Gas Prices: Reaganomics won't work

[johnlal]

I wrote to my Democratic Congressman complaining about high gas prices and asking him what he was going to do about it. His response talked about tax credits, tax holidays, and giveaways to Big Oil. He also talked about opening up the strategic oil reserve to increase supply. All of this is being done in hopes that Big Oil will respond with lower prices at the pump. It's amazing to me that even our Democratic Congressmen gravitate automatically to supply-side remedies for these types of crises.

My solution: Price controls. Impose a reasonable price per gallon. Then let the oil companies work back to that price by cutting exec. compensation, reducing their profit margin, and increasing domestic production of gasoline. If they can't do it without government giveaways, that's fine. We can step in and help them (again). But it makes no sense to keep giving them money when they refuse to lower prices.

More at http://lallylaw.com/blog/index.php?blog=3&title=the_way_to_tackle_high_gas_prices&more=1&c=1&tb=1&pb=1

[Terry in Austin]

1. Gas prices aren't "high"

Sorry, they are simply an accurate indicator of supply and demand.

Oil production has stopped expanding and will soon start to shrink. Forever. Meanwhile, we keep demanding more to feed our habit. Prices move accordingly, and we just blame the pusher.

We don't have a gas problem -- we have a consumption problem.

[johnlal]

2. I understand that oil is a scarce resource

... but there's no indication that the current price spike has been caused by a recent revelation that we're running out of oil. Rather, it's caused by price and supply manipulation by the cartels and corporations who contol the supply of this resource.

We're still pulling oil out of the ground as fast as we were when oil was $2.00 per gallon.

[pscot]

5. We are actually not pulling oil out of the ground

at the same rate. We're down slightly from a peak in 2005. Meanwhile, oil use in China is increasing 10% a year. Demand increases::supply shrinks. Some of the shortfall is being made up with ethanol, but diverting food crops to energy production means poor people starve. Price fixing will create a black market. Some sort of allocation system might work, but only if it were world-wide. That has not yet even been suggested, as far as I know.

[phantom power]

6. And oil pumping countries are keeping more and more of it for themselves.

Export collapse. Another manifestation of increasing demand.

[johnlal]

7. Nonetheless...

What's happening here is plain old fashioned price gouging.

[phantom power]

8. I don't think so. Consider:

oil is purchased on the market. We are now in an economic phase where it is a seller's market. Competitive bidding. If American buyers say "I refuse to pay $120/barrel!" Then the Chinese will happily bid $120, and take it home with them. Or India, or whoever.

Furthermore, the dollar has lost about 1/3 of its value since 2005. That's had a real contribution to oil prices, that has nothing to do with gouging. It's just America's bad fiscal policy coming home to roost.

[phantom power]

3. there are two types of politician:

either they don't understand peak oil, in which case they probably think that some kind of supply-side remedy will actually work. Poor souls.

Or, they do understand peak oil, in which case they know that (a) nothing can fix the fossil fuel problems we're having. and (b) publicly talking about any effective response would preclude them from being elected dogcatcher, because all the effective responses are going to be disruptive and unpleasant, to varying degrees.

So, neither kind of politician is going to talk much about what's really going on with oil and fuel, or what really is going to happen in response.

[johnlal]

4. That's a concise and accurate response.