimize something already optimized. This we call ‘diminishing returns of technological progress.”

In the end, it looks like the “peak mileage” of the late 1990s is the real one. In the future, the a combination of factors which led to the peak will never return. Oil depletion is destined to make oil less and less affordable, even though market oscillations may hide this phenomenon. Wages are unlikely to grow in real terms after having been static for the past 40 years. And technological miracles are unlikely. Even the Toyota Prius, technological marvel of our times, can only bring us back to where we were 15 years ago in terms of mileage per hour worked. As long as we remain within the paradigm of “road vehicle powered by a combustion engine” we have reached the limit of what we can do.

The result of the reduced overall efficiency of transportation we can see in this last graph (fromadvisorperspectives). In the US; people are driving less. Perhaps there are behavioral factors involved, but “peak mileage” suggest that they are doing that because they can’t afford to drive more.

h/t Giorgio Mastrorocco

RESOURCE CRISIS



5 Comments on "Peak mileage and the diminishing returns of technology"

  1. bobinget on Fri, 15th Aug 2014 6:14 pm 

    Ford’s ‘optional plug-in’ looks to be a winner.
    For short trips a person uses no gasoline

    http://www.ford.com/cars/cmax/?searchid=171888534%7C10523848614%7C86742623934&ef_id=UFJeEwAAFESXG7Sh:20140815230733:s

    How will this offering compare to the 2015 Volt?

  2. Davy on Fri, 15th Aug 2014 9:16 pm 

    We have hit limits of growth and diminishing returns to the technology of the internal combustion and plug in hybrids vehicles. I don’t care if there is some technology that will drive MPG higher the important point is the economy probably cannot replace the rolling stock in time to make a difference. We just don’t have the time anymore in so many different vital areas of this complex BAU we live in to change out the hardware. It is the software that counts. It is the lifestyles and attitudes where we can make big improvements in efficiency and productivity per gallon. There will be consequences and unintended consequences to lifestyle and attitude changes. If we drive less we will buy less leading to deflationary changes. The retail will be in big trouble. We can stop the single occupancy vehicles. We can ration fuel. We can eliminate whole sectors of the auto industry as unneeded excess capacity. In a crisis situation do we need 500HP cars? How much discretionary driving do we need? I guarantee much less but remember less driving means less economic activity meaning less growth. Our system will not survive long without growth and economic activity. It is a “catch 22” because driving too much and we deplete our resources and not driving enough our economy deflates. This catch 22 will intensify in the next few years just as the Goldilocks price range is compressing and just as capex is compressing. Naturally the word for this is P R E D I C A M E N T.

  3. Makati1 on Fri, 15th Aug 2014 9:50 pm 

    bobinget, Electric vehicles will be a drop in the bucket of America’s car fleet. Less than 2% (5,000,000) total.

    As for hybrids, they will never be more than 3% of the total US car fleet by 2020.

    Why? Rising cost to buy in a depression economy. Tesla and Toyota is already out of most consumers price range. The cheapest hybrid I could find was $30K and requires an income of over $60K per year to pay the payments, insurance, fees and maintenance. With a median household income of about $50K gross or a personal income average of about $27K gross, few will be able to buy a hybrid in the future. Hybrids and electrics will never exceed more than 5-6% of the total. Most of the other 94-95% will be cars that will be run until they drop and cannot be repaired. The turnover is now past 10 years and climbing.

  4. clifman on Sat, 16th Aug 2014 1:21 pm 

    Makati – While I agree with the general gist of your comment, you couldn’t have looked too hard if the lowest hybrid you could find was $30k – http://www.carpricesecrets.com/Toyota/Priusc?mkwid=FqJ0mepQ&pcrid=3826636478&pmt=e&pkw=toyota%20prius%20c%20price&pse=bing

  5. M1 on Sat, 16th Aug 2014 7:18 pm 

    As someone who drives a hybrid, I cannot under stand how we Americans are not all buying hybrids. We complain about gas prices here, and you can solve the problem easily by getting a hybrid and saving 60%.
    Or an EV and save 95% of your fuel bill.

    A hybrid will typically save 50%-100% of the price of the car over 15 years. Even leasing an EV from Ford right now has a really low 200 dollar lease.

    Are Americans Nuts?

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