There have been many recent questions about the ever-rising cost of gas and few, if any answers. Politicians on both sides of the aisle have blamed the other for lack of cooperation and state that there is a general sense of discordance within the opposition party. If that doesn't hit the nail on the head, I don't know what does. Everyone wants to take credit for any seeming victory on the consumer front, and is ready to lambast the other side for any downturn in the economy or a dip in the housing market. The right blames the left for its inability to control spending, and the left thinks the right is only interested in helping millionaires make more money. The truth, of course, lies somewhere in the middle.
On the issue of rising fuel costs, it has been stated by the current administration that supply is not an issue that effects price. In other words, increasing the supply of crude oil in this country, or in others for that matter will not change what we are paying at the pump. That has been the argument for not increasing the domestic production of oil in the last couple of years. There are numbers to suggest that domestic production has in fact increased, based on the number of operating leases today versus when President Obama took office, and I believe that is the case. But it is my understanding that many of those newer leases were in fact approved by President Bush and are just now coming into effect. But if our ability to harvest our own oil reserves has improved and prices are still rising, then that might support the administration's claims.
Let's look at the theory behind the claim though, and see if that really is sound. I will not lecture on the benefits of supply-side economics or extoll the virtues of free markets partially because it's beyond the scope of this blog, and beyond the understanding of its author. But the basics are something I can grasp. Suppose that you had in your possession a half-gallon of Blue Bell ice cream. I don't do a lot of shopping, but I think that goes for about $5 at the store. Now also suppose you grabbed the last of the mint chocolate chip (my favorite) and there are suddenly 3 people behind you that also came into the store to buy that ice cream. They all have great stories, kid's birthdays or a sick relative, so you can't be swayed by one individual story. One of them offers you $6. You are thinking you're pretty happy with just going home with your ice cream. Then another offers you $7. $8. $10 and so on until you are compelled to sell to the highest bidder because the offer is too good to pass up. If there had been a significant supply of ice cream in the store, the price would have remained $5. Or even better, if they had ordered too much, they might have had to sell it at a lower price to get it to sell before it expired. In this way, supply and demand are linked. This is just looking at the supply side of things, and there is a demand component as well, but for simplicity let's just look at supply.
If this makes sense to you, then that means that the current administration hasn't done a good enough job selling it's side of the story. Increasing oil production in this country will in fact help to keep the price of fuel lower than it might be otherwise. I will freely admit that I have oversimplified things in this example, national politics and nuclear arms do not often affect the price of Blue Bell, although if I wasn't able to get my hands on some I might make a scene. But it certainly is food for thought the next time you are at the pump. Do I believe what I am hearing from our elected representatives? Or do I believe what makes logical sense?
In Mr. Verheyden's editorial last week he reviewed gas prices and whether they are they result of any one party. He notes that there have been considerable debate to who's fault it is, with each side blaming the other. I think it is reasonable that he says "The truth... lies somewhere in the middle." He mentions that Obama's administration has said that it is not the supply side that is causing the high gas prices, which I think is not an clear statement. As Mr. Verheyden pointed out in his editorial, if there is insufficient supply, prices will go up. What I believe Obama was most likely saying was that increasing domestic supply, as Republicans seek, will have little effect on gas prices. This I can agree with, and Mr. Verheyden points out as well. He says that domestic production has increased in the time that Obama has been in office, it's smart to note that it may not be his doing, and that gas prices have not gone down. It is important to realize that oil is a global commodity and that many factors can affect the prices including global supply reductions from unrest in the middle east to the continual increase in demand in growing countries like China. I think that if domestic production could have a great effect on the price of gas, than we would have seen clear evidence of this. I believe that oil is out of our control and that the best choice is to remove ourselves from depending on it.
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