The Skinny on Gas Prices

buys less

All we hear from one side is, if we drill more, it will bring down prices.  From the other side, all we hear is, drilling is not the answer, the solution lies somewhere in the future use of wind, sun, corn, or inflated tires.

Neither of those two views tells the whole story.  Then there are those that just blame it on speculators or greedy oil companies.  True enough, the oil companies make big bucks and that is because the world uses a huge amount of oil.

What one rarely hears is the effect inflation (cheap dollars) has on the price of gas.  We will get back to that in a moment, but for now lets consider how we got in this mess and who got us there.  Some claim the President and some also say he can't do much about it.

So, what are the things that affect the price of gas?  The main factors are supply and demand along with the value of the dollar or what ever a country's currency.  Let's keep speculators and greedy oil out of the equation for a moment.

We all pretty much know that supply and demand do affect the price of all goods.  We all know that supply, at least here in the states has been choked off by government policy.  True, we have produced more on private lands recently but no real advantage has been taken of huge potentials elsewhere.

Just to make the point that one major factor is being overlooked, how often do you hear the weakened dollar being blamed?  It never comes up.  Why is it such a big factor?  Let us pretend you the reader have a lot of oil to sell and you live in another oil rich country.  Then let me be an oil purchaser living in the USA.  To make this point easier to see, let us also assume supply and demand stay constant.  All that being the case, and you not being a price gouger, you would continue selling me oil at the same price.

Here comes the kicker, how do I pay you for that oil?  If it is in American dollars, there enters a problem.  You, the oil seller can't buy as much of the things you want with those same dollars because they have become de facto devalued by inflation.  So noticing the price of bread has gone up, you do as the bread maker, you raise your price for oil.  There is noting hard to understand there.  It is simple old Adam Smith economics.

Now let us go back to the question of what and who got us to a weaker dollar.  Paramount would be our national debt and our tendency to weasel out of it by paying back the debt in inflated dollars.  So here we have in a nutshell, two major components of gas prices, supply/demand and inflation and all we need do is look at what and whose policies have led to that.  With no near term alternative energy having been or likely to be realized, it is unrealistic to choke off demand for oil.  Yet we do nothing substantial on increasing supply.  Where does that blame lie?  We have in the last three years rolled up a mountain of national debt.  Where does that blame lie?

To be fair, the answer to those two questions should be evident.  But hold on, you may have been thinking it points to the President or the Democrat party.  Well yes, in one sense that is a justifiable position but doesn't, in a free country, the blame go all the way back to those that elected them?  In my book it does.