April 8, 2012
Gasoline prices reality
I read in the paper on Monday that gas prices are expected to soon top $4 in North Carolina. The prices of gasoline have almost doubled since Mr. Obama was elected, and his opponents have vilified him mightily for his actions or inactions. Then Newt Gingrich comes along with his promise to lower the price down to $2.50 per gallon if he were to be elected. He must know some magic that nobody else remotely connected to gasoline economics understands. I guess it's just one more example of why the nominating races are sometimes referred to as the silly season. Seriously now, If Mr. Obama wants to be re-elected as badly as we all think he does...don't you think that he would do whatever is possible and necessary to reduce the prices at the pump...if he could? Besides Mr. Gingrich'd ludicrous and laughable ideas, have you heard one rational proposal to solve the problem? Yes we can increase drilling, and we can allow the Keystone pipeline to move forward...but neither will add significantly to the world's oil supply any time soon. The really harsh truth is that oil is simply a global commodity whose prices are, like any other, controlled by the laws of supply and demand...and demand is and will continue to outstrip supply for the foreseeable future.
One only has to go back to the collapse of the USSR and China's leadership's decision to re-engineer their economy into a quasi form of capitalism to see the seeds being planted that were destined to change our way of life forever. For the many decades since WW II America has been the unquestioned global economic leader. We produced and consumed far more per capita than any other country. Gasoline is just one of the global commodities that we have been over-consuming for decades...because we could! We developed an amazing Interstate Highway system under the leadership of President Eisenhower. We built bigger and thirstier cars because low gas prices allowed us to do so. We backed off for a short time in the 1970's when supplies were bottlenecked by the middle east suppliers. However, the minute the spigot reopened we went right back to gas guzzlers. After all, who doesn't want a powerful car, a full-size pickup, or SUV? We valued faster, roomier vehicles more than gas economy. Today we remain, with less than 5% of the worlds population, consuming almost a quarter of the worlds oil. What is really putting the economic damper on our ability to continue to buy gasoline at cheaper prices is that global demand led by the rapidly expanding consumerism in developing countries like India, China, and even Eastern Europe are adding hundreds of millions of consumers also demanding cars and the gasoline to fuel them. No matter how much we don't like the price at the pump going up...in the short term we simply can't reverse the economic laws of supply and demand. Unfortunately, in my opinion, we can't do much about it in the long term either because by the time any actions we might take to increase production on-shore...global demand will have increased to even higher levels which will only serve to drive prices steadily higher.
Our only reasonable and sustainable action will be for most consumers here to buy smaller and more fuel efficient vehicles, just as consumers in most of the rest of the world's developed countries have always done due to higher gas prices driven by much higher taxes on gasoline. That won't be an easy action for us to take because, as usual, we have all gotten use to expecting stable gas prices...and we don't like change. However, as prices continue to rise, we will have no other choice. In the past every single time gas prices spiked some consumers rushed to buy more fuel efficient cars...and that appears to be happening again. Then as soon as prices reversed a bit...we went right back to the bigger vehicles we are so used to driving. However, it appears highly unlikely that prices will ever actually return to much lower levels than today for very long. Prices most likely will continue to increase as global demand continues to explosively grow. You also have to remember that many other consumer goods, and even food, costs and retail prices are also heavily impacted by oil prices. No action by any politician will be able to reverse this global economic reality. It is a shame that we again failed to have the needed leadership in Washington for the past few decades that night have allowed us to gradually adjust to our new reality in this particular area. However, as we have always seen, getting re-elected comes far ahead of politicians doing what is actually needed for our best long term interests. They won't confront the entitlements and they haven't confronted our over-consumption of gasoline...because they are fearful we might actually wake up and do something about it...like vote them out. I can't imagine where they ever got that idea.
As usual, these are my opinions. What do you think?
Mike Tower
Hendersonville, NC
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