Wednesday, June 25, 2008


I flirted with the idea of talking about gas prices before, but I did not do the whole thing. I will make this one short and complete.

1. The Federal Reserve has been churning out dollars, lowering the value of the dollar. When we buy oil from Saudi Arabia, our plentiful dollars do not buy many Riyal (the Saudi currency), so our dollars do not buy many barrels of oil. In 2002, $1 would buy 1 Euro. The Euro price of oil is about the same today as it was then. So a lot of the price of gasoline is sponsored by the Fed.

2. China, Russia, and India have freed up their economies. People there are starting energy-using businesses and are buying lots of energy-using consumer goods and services. World demand for oil is way up.

3. We have not built a refinery in this country in 30 years due to high environmental standards. You may like the standards, but you pay for them at the pump.

4. We have not allowed much new drilling in this country in decades. So even when oil prices rise, we do not produce that much more oil.

5. We mandate an expensive ethanol/gasoline mix. If it were cheaper to make gasoline from corn, companies would do it on their own because they're greedy.

6. We mandate a few dozen other gasoline mixes that almost nobody wants to use, but congress thinks are politically nice. This decreases efficiency at refineries.

I think that about does it. Except for number 2, we are doing it to ourselves.

When you hear counter-arguments to these points, the best test to apply is this: Does the argument assume that oil companies are greedy? If the argument contradicts the assumption of greedy oil companies, then wave the nerd making the argument away with the back of your and and say, "Piff, piff! Begone!"

For instance, idiots are currently trying to contradict 3 by saying it's the oil companies' free choice, not stringent environmental regulations, that keep oil refineries scarce. But this would mean that companies who see this huge demand for refinery space are saying, "Yawn, I could make more money if I had more refinery space. So what?"

Piff piff!

Idiots try to contradict 4 by saying, "The oil companies are not drilling where it is legal to drill, so why should we open up more?" The implication seems to be that there are profitable places to drill that the oil companies are ignoring.

Piff piff!

Senator Grassley from Iowa corn country says that ethanol (5) is efficient. If it were, then gasoline distributors in the past were giving up profits by not mixing ethanol with their gasoline. And, if ethanol was efficient, zero subsidy would be necessary to get gas distributors to use it.

Piff piff!

Finally, idiots are trying to blame oil speculation for high prices. Some people bet the price of oil will go up. Every time someone does, someone else must be betting that it will not go up that much. Why are people betting the price will go up? How about reasons 1-6.

Speculatory prices on oil reflect scarcity. If tomorrow the government decided to repeal ethanol laws, repeal laws mandating multiple grades of gas, loosen restrictions that make refineries infeasible, allow drilling where we have oil, and if the Fed tightened the money supply, the price would dive and the people betting on high prices would start losing.

So, what is the solution to high oil prices?


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