Monday, April 2, 2012

Only One Person Has Any Control Over What You Pay for Gas - YOU

Sticker shock at the pump? Only YOU
have the power to change that.

In case you've been living under a rock, know that gas prices in the US have been on a steady rise the past few months, and gas prices have just about doubled from the lows in prices we saw during the depths of the last recession.

I've pointed out before on this blog that people in general (and Americans in particular) have a bizarre, irrational relationship with gas prices - people tend to flip out when gas prices increase, and they flip out disproportionately to the effect that rising gas prices actually have on a given family's budget, since the average American family spends less than 5% of their annual income on gas.

Nowadays, gas prices are rising again, and people (and the media) are once again in full-on flip-out mode. Unfortunately, the flipping out is probably only going to get more intense in the next few months, since gas prices are likely to continue to rise, on account of the switch to the summer gas blend and the improving U.S. and world economy.

I pointed to early flip-out signs last month, noting how FOX News had moderately intelligent coverage of the dynamics behind gas prices in 2008 (when Bush was President) but how FOX News now seems to think that President Obama has the ability to set gas prices at will.

Well, things have only gotten worse since then, with none other than serial liar Mitt Romney - a man who was smart enough to know better in 2006 but is now pandering to the most ignorant and paranoid wing of the Republican party - claiming that the current high gas prices are the product of a nefarious Obama Administration plot. It would be funny, if this man weren't going to be the Republican nominee for President. And the Republican disinformation machine is working - the public doesn't know who to blame for high gas prices - but 85% of Americans want Congress and/or the President to take immediate actions to control the rising price of gas.

Well, I have bad news, 85% of Americans - neither Congress nor the President can exert any meaningful control over the price of gas. The only person who has any control over what you pay for gas is you.

Richard Thaler, a renowned economist, has a simple yet thorough explanation of why the President has no control over gas prices. Most obviously, the price of gas is set by the price of oil:


The U.S. has to buy much of its oil on the world market, so the price of oil in the U.S. is set by the world market by the laws of supply and demand:
Oil is a global market in which America is a big consumer but a small supplier. We consume about 20 percent of the world’s oil but hold only 2 percent of the oil reserves. That means we are, in economics jargon, “price takers.” Domestic production has increased during the Obama administration, but it has had minimal effects on global prices because, as producers, we are just too small to matter much. And even if domestic oil companies further increased production, they would sell to the highest global bidder.
So it doesn't matter how much more oil the U.S. produces domestically (and I'll note that domestic oil production is at its highest level in more than a decade right now), because all oil is sold on the world market. And barring any economic disasters (and cheap gas isn't worth going through another economic disaster, I hope you'd agree), gas prices are going to stay high, because of:
  • increasing demand from developing countries, especially India and China;
  • increasing difficulty in extracting oil from the ground, since we've already gotten much of the "easy" oil;
  • political instability in oil-producing countries; and
  • ongoing war-mongering in the Middle East (especially against Iran).
There are other reasons, but those are the main ones.

So, what can you do? Well, you're the only one who can control what you pay for gas, and you can decrease what you pay for gas by using less of it. You'll have to make like FedEx and maximize your energy efficiency - get a more fuel efficient car, make fewer trips, switch to alternative fuel cars (like electric cars), and use alternative modes of transportation (like walking, biking, or public transit).

You're the only one who has any power to lower your gas bill - there's nothing that Congress, Obama, Romney, or Newt Gingrich can do (even though Newt's promised to somehow lower gas prices to $2.50/gallon, though I don't see how he'd manage to do that other than by crashing the world economy again).

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