The steep rise in gasoline prices over the last seven to nine months, accompanied by the whining and griping of nearly everyone at having to pay higher prices for refined petroleum products, has more firmly convinved me that Americans, as a whole, are spoiled whiners. I don't know of any other society which thinks that it should be immune to the basic laws of economic theory.
The law of supply and demand says that if you have a large supply of a product, in this case oil, the price of this product will be low. Conversely, if you have a low supply of a product, the price will be high. Simple. Yet, over the last month or so we have heard cries for our government to do something about the high price of gasoline. These appeals have come from all groups, from those who heat their homes with fuel oil to the trucking and airline industries whose profit margins are heavily dependent upon the price of fuel used to move their vehicles.
I'm curious as to what these people would like the government to do. It's not as if our elected officials can turn on a spigot and increase the flow of oil.
But wait you say. We have a Strategic Petroleum Reserve (SPR) with millions of gallons of oil just sitting there taking up space. Isn't a time like this the reason we have this reserve?
The answer is no. Now is not the time or situation to be using this reserve. When the SPR was developed, it came after the energy crunch of the late 1970s. Those of you who lived through that time will remember the long lines of cars waiting to fill up and finding out that there was no gas to be had. Worse yet, when you did find a gas station the price was outrageous (by todays standards). It was under these conditions that the government embarked on a program to keep a ready supply of oil on hand in case another crisis developed.
The crisis developed for various reasons but there were two overriding reasons. One was the conflict then taking place in the Gulf between Iran and Iraq which was both interrupting the production of oil and the delivery of the raw product. The second reason was the use of very fuel inefficient vehicles. These vehicles consumed vast quantities of fuel. Even by todays standards most of the vehicles on the road at that time were gas guzzlers.
Now is not that crisis. As I stated earlier, the current situation is the result of the low supply of oil. This came about because OPEC (The Organization of Petroleum Exporting Countries) decided in January of 1999 to make production cutbacks. This would allow the price of oil to increase (remember, low supply = higher prices) and thus allow them to make more money. This they did. However, unlike other times when production cuts were announced and then cheated upon, OPEC has watched its members carefully to insure that no one is producing substantially more than its allotment. Thus, strict control over the amount of oil available to the world market is maintained and higher prices result.
This is the same method that DeBeers, who controls over seventy-five percent of the worlds diamond market, uses to keep the price of diamonds and other precious stones high. I don't hear a public outcry over having to pay thousands of dollars for what is essentially coal. In fact, the more jewels one wears the more wealthy one appears.
Truth be told, we should be congratulating the members of OPEC for their use of free market principles. In this country we always talk about competition and letting market forces decide what price a product or service should have. We are constantly harping on other countries to stop giving price supports to products produced in their country and then exported to ours since that is giving an unfair advantage to their producers and hurting ours.
Yet now, when we are subjected to pure free market principles, we begin to whine and complain. We whine that we have to pay an additional thirty to forty cents per gallon to fill up our mini-vans and SUVs. We complain that we shouldn't have to pay over twenty dollars to fill up a tank of fuel for a vehicle which gets about ten miles to the gallon.
Well guess what folks. You wanted to drive a gas guzzling vehicle because it was the "in" thing to do, you have to pay the price. If you don't want to spend the money to fill up your tank, take the bus or carpool.
If you want the rest of the world to abide by free market principles quit complaining when they follow our example. If you want our government to do something about the price of gas and othe oil related products then we will be doing the very thing we rail against, price supports. You can't have it both ways.
Am I happy to be paying what I do for gas? Of course not. Is there anything I can do about it? Not really. Maybe take fewer trips or consolidate smaller trips into one big trip but that's about it.
In the end, the cost of fuel will be passed on to consumers in the form of higher prices for everything from food products to airline fares. Those who deliver products have to recoup the cost of higher fuel prices somehow and the only way for this to happen is to raise the rates they charge. We as consumers will then have to make a decision as to what and how much we will purchase when we go shoppping.
This lesson in free market principles should be taught in every economics class. Instead, we'll just bitch and whine that prices are too high and ask for our government to do something. We are spoiled. We think because we're Americans we deserve special treatment.
Well, we're not and we don't. If you don't like paying for gas at these prices, ride a bike or take the bus. Otherwise, shut up and be happy that free market principles are working as they should.