Friday, April 28, 2006

Gas price sanity

While economics may be far from the normal topics of this blog, the gripes, "expert" commentary, and political pandering surrounding the continued rise in gas prices have promted me to finally exercise my posting privilieges. The link below is to the best, most concise explanation of the problem I have yet seen.

As the link shows, the columnist does little more than remind that that no matter how much the people scream and the politicans promise, the laws of supply and demand cannot be repealed. Are oil companies charging as much as then market will bear? Sure, but so does every single business and so does every single employee who looks for a raise. Countless investigations have found no collusion among the oil companies, and if they had, that would be an issue for Antitrust law, not the griping we hear today.

What irritates me most is that the same people responsible for the supply and demand problems are those scream the loudest over the prices. We might want to drive SUVs, regulate the blends of gasoline, or not drill in certain places because we like the look of tundra more than lower oil prices. But those decisions come at a cost, and politicans who created those costs by impacting supply and demand are now blaming everyone but the responsible parties: themselves. The least they could do is be honest.

Indeed, all the political sound and fury is counter-productive, because it only increases people's fear that prices will go higher. I have heard that the "future uncertainty" premium is at least$10, and maybe $20 per barrel of oil. Fear drives prices even higher by unreasonably increasing demand now, and adding to the fear does not help.

Link to article


mel said...

I'm glad to realize that my former finance professor and his students are not the only ones who remember the laws of supply and demand!

Thanks for the comments and the link. I enjoyed the article!

Becca said...

Very interesting. And I'll concede, perhaps you're right. (Frame that--concessions don't happen often.) Isn't it still true that gas is far more expensive in other countries than in the U.S.? [graph of international gas prices] What accounts for that?

Becca said...

Oh. HTML tag broke again. [graph of international gas prices]