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Gas is $3 a gallon, oil is $74 per barrel….. and still people buy gas without batting an eye. Granted, they grumble the whole way, like people who say both political candidates are bad, but still vote for one of them. But simple supply and demand economics don’t really affect the average gasoline consumer. There’s no replacement to gasoline that will get me to work everyday…. and don’t say “what about the bus?” or “how about biking to work?”. That’s a bunch of malarky that is limited to people who live near Express bus routes and those that don’t mind biking to work in the rain. I personally really enjoy driving to work. It’s a chance to relax, listen to some tunes, and not have to be on a computer (although I do have my PDA on email during my commute). Given my 30 mile roundtrip commute, it costs me roughly $5 in gas per day. In the grand scheme of things, I think that’s cheap. Whether it costs me $5 or $8, I’ll still drive. Heck, I’d even drive if the costs were up to $12-$15, since then the roads would definitely have less traffic. Point being, gas is still cheap. If you factor inflation, gas is still cheaper now than it was back in the late 1970’s.
If you have been listening to the talking heads on Sunday morning news shows, you’ve probably heard the many so-called “solutions” to the high gas prices. Some say to charge oil companies a windfall profit tax… others say to give everyone $100… still others want to temporarily repeal the Federal Gas Tax for 60 days. All of those ideas are absolutely the dumbest things Congress could possibly do. It’s almost like they’ve never been in a Econ 101 class, on day 1, where they say, low supply OR high demand causes high prices. Here’s my recommendation. It’s not a popular one, but it’s the right thing to do. First of all, let gas prices go up. That is the only way to get more refineries built and to incentive oil companies to increase the supply to the system. It will also bring down demand of gas. People won’t take those driving trips to the Grand Canyon and instead will go to their neighborhood park for outdoorsy fun. Next, the Gov’t needs to drill for oil in Anwar and increase gas mileage on new cars. I think gas should hit $4 and possibly maybe $5 per gallon. Then and only then will people adjust their lives to reduce their consumption of gasoline. Then, when gas prices retreat to a reasonable $2.60 per gallon, people will know how to live without as much gas (by carpooling, telecommuting, etc) and from then on, the elasticity of gas consumption won’t fluctuate the price so dramatically anymore. And as a bonus…. less traffic. Who could really ask for more??? Granted there is a downside of more expensive transportation of goods and higher airline costs, but once there is greater refinery capacity and less consumption, things should reach a natural equilibrium. And that’s the whole goal of the supply-demand economics. … equilibrium.