Mar 262012

For anyone who is of the misguided belief the US government has any more control over gasoline and oil prices than they have over other commodities, allow me to introduce you to the little known concept of supply and demand.

It sort of goes like this. When demand exceeds supply, prices go up, and companies increase production to fill the void. When the opposite is true, and supply exceeds demand, prices fall, and companies cut back on production.

Eventually a point of equilibrium is reached, and prices stabilize. It’s a simple concept, and it’s what free market economics is based upon. It’s what drives businesses to expand or contract, to invest or divest.

So why is it so many people have a hard time grasping that concept when it comes to energy prices? What makes people think we can just tell large, independent, global, multinational corporations, such as Exxon-Mobil, BP etc. to drill for more oil in the US (without considering supply/demand dynamics), and they will immediately cede to our requests? Do they think these large, independent, global, multinational corporations will do that out of the goodness of their hearts?

Get real! Oil is a global commodity, controlled by the large, independent, global, multinational corporations. It’s shipped all over the world. Transferred from country to country. Oil from from Saudi Arabia, and other middle eastern countries is shipped to North America, and in turn, oil produced in the US is shipped to China, Japan, and all points west to fill demand. The concerns of the US do not trump those of the rest of the world.

Even if we opened up every available inch of land to drilling, and required the large, global, independent, multinational corporations to increase drilling in the US [forget free markets], with the intent of reducing our dependency on foreign oil, don’t be of the illusion that will lead to an over supply, and a decrease in the price of oil in the US. The greater likelihood is prices will increase as a result, because supply will have to be reduced elsewhere (to keep supply and demand in equilibrium), and it’s more difficult and expensive to produce oil in the US.

And how do you suppose those countries, where oil production would have to be cut back, would react to such an independent action by the US? Countries were, for many, oil production is their sole source of revenue.

And besides, why would we want that? Why would the population of the US want the increased pollution, and lower quality of life, associated with expanded oil production, when there are far cheaper, and more plentiful alternatives available?

It makes no sense to me, but who am I to tell the people of Texas, Oklahoma, the Gulf coast, etc. not to destroy their environments and quality of life, in the misguided attempt to save a few bucks.

No, our best interests continue to lie in reducing our dependency on fossil fuels altogether, regardless of where they come from, and switch to renewable energy sources.

Not only will it be good for the environment, but it will also be good for the US economy, not to mention reducing our dependency on countries [and corporations] that don’t have our best interests at heart.

  3 Responses to “The law of supply and demand”

  1. I think it’s hilarious that the Republicans who say they believe in “free markets”, suddenly want to have government interfere with the free market to bring the price of gasoline down (as if they could).

    They know they can’t. What hypocrites.

  2. And you now what even bugs me more are those who are against the individual mandate to buy health insurance, and not yelling and screaming about the EMTALA as well.

    How is it unconstitutional to force people to buy health insurance, yet it’s not unconstitutional to force health care providers to work for free?

    We wouldn’t dream of forcing plumbers to work for free when we have a water line break, nor would we dream of forcing auto mechanics to provide free repairs to our cars, when we get into an accident. So why are we forcing health care professionals to do something we wouldn’t expect of anyone else?

  3. Alan’s comments are right on. Your’s, too, Marc. I am a registered Republican and a docent at the RNL in Yorba Linda, but often I think that politics and demagoguery gets in the way of reason, truth, and progress. Those who know economics, know that GOP has no chance of restoring $2.50 gas without a major upheaval (or war) and then see what happens to the price of oil!

    Politicians will say what their handlers tell them to say, but it doesn’t mean we have to believe what they say. Why are their approval ratings so low? Our political system is the greatest in the world despite all the blither, banter, and pompousness coming from those who would supposedly lead.

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