The high price of gas

There is quite a bit of talk of the high price of gasoline and that it will likely cost $4 per gallon soon. Some people refer to this with “outrage” or a “crisis”. Why isn’t someone, such as the government,doing something about it.

Perhaps the cost of gas isn’t that high, considering inflation. I’ve read gas prices have not matched inflation. This chart indicates that inflation has not match increasing gas prices. This article indicates that the current peak prices have recently exceeded inflation. By and large, gas has been relatively cheap.

And why isn’t someone, such as the federal government, doing something about the cost of gas? Because they don’t see the situation as being that bad. A sort of natural equilibrium exists in the industry.

The sources of oil don’t want the price to increase to drastically. That produces behavior which cuts demand drastically: consumer start conserving. businesses reliant on oil cut back, alternative energy sources gain momentum, etc. If any of these efforts have a high degree of success, it could drastically affect the demand for oil in the long term.

If the feds saw a true crisis, there are plenty of options available to the U.S. government. There are U.S. reserves that could be drawn upon. There is plenty of oil here in the U.S. and North America, and those could be relied upon more heavily. The situation isn’t at a point yet where those measure are believed to be needed.

So things just aren’t that bad. An adjustment to the price of oil is in process. A year or two from now, $4 for a gallon of gasoline will be accepted and the economy will have adjusted. People will back back to driving their 12 mile a gallon SUVs.

While I think I understand the situation, my personal views are much different. The U.S. (and the world) needs to end its reliance on oil. While I believe in free markets, I think the government should step in and put a large tax on gasoline (start at 25 cents/gallon and over the course of several years raise it to $3/gallon). That would accelerate activity in industry to seek alternatives. That may seem extreme to many Americans, but it is already the norm in Europe.

A political side-effect, and one that is quite beneficial, is that without the reliance of oil, the Middle East can grow at its own pace. Industrial nations will have no need to interfere with those oil producing nations, and those nations can evolve at their own natural pace – without the U.S. (and other industrial nations) pushing them along because of their thirst for oil.