Gas Prices
A ‘new-again’ email is making the rounds and was dumped in my mailbox…from yet another person who is using their position to espouse an argument. Like the 1st, this is another case of people who should know better using their freedom of speech in an irresponsible manner.
This email petition does not advocate a boycott on all gas stations – just a couple. According to the message, this plan was engineered by former executives from Halliburton and Coca-Cola. Unlikely, as anyone holding such positions have a better grasp of basic economic theory. Let’s break it down.
Boycotting one or two brands will have no effect on the cost of gasoline. The shunned brands will simply sell their gas to those who are selling gas in retail outlets. This will have no effect on gas – in fact, it may even raise prices as outlets compete for the ’surplus’ gas. This is simple supply and demand economics.
Who would this hurt? It will hurt the business owner. The working poor and convenience store owner who has little control over the costs, makes little on the sale of gasoline, and relies on selling sundries to make their businesses profitable. Morally, any decision that targets – indirectly or no – a subclass of people who have no control over an issue and will suffer from it is inherently wrong. By following this ‘plan’, convenience stores – not big oil – will suffer. Your neighbors, people.
How to solve this problem? It is a demand issue. Any commodity in great demand will be more desirable to a consumer (forgive me for stating the obvious here). As the demand increases, one of two things occur. Prices rise or supply increases – sometimes both. If there is a finite supply, the demand will drive prices up drastically. An example are the ‘hot’ game platforms and stuffed toys that command astronomical prices in the Christmas consumer feeding frenzy.
It seems that the ‘gas crisis’ is greatly alleviated these past couple of weeks. I have been calling it for quite some time – in economic terms, an imbalance between supply and demand will always seek to return to equilibrium. Consumers modified their behavior and demand decreased. As demand decreased, supply constraints were eased and the prices have gone down. A case of classic supply and demand, correct?
No. Not quite. Another factor influenced this drama – in fact, this factor may be the driving force for this ‘crisis’. Speculation. Speculation is a practice of purchasing ‘futures’ of a commodity. People make millions of dollars buying and selling commodities that they do not store, ship, process, or transfer. Why? Because they don’t exist yet. Is this a morally defensible practice? I would argue it is not. Gambling should be left to the gaming rooms of Atlantic City, Las Vegas, and the Mohegan Sun. Speculation drove prices to astronomical levels and has had a ripple effect whose influence will take months to assess. Already, consumers have drastically modified their behavior. Airlines are booking less – indeed some a grounding hundreds of aircraft. People are conserving more. The sale of SUVs and pick-up trucks is crashing. Ford posted a nearly nine billion dollar loss in the second quarter.
The world certainly faces an increasing crisis of available oil. I say ‘available’ because I believe that the supply is controlled by those who hold the resources. China and India are booming and will drive demand up dramatically. We must all learn to do more with less. And to find means of powering our cars, homes, and communities using other viable energy sources. This will take time, but a job never started never gets closer to being finished.
When we as consumers make decisions, we must contemplate the impact of those choices. We must learn to become responsible stewards of what we have been entrusted. And we must consider the real costs of our actions. Boycotts rarely hurt those that are targeted. A market economy acting without interference will generally find equilibrium. And if you think the big, evil corporations’ are so bad, try living without them. The Amish do for the most part. We cannot be strident in our protests unless we are willing to take meaningful action.
