What's All This Then?

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Friday, May 05, 2006

All kinds of perplexing stuff keeps being written about the rise in gas prices. Typical was an op-ed piece in last Sunday’s Chicago Tribune by former editor and publisher Jack Fuller, in which he purported to explain the economic meaning or non meaning of gasoline price gouging.

His conclusion about gas prices? High prices good. Cheap prices bad. And government action artificially driving down the price would create a worse situation - shortages, long lines at the pump, people stranded on the highway with empty tanks.

I’ve tried to see the whole gas situation from the point of view of oil and gas experts and people well versed in economics - but just about all it does is give me a headache. I tend to look at the whole mess simplistically.

First of all - and I’ve said this before - I think we’re talking way too much about the wrong things. What we should be talking and doing something about is the development of a renewable fuel and an engine to run on it. A dual track. Fuel and engine. Not just find something to work in the internal combustion engine using less oil. An engine that runs on a fuel containing no oil derivative. A development plan that acknowledges that oil is a finite commodity. It will run out. We can explore and explore and drill and drill, but the day will come when it will be gone. There should be as much if not more discussion about replacing gasoline to run our cars and planes as there is discussion about conserving our use of gasoline and building more efficient vehicles.

Having said that, here’s my simplistic view of oil and gasoline production and "price gouging." The only thing that’s artificial about the whole ball of wax is the price - high or low! As far as I can see, it was "artificial" when it was less than twenty cents a gallon three or four decades ago - in that that was the price that those who were in a position to set prices determined that consumers should pay. There may not have been any government action involved - but at that incredibly low price, according to Jack Fuller’s theory, there should have been shortages, long lines at the pumps and stranded motorists on the highways.

No matter what the price, the essentials of the business - the pumping of oil from the ground, the refining and the manufacturing of gasoline remain the same. And as long as there is sufficient production to meet the demand, the price shouldn’t affect that condition. As a matter of fact, I heard one expert in the field say, the other day, that supply is exceeding demand at the moment. So why a price per gallon that sure as shooting looks like gouging?

The price of gasoline is largely determined by the price of crude oil and that price is being determined on a day to day basis not by the actual cost of its production but by speculators. Fuller wants me to believe that when I call my commodities broker and buy or sell crude oil futures and either make or lose money, I am determining the ebb and flow of the gasoline market and dictating whether or not motorists are waiting in long lines for $1.50 gas or being told to come back the next day or being stranded on the expressway - or pulling in leisurely to their favorite local station and happily paying $3.50 gallon for a plentiful and uninterrupted supply.

That may be so, but if so, it confuses the bejeebers out of me!!

As usual, when gasoline prices go through the roof, politicians are scrambling to "find out why" and to "do something about it." Fuller decries their efforts and says that anything they do, such as suspending some gas taxes, will only make matters worse.

Maybe so - but then we’re left with the usual gobbledygook about the industry that gets put forth year after year by oil and gas "experts" and economists that tries to convince us that there’s real meaning to what they’re telling us about the mystery shrouded world that they control and operate.

And the Fullers of the world spread this gobbledygook as gospel to be believed. To which I say as I put another $30 on my charge card for about half a tank of gas - in the words of Ebeneezer Scrooge - I’ll retire to Bedlam!!