I read an outstanding post about this here:

http://gaspass.wordpress.com/2008/06/21/what-the-frack-is-going-on-with-the-price-of-gas/

It’s called What the Frack Is Going On with the Price of Gas?

No doubt worth a read.

…

You’re looking at the wrong “product.” The point is not that the drug is less expensive to the company or the consumer but that the cost to society of bad drugs has been decreased. The same goes for environmental regulations: the costs that have been externalized for decades if not centuries – air and water pollution, loss of forests, erosion, lost lives and productivity, etc – are being forced back onto the producer of those harms. It is immoral for US Steel, ExxonMobil or WalMart to increase their profits by passing their costs along to taxpayers.

I’ll go along with 8% being obscene if we can be consistent with how we apply the concept. The government currently levies a 15% capitol gains tax on investment returns, if an 8% profit by a business who actually produced something is obscene, would you describe 15% as criminal, or just really, really obscene?

I’ll accept a safety argument, or at least safety as the intent of the FDA, but I think the drug industry should be de-regulated, and consumers would have redress in court for any harm due to negligence by a drug company.

In the same way, environmental regulations designed to mandage emissions, requires refineries to produce many different formulations of gasoline. If we went to a single standard, instead of regional blends, it would lower the cost of production and increase availability since any refinary could sell fuel to any market.

Government oversight, and the inevitable mandates that are issued, never lower the cost of any good or service, it is simply additional cost that is passed onto the consumer. You can’t say “in the past, government intervention has resulted in increased prices, but I think they can get it right with oil (or healthcare).

The Food & Drug Administration lowers the actual cost of drugs by preventing dangerous and ineffective drugs from being marketed. Consider, for example, thalidomide, the sedative used to treat morning sickness but which resulted in thousands of badly malformed children. By preventing such tragedies, the total cost to society is driven down. The concept is simple: On their own, drug companies opt to put out unproven, untested drugs because early entries garner market share and profit. When these early entries lead to such tragedies as the thalidomide babies, the total cost rises. Few companies have shown the ethical fortitude to resist those profits; hence the value of governmental regulation.

{For extra credit,if anyone can identify a genuine example, I’d be curious how you could apply those lessons to controlling the price of fuel.}

The principles are the same for regulation of energy. In this case, there are two culprits: (1) market manipulators controlling supply through restriction of output either at the wellhead or at the refinery (OPEC and integrated oil companies) or (2) speculators and futures traders who produce nothing but can still manipulate the market (Enron’s manipulation of the California electricity market is a classic example of this). Enter the SEC or FTC or FERC, to regulate those who would manipulate the market. Stop futures trading in crude oil and it will still increase in price due to global demand from China and India, but will do so very slowly and without all the spikes that seem to go up but never come down.

Government is a big player, an important play and a necessary player because too many of the other players have indicated much too willing to exert market control, something never envisioned by Adam Smith.

How about a government program that makes a good or service more effective regardless of the price?

For extra credit,if anyone can identify a genuine example, I’d be curious how you could apply those lessons to controlling the price of fuel.

but i think the oil companies probably were waiting decades for this day to come. the secret that nobody mentions is they let us develop our addiction to the low price, making it reasonable and economical to the majority of households to drive everywhere and alot. once the user base has developed critical mass, and our lives have become completely wrapped around the gas powered vehicles, we have no choice but to pay the high gas prices when the decide to hike it up. think about all the drug addicts out there, if the price of their drug goes up, they don’t become any less addicted, yes they’ll be more pissed off then ever but they will keep buying that drug day after day just like all the car drivers in america are doing.

notice how SUV’s became very very popular in the last 10 years? funny huh? it almost seems like a setup. believe it or not we go from setup to setup because “they” are always two or three steps ahead of the consumers, the working class. they are prepping for the next hot market, the next big boom. if you want to stay ahead of the game think ahead, way ahead, see where this is all heading next. then exploit it before they do.

As Mr. Young points out, pure capitalism applied without restraint or adjustment is usually not the answer. The U.S. economy is basically capitalist with Keynesian adjustments and influences. And it can certainly be accurately stated that a very long period of prosperity has resulted from this blend of influences.

Moreover, when pure theory on just about anything is applied in the real world it is almost universally true that modifications or adjustments are required. To expect that pure classical economic theory as posited by the Milton Friedmans or Adam Smiths of the world will provide answers in all situations is just not realistic.

With regard to this energy price debacle, its clear that something outside the envelope of classical economics is required. I don’t claim to have the remedies needed. (I do have a few ideas though.) But it’s a cinch that continuation of the current set of conditions is going to dramatically impact this country in so many negative ways.

The U.S. has always been about affordable mobility. Is it going to be the case that corporate bigs will change that paradigm for the worse and take from us that uniquely American and quite liberating element of the American equation simply for the sake of business profit while we all sit around and wait for classical economics to provide a grand leveling ?? Personally, this seems like an absurd posture to adopt. Something needs to be done, and quickly, by the 536 numbskulls who, at least theoretically, are responsible for steering the ship of state.

Noone more than I abhors government meddling. However, it’s clear that consumer power is not adequate to back off the petro bigs of this world. Someone or something with greater power than they possess needs to step to the fore.

Rick Gold
ERC Fuels