Wednesday, March 14, 2012

Economic doublespeak

Newt Gingrich is promising you gas will sell for $2.50 a gallon if you'll just put him in the White House. In the world according to Newt, the rapidly rising price of gas is all President Obama's fault. If we'd just allow the oil companies to drill anywhere and everywhere they want, if we just allow the oil companies to build pipelines over fragile ecosystems, if we just allow the oil companies to sink more wells in the Gulf, then the price of gas would tumble and we could all afford to drive our giant SUV's up and down the block.

Rick Santorum says the answer is fracking shale deposits to get the oil out. Now, nevermind that extracting oil from shale is a very expensive process and that the only reason oil companies are doing it now is because the high price of oil justifies the expense. More expensive methods of production only become profitable when prices increase. There's a reason no one was drilling for shale oil when the price of gas was only $2 a gallon.

Both candidates are trying to sell the American people a bill of goods. Either they are both being very disingenuous in their campaigning, or neither one understands the first thing about economics. I won't hazard a guess, but y'all are more than welcome to.

Mr. Gingrich is under the illusion that the more oil we pump from the United States, the lower the price of gasoline. The problem with Mr. Gingrich's analysis is that the price of oil isn't determined by the Texas Railroad Commission like it was up until the early 1970's. Oil prices are determined on commodity exchanges around the world. Increasing the supply of US-produced oil is not going to bring the prices at the pump down to $2.50 a gallon - unless the government institutes price controls.

With more domestic production, the US may be more "energy independent," but that won't translate to lower prices for gasoline. If the US is less dependent on foreign oil then events around the world may have less of an impact on the supply of oil in the states, but the price of oil will be determined in markets around the world. And so long as their is political instability in the Middle East and increasing demand due to development around the world, the price of oil will remain high.

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