Friday, June 6, 2008

$4 Gas

First of all, it's not good for me to actually have time to post on this blog, and now I've been challenged to post some things... ;)

While we're talking politics here, someone asked in a previous thread why I focused on something so minor. First of all, lately I haven't focused on much of anything here! But let's talk about "$4+/gallon gas" here for now.

For my part in this, I recently traded a gas-guzzling, supercharged, 93 octane drinking car that I really liked for a much more economical compact car (30mpg city now versus 18). So, I guess you could say I'm doing my part in reducing how much gas I'm using. (As an aside, Daimler-Chrysler should focus on fuel economy and not $2.99/gallon gas guarantees...)

But the blame on $4/gallon gas can't be laid squarely on the shoulders of those in the Executive Branch. We now have a problem with an ineffective Legislative Branch with empty promises. My pal Greg just posted a timely post regarding this yesterday. Let's look at what Greg wrote there:
April 24, 2006, [Nancy Pelosi] released another [statement about a gas plan]:

“Democrats have a commonsense plan to help bring down skyrocketing gas prices by cracking down on price gouging, rolling back the billions of dollars in taxpayer subsidies, tax breaks and royalty relief given to big oil and gas companies, and increasing production of alternative fuels.”

Let me get this straight, according to Nancy Pelosi, the Democrats had a plan in April of 2006 to lower gas prices if they became the majority. Well, in November of 2006, the Democrat party came into the majority position.

As of this writing, it has been 779 days since Nancy Pelosi pledged to lower prices at the pump.

Greg, you're right. The Democrats ran on this platform back then and they're running with this as part of the platform again. And to address the comment ahead of time, it will be pointed out that if they did introduce legislation that President Bush would just veto it. Well they should have at least tried it. I'm really open to comments on some of the bills that were introduced. The Democrats control both Houses, so they obviously could have forced some legislation through. If any of you are aware of them, please let me know. But you can also feel free to see the list of vetoes that President Bush has made. There's even a veto that the Senate overrode back in 2007 after the Democrats had control, so that argument really doesn't hold water.

While there are a lot of people who place the blame for high prices on the War in Iraq or just poor policies by the President, what if a lot of what we're seeing is just Capitalism (gone awry)? What if those who pump the crude oil have decided that it would be a great time to hike the prices and have the perfect scapegoat in the Bush Administration? It's just a theory of mine. Some people have conspiracy theories about the Administration, and I have mine... ;)

By the way, here are a couple of good articles by economists regarding recent pricing.

"What Are Just Prices?"
We all have strange and contradictory wishes concerning what prices should be. We are outraged at what is happening to the price of gas and food. We don't think they should go up. In real terms, we want them to fall, and they have fallen in the last decade and a half. That's a good thing, right? That's how the world should work.

But housing? Now, that's a different matter. When the prices fall, people freak out. It's like the end of the world. How is it possible that my own home would fall in price?! That's not the way the world should work. Everyone knows that house prices are suppose to go up up up, all the time, without fail, until the end of time.

"The Oil-Price Bubble"
We suggest that there is a high likelihood that the massive increase in the price of oil is the manifestation of a severe misallocation of resources. The loose monetary policy of the Fed from January 2001 to June 2004 is the likely key factor behind this misallocation. (The federal funds rate was lowered from 6% to 1%.) The tighter Fed stance from June 2004 to September 2007 should undermine the existence of various nonproductive activities and in turn reduce upward pressures on the price of oil.

Regrettably, the loose monetary stance that the Fed has adopted since September of last year, coupled with still very buoyant Chinese economic activity, is likely to counter any downward pressure on the price of oil. The Fed's current policy of fighting an emerging economic slump is, in fact, a policy of deepening the misallocation of resources, thereby promoting higher prices for oil. If our thesis regarding the oil market bubble is valid, then it is the Fed's policies that must be blamed for the erosion in consumers' living standards and not the rising price of oil.

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