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


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]

But the ultimate truth is that whatever you think about oil prices, the premise of the last paragraph is misleading; that is, whatever is moving the price of oil, it's not just good old supply and demand. The price of oil is the single most globally political number that exists. OPEC is a classic oligarchy and has a very simple and well defined interest; if you can't think of what it is just consider what the GDP of Middle Eastern countries would be without oil exports. On the other hand the "OPIC" (the Obvious Petroleum Importing Countries) are hardly without the resources to strong-arm prices when the need arises. Additionally, in the United States at least, government regulation relating to environmental, safety, and revenue concerns is significant and certainly has an impact not only on the supply of oil, but also on the cost of getting it out of the ground. And finally, campaign promises wouldn't be made about the price of oil if it weren't important in the upcoming elections. In fact, the price of oil has been important in American politics for quite a while now, certainly since the shortages of the mid-70s.

[Resource: Tips to Improve and Rebuild Your Credit]

But, again, I think economics will always ultimately trump politics (the laws of economics don't change, but positions taken by politicians often do). However, perhaps broader and more effective political steps can be taken to help change economic conditions. For example, an all-out effort to replace fossil fuels will probably pay off in the long run, although how the political will to accomplish this can be mustered is anybody's guess. Then, there is the Soprano solution, suggested by a different kind of Trump: simply invade certain Middle Eastern countries and take the oil… That would get the price down once we made the initial investment of a few trillion dollars to finance a war or two. Oh yeah, we did that already. It hasn't worked so well.

Although, I hear Tripoli is quite beautiful in the autumn.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

Adam Levin is Chairman and cofounder of Credit.com and Identity Theft 911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.

  • 1
  • |
  • 2
  • |
  • 3
Join the Discussion
blog comments powered by Disqus
You Might Also Like...