$2 a Gallon Gas, Michele Bachmann? Aim Higher.


Not a fair comparison, you say? You're probably right, so let's try some others. How about that old standby, the consumer price index? The CPI-U, which is the broadest-base index published by the Bureau of Labor Statistics and includes price comparisons for more volatile commodities like gasoline (no pun intended, I think) was set at 100 in 1982-1984. As of July 2011 it stands at just a shade under 226. This means that, very theoretically, something for which you paid one dollar in 1983 will cost you $2.26 today. The national average price for a gallon of regular gas was about $1.25 in the base years, and right now is about $3.57. This would yield a multiplier of about 274 as opposed to the current CPI of 226. It's higher, but not all that much higher. Moreover, as our intrepid wannabe President pointed out, as recently as late 2008 the national average price per gallon was (momentarily) around $1.80, indicating a multiplier of only about 150. By contrast, tuition at my alma mater, Stanford University, which was $7,140 in 1982, is now around $40,050. Do the math. That's a CPI of 560. What I'm getting at here is that as hard as it may be for many of us to accept, gas in the United States simply isn't that expensive.

At the end of the day, I don't know what oil prices should be, but I do know that they will be at least as much affected by politics as economics. Maybe you think that this isn't a terrible thing since almost certainly the political influences under our control are always working to keep prices low. One measure of the power of the United States is that prices here are relatively reasonable compared to prices in many European countries, where gas costs as much as $10 a gallon. But if there is a lesson to be learned from the economic trauma American families have suffered since the beginning of 2008, it is that true economic forces win in the end. No matter how easy money became, nothing could stop the housing crash. Given the fact, however it's extracted, there is only a finite amount of fossil fuel we can exploit, the best way to reduce your cost of gas is to use less of it. From the standpoint of pure economics, it seems much more likely that a gallon of gas in the U.S. will cost six or seven dollars, not two.

You see, in a free market economy, prices are presumably set by supply and demand. Although many steps have been taken in the US to limit the demand for gasoline—smaller and more fuel-efficient cars, alternative sources of energy like natural gas, and gasoline "stretchers" like ethanol—they haven't really succeeded. And, of course, demand in formerly less-developed countries like China and India is exploding. The prospects for an increase in supply as an offset to higher prices are also not very rosy. All of the King's horses and all the King's men simply can't do enough offshore drilling to make a real difference. Alaska isn't Saudi Arabia, and all of the exotic sources you've heard of, like shale oil and oil sand, are simply not economically viable at today's prices. Oil is actually too cheap to justify the work needed to bring it to market. In other words, unless the price of oil increases—substantially—you won't be putting anything that comes from shale or sand in your tank. Seems paradoxical, doesn't it?

[Article: Of Debt Ceiling Debates, Non-Denial Denials and Non-Default Defaults]

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