Why are Gasoline Prices So High Now?

Commentary by Noel T. Braymer 

 “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Adam Smith

In a word the problem is inflation. Unlike the inflation of the 1970’s which was sparked by rising oil prices, inflation is now a major reason oil prices are rising. The weak American dollar is behind much of this inflation. A strong currency needs a balanced government budget or even better a budget surplus, low levels of government debt, a positive trade balance and high levels of personal savings. None of this is occurring now in this country. Just recently we had the sub-prime mortgage meltdown. Overnight billions of dollars just disappeared. In the wake of this the Federal Reserve has been pumping money into the banks to keep them running. These low interest rates are a massive form of inflation by themselves.

Now creating a little inflation is not a bad thing during a recession. But people with a lot of money are looking for places to put their cash where it won’t lose value because of inflation. In the 1970’s real estate was popular as an inflation proof investment because it was assumed the value of housing would rise as fast or faster than inflation. But with the bubble deflating in the housing market that is no longer an option. So now people are turning to commodities; things like oil, gold, wheat and rice as places to invest their money.

Back in 2000 Washington created what is known as the Enron Loophole. Before Enron crashed and burned into bankruptcy, one of its favorite businesses was the energy commodity market. This Enron Loophole was a deregulation of the commodities markets which Enron used during the Electricity Crisis of California between 2000 and 2001. The theory of deregulating electricity in California was that competition in the commodity market would allow the utilities to buy electricity at the lowest rates and pass the savings on to the consumers. But the fact was Enron had a virtual monopoly of the electrical commodity market for California. It wasn’t long before Enron and the other energy companies were creating phony shortages and reaping massive profits after jacking up the price of electricity to the utilities.

The fact is the world is not having trouble producing enough oil to meet current demand yet. But we will if we don’t reduce our dependence on oil. Dependence on any one commodity can leave a nation vulnerable. The Irish potato famine was caused by a disease that affected only one species of potato. But that was the only species of potatoes that Irish peasants were growing. Ireland continued to export food during the famine which killed over a million people. This country and the world should stop being dependent on oil and fossil fuels in general. To do this, this country has to stop being dependent on cars and trucks. Today it is almost impossible to get anywhere without a car. Development today usually follows the roads and new roads open land to development. We need to center development around rail service and rail transit. This need not mean that everyone will use public transportation. But development centered on rail will stop the current sprawl caused by auto centered development. Even if a person never uses rail service, such rail based development will reduce the amount of driving people need to do, making it easier for people to travel by motor scoter, bicycle or even walking. This will save energy and reduce the need for oil by itself, not to mention the energy saving from rail travel.

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