Should We Try To Lower Gas Prices?
I’m going to respond to a great comment by Charlotte in a post instead of in the comments because I think it deserves the larger venue.
In response to my post about Obama’s plan to raise taxes on oil companies not helping the price of gas, Charlotte asks if we should even be trying to lower the price. It’s a fair question. My answer is no, but not for any of Charlotte’s reasons. Mostly it’s because the price will come down on it’s own.
In the oil market, the prices are high mostly due to trading activity. Optimistic futures traders are bidding up the price of oil. Does this sound familiar? It should. Specifically, it should sound like the tech boom of the late 90’s/early 2000’s and the housing market of 2006. All you budding young economists should know that means one thing…bubble.
And we all know what bubbles do…pop. That’s right, barring some sort of Herculean effort on the part of OPEC, that bubble is going to burst, potentially pretty violently. I think that’s a great thing. And not just because it cost me $69.73 to fill up my car tonight.
Sure, we’re dependent on oil and that may or may not be bad for the environment. I agree that we should be looking for more sustainable ways to power our vehicles. But if I can’t afford to fill my gas tank, I sure as heck can’t afford to buy a new car that gets 150mpg. Saying that gas prices should stay high to force people to switch to alternative fuels is just plan short-sighted.
Instead of forcing a switch, it will force the poorest of the workers to lose their jobs. If they can’t work, they’ll have to draw unemployment and perhaps welfare. Sounds like a Democrat’s dream. It also sounds like an economic downturn.
Speaking of unemployment insurance, I find it ironic that liberals clamor for better unemployment benefits and worker retraining when the big, bad corporations have layoffs. They complain that it’s too hard to help people transition to new jobs. The government has to be there to help them! Rely on us!
Now, when a bubble is about to burst, instead of letting the oil market crash and lower the price of gas, the liberals want to keep the price artificially high to force people to switch to their pet alternative fuel. Instead of staying out of the market, the liberals want to be in control of our lives.
I say, let the market crash, let prices come down and let’s be in control of our own lives. I’ll switch when I decide I can d**n well afford it. Artificial manipulation of the markets has never turned out well, except in rare cases of bad actors. And even then, I believe the market would have ferreted them out on their own.
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March 10, 2008 8:45 pm
By Ailene Hert, March 11, 2008 @ 6:37 am
Yikes Mark… I hope those two asterisks stood for the letters a and r.
As far as rising gas prices, we personally just bite the bullet and pay them.
For those who can’t afford to bite the bullet and pay them, yes, there are other options to cut back on gas costs (like carpooling, riding a bike, walking, taking a bus, etc…). If gas costs can’t be cut… then other areas of spending should be cut (entertainment, for example).
We don’t HAVE to pay the high gas prices… but we choose to, because we like having the convenience of a car. Perhaps it’s like feeding a shark? Maybe, but that’s okay with me.
By charlotte, March 11, 2008 @ 11:00 am
Good rebuttal Mark (censored curse words even!!). I think you are right that the market will correct itself. And I find the concept of futures trading (esp. in oil) absolutely terrifying in and of itself. I didn’t even consider it until you posted that NPR article.
HOWEVER. You make a mistake attributing the worst possible motive to the Democrats’ actions (why just the democrats Mark? I’m a republican and I like the idea of the government helping people who are down and out.). I don’t think anyone on either side of the party line wants to KEEP prices high JUST to force a fuel switch. When i said that, I meant that a) it would force INDUSTRY to switch first and b) that it was a positive side effect of a negative trend. I never implied a cause-effect relationship there.
My second point is that you are worried that gas going up a few cents/gallon will put poor workers out of the job market?? First off, prices in Europe have been much higher for much longer and yet most of them still manage to have jobs (and better public transportation, which we need). Secondly, even the “poor” in America have 2 TVs and a car and DISH network. People pay for what is important to them. My neighbor makes 96,000$ a year and because they have five kids qualifies as “officially poor”. They get medicaid, WIC, food stamps, the whole shebang. Poor my arse. Now, I do know that there are some in this country that are truly living in poverty. But often those people don’t have jobs anyway and they are such a small percentage that they are not who you are referring to.
I don’t like paying more money for gas. (70$ to fill up? Really??) But I do think it is important to close the loopholes that make the oil companies tax exempt.
By m, March 11, 2008 @ 8:45 pm
@Ailene: Yup, ar, not am. Good point, it’s always a choice. For me it’s worth it because I get to spend more time with the family instead of on a bike when I commute to and from work. However, I am searching for carpools.
@Charlotte: “I don’t think anyone on either side of the party line wants to KEEP prices high JUST to force a fuel switch.” Wow, you and I are quite a distance apart on that. I think politicians manipulate data and markets to force people to sign up for their pet projects (global warming being my primary example).
Regarding industry switching first, consumers will pay the switching costs because demand for fuel is quite inelastic. So, firms can pass on the bulk of the costs.
Finally, since I have a real problem with taxes in general, I’m never going to agree that “it is important to close the loopholes that make the oil companies tax exempt.”
By Rachel, March 14, 2008 @ 8:26 pm
I can name a few groups of people who want to keep gas prices high JUST to force a fule switch…
Corn farmers, ethanol producers, governors and other politicians of corn-growing states, all the businesses who provides goods and services to corn farmers, owners and employees of companies selling hydro-electric, solar, wind, and all the other inefficient, expensive, and ridiculous forms of energy.
Oh, and the Hollywood elites and trust-fund brats who assuage their conscience by driving a Prius.
M - you’re a smart guy! I’m so glad Charlotte introduced me to your blog.
By m, March 17, 2008 @ 7:52 am
@Rachel: Good point! It’s funny you mention the Prius. Studies have shown that the energy cost per mile from “dust to dust” (building the car to demolishing it) of a Prius (or any hybrid) is more than that of a hummer. Part of the reason is because the engine for the hybrids is built in numerous plants in disparate locations.
And thanks for your kind words. I hope you continue to enjoy the blog!