Who’s to Blame or Is Anyone to Blame?
by J.S.B. Morse

May20,2004

This summer, you’ll hear a lot about record highs for gasoline prices and you’ll also hear a lot of complaining. Already there have been Internet campaigns to get everyone to avoid buying gasoline on one day so as to make the greedy oil companies “lose 5 billion dollars.” Supposedly, the oil companies would not get the $5 Billion that we Americans spend on gas a day (this figure is ludicrous), but what’s stopping them from making that up when more than an average number of consumers buy gas the next day? This horribly irrational plan is typical of the type of thinking that goes along with furious gas consumers who don’t see any good reason as to why the prices are going up.

Here's the ubiquitous fat person at the pump picture.

There are three points I would like to address concerning the country’s obsession about this energy situation. First off, gasoline is not that expensive in historical terms. Second, it is not the government’s duty to regulate the price of gasoline, and the free market should dictate the price. Third, higher prices for gasoline are not necessarily bad since necessity (need for cheap energy) drives innovation in the free market.

The price of gasoline, though an enigma to many drivers, has been kept relatively low in recent years. It takes fewer hours worked to pay for a mile of gas now than, say in 1966 (1). Then, the average American spent $35,000 a year, and 3% of that went to gasoline. Today, households spend 2% of their payouts on gas. We spend less on gas as a part of our expenditures while we are driving more (12,000 miles a year compared with 9,500 miles a year in 1966). This can be attributed to an increase in fuel efficiency (fuel efficiency for cars and light trucks has almost doubled since 1970), but there are other factors involved.

Even with the higher demand (400% increase from 1950 to present), the price of gasoline has stayed relatively consistent. In 2004 dollars, the price of a gallon of gas in 1970 was $1.68. As of mid-May, 2004, it’s hovering around $2. So, since 1970, gasoline prices have beaten out inflation, but the current price is nowhere near the all time high of $2.75 in 1980.

Regardless of the historical pricing on the energy, the fact that in the last few months gasoline has rocketed up is a problem to most drivers. They don’t know why it’s gone up so fast, and just see it as greedy oil companies getting rich, or the President inflating the cost so that his oil buddies can retire earlier. So they push for Bush to do something about it. But, is Bush to blame for the rise in prices and should he do anything about it?

In a free market, which oil is a part of, demand increases the value of a commodity, while supply decreases the value. There are a number of complex factors involved in the oil trade, including, but not limited to: foreign relations, war, usage, and politics. Interestingly enough, before the “oil crisis,” Bush was one of the major proponents of alleviating the need of foreign oil, thus lessening the impact of the first two factors. His suggestion to drill in the arctic wildlife refuge may just have prevented the current level of prices. This seems to have been overlooked in the majority of news articles about the situation.

In addition, though government could decide to regulate the price of oil, that would most likely result in the debacle that was the real energy crisis in California 2002 when rolling blackouts were common place and energy consumers saw a 40% increase in cost. Meddling with the free market is not smart for the government, for the more it does, the higher chance that it will not foresee an unexpected result (usually negative).

According to a Chicago Sun-Times article (2), the average American doesn’t know who to blame for the high prices, but the presumptive Democratic Presidential candidate is giving them a scapegoat of Bush. ''Where is the president? We need a president who is fighting for the American worker, the American family at the fuel pump.'' Interestingly enough, Kerry has mentioned lobbying Saudi Arabia to lower OPEC’s price of oil in the same breath as questioning whether it was good to have a president with such close ties to the country as Bush. Besides this anti-free market approach, Kerry has not offered an alternative method for bringing the price of gasoline down.

Until just recently, gas prices have been historically lower.

I find it extremely ironic that those bashing Bush for his unwillingness to do anything about this so-called crisis are the same people that would have increased the price of gas by $.50 a gallon through a tax. This would have raised the cost of driving for the average driver $500 for a year. Kerry wanted this tax just a few short years ago, when gas prices were extremely low and he wanted to look environmentally friendly. It doesn’t sit so well in today’s climate, does it, John?

Considering that, one sure way to bring the price of gas down is to eliminate the gas tax that exists. The federal gas tax is 18.4 cents per gallon and the states tack on anywhere from 14 cents to 31.1 cents (Wisconsin being the highest). That would give the drivers an immediate break on an almost weekly purchase. This option is rarely being mulled over by the Washington elites, however.

So, there’s nothing we can do about the price of gas, then? Is it possible that the prices will reach $5 this summer? How about $10 by next year? What will we do then? The answer is simple. If the price of gas gets too high, we’ll just find another way to get from point A to point B. Either we’ll use mass transit, or we’ll buy alternative energy automobiles, or something else imaginative that we haven’t thought of yet. The fact is we’ve gotten ourselves into this position of depending so heavily on gasoline as an energy source, we have to live with the consequences. If we can’t do that, we need to figure out how to travel without using gasoline.

Most options there are extremely more inviting than using gas-powered cars: less pollution, less dependence on foreign supply, wider competition. So, the only thing that gas has over these alternative fuels and modes of transport is cost. Once the cost gets too high, necessity will force us to come up with a better solution. Isn’t it great how the free market works?

So when you’re listening to the radio and you hear Kerry barking about Bush and the Saudis, you can cheer it. When you’re out and you see the gas prices go up, complain, but know that in the long run, there will be a better option.

1) http://www2.exxonmobil.com/corporate/files/corporate/gpip.pdf
2) http://www.suntimes.com/output/elect/cst-nws-gas19.html