THE HIGH PRICE OF GAS AIN'T A BAD THING
Is gasoline at $2.75/gal. a bad thing?
It may seem that way to the average commuter filling up his tank, who has to shell out an extra $20 at the pump nowadays.
On the other hand, if you owned an oil well or refinery (or shares in a corporation that does), you may feel differently. Your shares have soared, and the fatter dividends more than pay $20 extra per tank.
Doubtless there are lot more commuters than oil producers. And since we live in a democracy, why don't we just vote to make the oil producers sell us gas at $1 per gallon?
After all, the oil producers are making record profits and their incomes are expanding. Surely they can pitch in to help bring down the cost of gas. Why should they benefit at other's expense?
Leaving aside a short document called the US Constitution that protects individual rights from the will of the majority, such a policy would be counterproductive in solving the problem.
In fact, we've seen this all before. During the oil embargo on 1973, when OPEC first flexed its muscle, the cost of gasoline nearly doubled (to $.55/gal.!) as price of crude quadrupled to $12/barrel. The profits of oil companies skyrocketed as they revalued their existing inventory. A nationwide hue and cry of "price gouging" was leveled not only against Big Oil, but small service station owners as well.
In response, President Nixon passed the Emergency Petroleum Allocation Act, which set price controls on oil producers, and attempted to coordinate the allocation and distribution of gasoline on a national level.
The result? Gas rationing, with long lines of cars waiting hours to fill up at the pump. Fistfights were common, as tempers flared. The economy went into recession. Our dependence on imported oil actually increased, as domestic producers, forced to sell at pre-embargo prices, cut back production.
Congress passed the national speed limit of 55 mph to conserve fuel, and mandated thermostats be lowered in winter. The country divided; bumper stickers appeared that read: "Drive 90, freeze a Yankee".
Hardly an effective solution. Yet once again our citizens appeal to the government to "do something". When will we learn that government interference in the marketplace causes problems, not solves them?
First lesson in Economics 101: The price of gasoline (or any other item or service) is neither good nor bad, it's only a reflection of supply and demand.
Price is information, pure and simple. It has no goodness or badness.
The relative prices of different items serve to tell us instantly which items are scarce and should be conserved. High gas prices compel us to buy smaller cars, turn down our thermostats, and drive slower. Demand for oil eases, causing prices to decline.
We don't need the government to make us do these things; prices do that for us.
But what can it hurt to have the government mandate this you ask?
The trouble is that each of us had different needs.
Why should tall people be forced to squeeze into tiny imported cars, or older folks made to shiver in the winter, or westerners have to languish on lonely highways?
Can't everyone decide for himself how to deal with higher oil prices?
Similarly, high profit encourages oil producers to pump more oil and provides the money needed to drill more wells. This creates more supply and causes downward pressure on prices.
Magically, the price of gasoline eases. This is the work of the famous 'invisible hand'. But prices must be allowed to change constantly, sometimes quickly, in order for free markets to work.
Second lesson in Econ 101: There are two ways for prices to be determined, government fiat, or market action. When the free market sets prices, those willing to pay the price get what they want. When government sets prices, the likely result is rationing or scarcity.
To be sure, the cost of gasoline doesn't go down when the government lowers the price. Because the now the time you've lost waiting in line to get the gas must be added to the price. The cost of that waiting varies with individual income; still I don't know anybody who enjoys waiting in line.
Just witness the violent stampede that took place in Richmond, Virginia when the school system sold off valuable laptops for $50 each. Not only did the taxpayers lose out, so did the unfortunates who were trampled.
Government interference in the marketplace leads to waste, tragedy, and violence. Oftentimes, it can lead to war.
The shock of an Arab oil embargo or natural disaster can create temporary disruptions in our economy, but only the government can make them permanent.
George Conrad Dick
Chairman
Libertarian Party of Kentucky
It may seem that way to the average commuter filling up his tank, who has to shell out an extra $20 at the pump nowadays.
On the other hand, if you owned an oil well or refinery (or shares in a corporation that does), you may feel differently. Your shares have soared, and the fatter dividends more than pay $20 extra per tank.
Doubtless there are lot more commuters than oil producers. And since we live in a democracy, why don't we just vote to make the oil producers sell us gas at $1 per gallon?
After all, the oil producers are making record profits and their incomes are expanding. Surely they can pitch in to help bring down the cost of gas. Why should they benefit at other's expense?
Leaving aside a short document called the US Constitution that protects individual rights from the will of the majority, such a policy would be counterproductive in solving the problem.
In fact, we've seen this all before. During the oil embargo on 1973, when OPEC first flexed its muscle, the cost of gasoline nearly doubled (to $.55/gal.!) as price of crude quadrupled to $12/barrel. The profits of oil companies skyrocketed as they revalued their existing inventory. A nationwide hue and cry of "price gouging" was leveled not only against Big Oil, but small service station owners as well.
In response, President Nixon passed the Emergency Petroleum Allocation Act, which set price controls on oil producers, and attempted to coordinate the allocation and distribution of gasoline on a national level.
The result? Gas rationing, with long lines of cars waiting hours to fill up at the pump. Fistfights were common, as tempers flared. The economy went into recession. Our dependence on imported oil actually increased, as domestic producers, forced to sell at pre-embargo prices, cut back production.
Congress passed the national speed limit of 55 mph to conserve fuel, and mandated thermostats be lowered in winter. The country divided; bumper stickers appeared that read: "Drive 90, freeze a Yankee".
Hardly an effective solution. Yet once again our citizens appeal to the government to "do something". When will we learn that government interference in the marketplace causes problems, not solves them?
First lesson in Economics 101: The price of gasoline (or any other item or service) is neither good nor bad, it's only a reflection of supply and demand.
Price is information, pure and simple. It has no goodness or badness.
The relative prices of different items serve to tell us instantly which items are scarce and should be conserved. High gas prices compel us to buy smaller cars, turn down our thermostats, and drive slower. Demand for oil eases, causing prices to decline.
We don't need the government to make us do these things; prices do that for us.
But what can it hurt to have the government mandate this you ask?
The trouble is that each of us had different needs.
Why should tall people be forced to squeeze into tiny imported cars, or older folks made to shiver in the winter, or westerners have to languish on lonely highways?
Can't everyone decide for himself how to deal with higher oil prices?
Similarly, high profit encourages oil producers to pump more oil and provides the money needed to drill more wells. This creates more supply and causes downward pressure on prices.
Magically, the price of gasoline eases. This is the work of the famous 'invisible hand'. But prices must be allowed to change constantly, sometimes quickly, in order for free markets to work.
Second lesson in Econ 101: There are two ways for prices to be determined, government fiat, or market action. When the free market sets prices, those willing to pay the price get what they want. When government sets prices, the likely result is rationing or scarcity.
To be sure, the cost of gasoline doesn't go down when the government lowers the price. Because the now the time you've lost waiting in line to get the gas must be added to the price. The cost of that waiting varies with individual income; still I don't know anybody who enjoys waiting in line.
Just witness the violent stampede that took place in Richmond, Virginia when the school system sold off valuable laptops for $50 each. Not only did the taxpayers lose out, so did the unfortunates who were trampled.
Government interference in the marketplace leads to waste, tragedy, and violence. Oftentimes, it can lead to war.
The shock of an Arab oil embargo or natural disaster can create temporary disruptions in our economy, but only the government can make them permanent.
George Conrad Dick
Chairman
Libertarian Party of Kentucky
posted by George Conrad Dick at 10:36 AM
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