Monday, July 14, 2008

3 ways to lower gas prices from Newt

A few ways to lower gas prices, some immediate.

I rather like number one.

UPDATE: Blogi changes my mind on number one in the comments.
UPDATE the second: Josh fires back!


blogagog said...

Yikes! You want to punish people who bet that the price of oil will go up? Why? Are we not allowed to guess future prices anymore?

If you had a bunch of gold in storage, would you punish people who have their money invested in gold by dumping a few tons on the market and destroying their savings?

Fletch said...

You make a very good point blogi.

I was more in favor of number 1 because it was immediate, and would shut up all the people bitching about it for now. I didn't think about the speculators. In fact, I'm quite certain I got caught up in name-calling. Calling investors "speculators" instead of realizing they're just people too, trying to make money off this market.

While I agreed with punishing "speculators" who were right about gas, I also agree with punishing "speculators" who were wrong about the prices of their homes, and interest rates.

It's tempting to do something drastic to tweak the market, but unless we're in a national emergency (doubling the price of oil WOULD be a national emergency), we should let the market correct itself. History shows the market becomes more erratic if we try to influence it. Our money would be better spent trying to see these ups and downs coming, and preparing for them (as some airlines did, by locking in gas prices years ago).

Thanks for pointing this out, blogi.

Anonymous said...

Except that oil is not following the hallmarks of true supply and demand economics, so I don't know if it will correct itself.

I don't think the answer is dumping a third of the strategic reserves into the open market, but dropping about a thousand drill bits around the US would sure be neat, all the while increasing our capacity to refine crude.

If we start producing/extracting 10-15 million barrels of oil a day, not only do we make up the difference between supply and demand in the current world markets, but we force OPEC to equalize their prices and oil drops $30 a barrel overnight. And, we develop independence from them, which is nice.

I believe blogi's analogy is flawed. Gold is a commodity, to be sure, but with the FRN no longer harnassed to the gold standard, the rise and fall of gold prices aren't felt across the country and across the world nearly as much as fluctuations in oil prices. Oil prices rise, so does food, materials, labor, mining, refining, everything. Gold was at an all-time high not too long ago, and where was the panic? Nowhere, because in the economic system in place, it's virtually inconsequential. Oil doubles and people can't afford to GO to work...its different.

aughtSix said...

I get rather annoyed about the talk of using the Strategic Petroleum Reserve for politics. It's purpose is so the US has the ability to wage war in the event of an oil supply disruption like the oil embargo in the 70s. It's not supposed to be a means to moderate price fluctuations. In fact, using it as such will likely *increase* price volatility as it decreases the incentive to hold oil in inventory.

As to speculation--it serves a valuable purpose. Say your business's costs are significantly influenced by oil costs. If you buy oil futures, you can decrease the impact of price increases later. Also, for every buyer who speculates that oil will go up, someone's taking the other side of the contract--betting that the price won't rise. Letting people buy and sell futures contracts allows those who will pay a premium to avoid risk to unload it to folks who will take on some risk for an expected profit. The risk averse usually has a negative expected value for the deal, but little or no uncertainty, the risk taker hopes to have a positive expected value, but with a much greater uncertainty.