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Written by Dennis Behreandt
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Friday, 25 April 2008 06:37 |
In the middle of April I had the pleasure taking a 225-mile road trip. In total, to get to my destination and back again, I put on a little over 450 miles. My car, a Taurus SHO, manages to get about 28 miles per gallon, which isn't bad considering this 220-hp sport sedan was once the most powerful front-wheel drive car available in America. The point, though, is how much this trip cost me in gas money. I made the round trip using just about 16 gallons of the premium unleaded the car's feisty motor demands. The price? At $3.69 a gallon, that turned out to be a tidy $59.30.
Sixty bucks is not enough to send me into bankruptcy, but at that price I do start thinking about opportunity cost. What could I have done with that money rather than pour it into my gas tank?
In my case, the road trip was an optional expense. But driving to work every day isn't, and the increasing amount of money I spend on fuel for the morning and afternoon commute means I have an ever decreasing amount of money remaining to either save or spend on other things. In other words, I am going to demand fewer other goods and services, because I simply don't have the cash to buy them.
I'm just one American, but there are something like 300 million other Americans just like me, and probably a majority of them, even if they aren't doing it in a systematic way, are also cutting back. The cumulative effect is going to be a slow down in the economy, perhaps even a recession.
What's causing this disturbing turn of events? First, there is the Federal Reserve and fractional reserve banking practices. These create new money, essentially expanding the money supply. That makes money less valuable, with the result that it takes more money to buy something like gas.
That's part of the story. Another part is taxes. John McCain wants a summer holiday on the collection of federal taxes on gas, resulting in a 5 percent savings per gallon for motorists. That's good as far as it goes, since any tax cut is a good tax cut. The states, however, also impose taxes on gasoline. Those taxes should be cut too, and permanently.
Another important component of the increase in prices is regulation. Custom blends of gas required by the EPA impose hardships on refiners that result in costs passed on to motorists. These costs typically hit in the Spring and Summer, causing higher prices at the pump.
Then there is the increasing demand from China and India for oil. According to Xinhua, in 2007 China increased its oil imports by 14.7 percent over the previous year. That trend is likely to continue.
America, then, has two options. The first is just live with the rising costs and adjust budgets where necessary. But this would commit the nation to a course of economic decline, something that seems almost inconceivable.
The other, better, course of action is to take steps domestically to shore up America's energy supplies. Where taxes related to energy are high, they should be cut. Where regulations prevent exploration and exploitation of domestic reserves, those regulations should be removed. Regulations hampering expansion of refining capacities should be removed, and so should regulations requiring boutique fuels. Get government out of energy, and there are no telling the improvements that can be made.
On that note, government needs to get out of the market altogether. Left alone, heavy demand, and the possibility of a handsome payoff, will prove to be plenty of incentive for businesses, entrepreneurs, and inventors to find innovative new ways to meet the demands of an energy starved market. In fact, letting the market work is the only solution to the energy problem.
Until such time as the economy is radically deregulated, we'll be stuck with high prices at the pump.
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Last Updated on Monday, 28 April 2008 08:54 |
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