It's the economy stupid


I never take CNN/Money articles too seriously. More often than not their writers are regurgitating liberal talking points rather than providing real-world economic analysis. After all, this is the same media outlet that turned to financial magnate Billy Joel for his opinion on investing.

So it's no surprise that in an article entitled 6 ways to lower gas prices, five of the suggestions they make would actually increase gas prices.

1. Pass a carbon tax - Economists say the most efficient way to reduce demand for any product is to make it more expensive. In short, a carbon tax. For gasoline, let's say an additional $1 or $2 a gallon.

Now this might not bring prices down at the pump. But it would most likely reduce demand, thus lowering wholesale prices and the profits currently reaped by oil companies and their shareholders. The tax revenue, presumably, would be returned to the public for its own benefit, perhaps in the form of better mass transit, cheaper health insurance or a gasoline tax credit for lower income people.

So the #1 way to lower gas prices is to raise them. Then use the extra money to fund liberal social programs. Way to blow your credibility right off the bat. But wait, there's more:
2. Increase efficiency
What could be easier and cheaper than legislating the invention of a car that gets 80 miles to the gallon? While you're at it, pass a law that says the Arabs and the Jews have to get along. That would ease Middle East tensions and lower the price of crude.
3. Push alternatives
The alternatives are more expensive, else they would push themselves.
4. Require oil companies to make more gas...
"I don't think they're meeting somewhere and saying 'oh, let's get the price up another 7 cents this weekend,'" said Judy Dugan, research director at the Center of Taxpayer and Consumer Rights. "But they know very well they can make more money by making less gasoline."

Arguing gasoline is a commodity essential for the public well being, Dugan said the government should require refiners to operate at a certain capacity or, if need be, build more refineries.

Economics don't work that way. If they could produce more, they would. Even at a lower price they would still make more money through increased volume. That's the Wal-Mart business model. But requiring "big oil" to build more refineries (with a 15 year lead time and a cost of billions of dollars) will only result in higher short-term gas prices.
5. Build a gasoline reserve
This might help smooth out price jumps in the wake of natural disasters like Katrinarita, but get real. Filling up a reserve would put immediate short term pressure on prices at the pump. You wanna see $4 gas, try buying 700 million gallons to put away for a rainy day.
6. Drill more oil
Finally! Increasing drilling and refining capacity should have been number 1. And missing from the list is reducing our dependence on foreign oil, axing the summer blends, and eliminating regional gas price controls.

But then, I went over all this two years ago.


Comments

Another one would be to remove the ridiculous requirements for all the different blends. Each blend is only good for a limited area so only as much as can be sold is made. Then they shift to the next blend for another region. Let refineries make "gas" 24X7 and sell it nationwide.

Posted by: UncleScreech at May 17, 2007 5:11 PM

That's what I meant when I said "axing the summer blends"

Posted by: Ravenwood at May 17, 2007 5:35 PM

If I remember correctly, environmental law currently makes it a pain in ass to build an oil refinery. According to Wikipedia (WINTBT), one hasn't been built in the U.S. since 1976. Oil companies *might* want to build a few new ones to process more oil, but environmentalists stand in the way.

Additionally, it's OPEC that is renowned for restricting oil flow, not publicly traded companies.

Is the article aware that gasoline does not store well? It mentions the Strategic Petroleum Reserve, but fails to note that oil lasts far longer than gasoline (oil = millions of years, gas = ~5 years stabilized).

Posted by: Alcibiades at May 17, 2007 7:04 PM

Some real suggestions:

1) Ease the regulations on building refineries, and prevent NIMBYs from going to court to block them (and many, many other things, starting with wind turbines off Ted Kennedy's beach...)

2) Break up government-owned monopolies. That includes the nine biggest oil companies in the world, IIRC.

Posted by: markm at May 18, 2007 11:43 AM
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