Wednesday, August 17, 2005

Are Gas Prices Getting Priced In?

Great article by Irwin Stelzer on the price of oil.

I vaguely remember the gas lines of the late 1970s when shortages were the rule. I also recall in the mid 1990s when I was purchasing gas from a station in Alexandria, Virginia for $0.88 per gallon. Quite the change from the $2.43 I dropped the other day, reminding me more and more of the 1970s.

But the thing is that people keep coming to the pump.

If cruise lines began charging unbelievably exorbitant prices, making cruises unaffordable, people would shy away from them. If Pepsi raised its prices to make a 12 pack cost $10, Coke would squash them. But we pay whatever we must for water and sewer services, because we can't live without the former, and we can't bear the thought of having to deal with the latter. And the same is true for gas.

If our cars could run on Mr. Fusion from Back to the Future, it's unlikely that all of this oil price talk would bother many folks. So an oil change costs a dollar more... But gas has no substitutes yet, and we must pay the going price, like it or not, if Mr. Fusion has not been born yet. But as Stelzer notes, we're still spending in a very healthy economy. And despite all of the talk on the news shows about people selling SUVs for smaller cars, people are still paying for gas. And so I wonder if the condition of the economy is such that people have simply priced it in to life, rather than letting the price affect their life decisions.

It's a very hard call, but as Stelzer notes, when Alan Greenspan is trying to cool the economy to prevent inflation, perhaps gas prices are more of a background issue. But as the article notes, supply may become a very real problem. Islamo-fascist Middle-Eastern nations with governments that are more popular abroad than they are at home, a South American nation with a leftist government as a result of a stolen election whose results were nonetheless endorsed by the Carter Project, that is eager to create problems in our supply, and a Russian supplier that Vladimir Putin is eager to stall because of political disagreements with its owner all make for a very scary energy outlook.

ANWR drilling is a start, and the key really is to lessen and eliminate dependence on foreign energy sources. But the way we reach that is not by a Carter-esque tightening of the economy's belt. Alternative sources are an option, but wind, solar, and biomass energies are so outrageously expensive and scarce that it would be idiocy to suggest them. Nuclear energy is not only cheap, but clean. Just ask the French. And no, they are not meltdowns waiting to happen. Our naval fleet is loaded with ships powered exclusively by nuclear power, which has proven safe.

Because while people may be pricing in the cost of gas, a shortage would create very different problems. And those kinds of things are neither priced in nor easily absorbed by the economy.


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