Feedback Is Necessary to Learning Systems

To get better at batting, for example, you have to see what happens each time you swing the bat. Did you connect with the ball or was it a wild miss? If you connected, was it a solid shot or did you hit the ball off the handle, or off the cap, or did you angle it off the edge? The same basic concept is true of any effort to improve anything. If you don't know the results of your efforts, you can't get better.

Then yesterday I received an e-mail from a friend of mine - one of those forwarded e-mail messages that wander around the Net - suggesting that we should all boycott EXXON/MOBIL until they are forced to lower their gas prices. While a boycott would certainly provide a kind of feedback to EXXON/MOBIL about consumer disapproval of rising prices, there's another kind of feedback at play here - one that we all too often ignore.

Gas Prices as Feedback

Here's the thing: gas prices themselves are a kind of feedback to the world at large. And so far that feedback hasn't exactly been honest feedback, which is why we haven't learned much yet about the real cost of using gasoline.

According to our current economic system (and it seems to be the best one we've been able to come up with so far), price is supposed to reflect market value. Supply and demand work together to determine market price, and theoretically that should tell us what a commodity is worth. But the price of gasoline in this country (and quite possibly throughout the world) has never reflected the true cost of using gasoline, for several troublesome reasons.

The Problem of Hidden Costs: Limited Supply

Every gasoline pricing problem boils down to this: there are costs of using gasoline that are not included in the price we pay at the pump. But these costs aren't "freebies." They are hidden costs that we pay in other ways so that we don't really think about what they mean.

Problem number one: the world's total oil supply isn't all that clear. We may know how much oil various oil-producing countries are currently willing to put on the market, but current supply is not the same thing as total supply. It is absolutely certain that oil is a limited, nonrenewable resource. But it is entirely unclear just how limited it really is.

At today's rate of use, how soon will the planet run out? Honestly, we don't know. A lot of very bright people think the picture looks pretty grim. Others say it could be decades before we began to notice the effects of a dwindling supply. But here's the important point: if we don't really know - if we don't have good information about future supply - then the economic system can't calculate the real price of gasoline. The fact that gasoline is a nonrenewable resource is simply ignored by the market.

The Problem of Hidden Costs: National Security

Problem number two: there is a cost to national security. We are highly dependent on foreign sources of oil for our gasoline supply. The price we pay at the pump has nothing to do with this potential concern because no one has cut off our oil supply as of today. Potential future events aren't reflected in market value unless they appear imminent, at which point it tends to be too late to do anything about it. (Who remembers standing in line for gas in the 1970's? Anybody?) So the security risk inherent in depending on foreign oil is also ignored by the market.

The Problem of Hidden Costs: Ecological Effects

Problem number three: there are serious ecological costs that are not fully reflected in gasoline prices. Who pays the cost of the wilderness we have already lost to oil drilling and refining? Well, the animals that used to live in those areas pay some of the price, just for starters. But they aren't "players" in the global economic game, so they can "eat" those costs without causing the slightest blip in market prices. That's another serious flaw in the market system, by the way: "nature" isn't considered a "player."

Who else pays the price? Future generations, that's who. Maybe we'll even have to pay that price ourselves if we live long enough. The world is not made up of little independent "zones" that have nothing to do with each other. We live on a fully integrated planet of interdependent ecosystems, all of which make up one single global ecosystem, which we all depend upon for our common survival. But if we don't currently know what the loss of a few fish or a single herd of reindeer might do to that ecosystem, then we can't include that cost in the market price. 

So that brings up another major flaw in the market: the costs incurred by future "players" (meaning our children) are not included in today's prices. Some of the true cost of gasoline is effectively being deferred to future generations. In essence, we're getting better prices at the pump than we should by putting off today's problems on our children and leaving them to pay the difference.

The Problem of Hidden Costs: Social Injustice

Problem number four: even the costs we do know about are not always imposed fairly. Why don't they put an oil refinery in Beverly Hills? Because the taxpayers have too much clout. The messy, smelly, ugliness that is oil refining is carried out where important (meaning wealthy) people won't have to deal with it. So it ends up happening in the wilderness (with all the problems listed above) or in places where tax payers are just too poor to matter to the people who make these decisions. This problem goes beyond the obvious ones of ecological devastation and class injustice (bad enough in themselves!) - it also means that some of the true cost of oil refining is picked up by dolphins and reindeer and by the very human beings who can least afford to pay for it.

So here's the thing about that: every cost that gets paid by anyone else is by definition a cost that is not being paid by consumers. These costs are not reflected in the price of gasoline. Why not? Because the oil companies didn't have to pay off the reindeer's estates in a wrongful death class action suit. They didn't have to pay for taking the reindeer's land. Nor did they have to pay for the full loss in value incurred by any and all (human) homeowners whose real property has been injured by our national (and global) dependence on gasoline.

And when it comes to real property values, don't just think about refining, much of which affects reindeer and dolphins more than human homeowners. Think also about every single home that sits near a major highway and suffers from both noise and smog pollution. Oil companies are not exactly known for paying such homeowners the value of their losses. And if the oil companies don't pay for it, consumers don't either.

The Problem of False Feedback

The ugly truth is that due to all these factors, gasoline prices in the past have actually been artificially low. That should be good news, right? Everyone likes a good deal. The problem is that artificially low prices are false feedback in the market's learning curve, which means that we have no chance to learn by observing the effects of our actions.

Take the original example of batting practice. You couldn't possibly hope to become a good batter if every time you struck out, you thought that you actually hit a home run. You'd just go on happily striking out over and over again. That would seem a little crazy, I know, but that's exactly what I'm trying to say about our gasoline consumption. The price we pay for gasoline, when compared to the true cost we probably ought to be paying today, is so unreasonably low that it's making us act a little crazy.

The True Value of True Prices

As long as we don't have to pay the true price of gasoline, we aren't feeling the full pressure that we should be to find alternative energy solutions. The rising price of gasoline is finally making us take a good look at our dependence on this limited, polluting, foreign-controlled energy source.

Car companies are developing hybrid-engine vehicles, and people are waiting in line to buy them. People are holding off on errands until they can do them all in one trip. People are starting to ask about more efficient hybrid engines, about the possibility of electric vehicles, about vehicles that run on plant-derived alcohols. Even SUV's - the last bastion of the gas-powered enthusiast - are coming out with more energy efficient models.   

Higher prices are closer to the true cost of gasoline use, and they are forcing us to look at those costs more realistically. But because prices have been artifically low for so long, the hikes are happening very quickly, and the adjustment - while necessary - is looking a bit radical. Nonetheless, the simple truth is that it's a real cost we've been avoiding for far too long. We're going to have to start paying it or we're going to leave our children with an unbearable debt.

But what about the people who will be hardest hit by higher gasoline prices? What about people who truly can't afford another price hike? Well, we can't afford to keep avoiding the hikes either. Burying our heads in the sand won't solve the problem.

For those who desperately need lower gas prices just to keep food on the table, I say we give those people, who are only in the very lowest tax bracket, a tax credit (not a deduction - a credit) to help them make up the difference. It may sound a bit crazy at first to subsidize higher gas prices, but is it really any crazier than paying farmers not to work their fields? Sometimes the market has to make adjustments to protect the overall economy, and we aren't going to start behaving rationally - either as individuals or as a nation - until we have to start facing the true cost of our decision to remain dependent on gasoline.

Smiling at the Pump

Speaking of odd yet rational behavior, I for one will be paying higher gasoline prices this summer with a smile on my face. Every time I see gas prices go up, I see the signs of change.

Twenty cents up, and I think about waiting until the weekend to run errands. Forty cents up, and I think about pulling my bike out of the garage to huff it over to my favorite tea shop on the weekends. Sixty cents up, and I think about buying a golf cart or at least a moped for getting around town all week. Eighty cents up, and I think about buying a Prius like my father's - the one with the bumper sticker that says "Eat My Voltage."

And at each of these price points, I think about all the other people thinking the same thing I am. I think about the ocean returning to the oil-free environment it once was. I think about landing at LAX and being able to see straight from the mountains to the ocean. I think about my children running and laughing under a bright blue sky, and I think about my grandchildren driving to visit me in their cold-fusion-powered Jeep. (Hey, if you're going to dream, dream big!) So I'll be thinking all these things every time I fill my tank this summer with another gallon of gasoline that our planet can't afford, and just between you and me, I'll keep right on smiling.