Monday, March 19, 2012

Gas price reality check

Gas prices often become political in the United States, and with good reason. Gas is an important part of people's budgets, and a rise in gas prices not only eats up disposable income when filling your tank, but causes the prices of many other things to rise as well. It is one of the issues that deserves reasoned discussion, especially in the context of a recession. It is more important than most issues currently being discussed in the campaign.

What's frustrating, though, is that ignorance--willful or otherwise--invades every aspect of the gas price debate. Obviously being in a presidential election year exacerbates that unfortunate reality. Latin America plays a secondary but still important role because we get a lot of oil not only from Mexico and Colombia, but also from Ecuador and Venezuela, the governments of which is vocally opposed to U.S. policy everywhere. As a result, politicians lament how the price increases not only hurt us, but help governments that don't like us and line their treasuries to boot.

Here are some points, a sort of bullet point rant. If nothing else, remember that any politician who says he or she can drastically decrease the price of gas is lying. Period.

In no particular order:

  • The price of gas depends to a large extent on the expectation of future price increases. Invading or otherwise messing with an oil-producing country, or just making people think you might do so, will make prices increase. It is then hard to get them down again.
  • The 2003 invasion of Iraq had a serious and upward long-term effect on gas prices.
  • One consequences of the Iraq invasion was to empower Iran, which then prompted a U.S. response, which then made gas prices go up more.
  • The price of gas also depends on demand in large, growing countries like China and India. The United States has no control over that.
  • It is easy for a U.S. president to make policy that increases gas prices, but much harder to make policy that decreases them by an appreciable amount.
  • The main way a U.S. president can make the price of gas go down is to preside over an economic crash (see chart below).
  • The United States has been increasing its gas exports, which is something few people seem to know. It has not made prices go down.
  • Producing more of our own oil will not make the global price down much, if at all. What we produce is a drop in the global oil bucket. In fact, our oil production has already been on the increase.
  • The presidential campaign is contributing to the price increase because of the talk about Iran (and this is independent of what you think about the ideal policy toward Iran).
  • Any serious talk about imposing sanctions on Venezuela or Ecuador would make prices go up, even if no such action is taken (again, irrespective of whether you approve of that or not).
  • Even if the Venezuelan opposition wins the presidential election later this year, oil prices will not go down as a result.


Alfredo 4:34 PM  
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Alfredo 4:37 PM  

We tend to drive around too much. Maybe if the price of gas goes up to the likes of Europe around $8.00 per gallon, Chrysler and Ford will make the move to stop making those gas guzzling behemoths.

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