Thursday, June 21, 2007

Gasoline Prices Drop, While Supplies Run Out

It looks like the debate between price controls, rationing and availability may soon be heating up.

I think a lot of people will agree, that rationing of gasoline would be an unpopular prospect. The US did it during WWII, but during that period, the effects of The Great Depression really hadn't let up much. People were more accustomed to hardship and didn't survive day to day, by increasing their debt.

Now the notion of sacrificing for war is a foriegn one. The public has been sold on the idea that the war will lower fuel prices and free up more oil for the US. In reality, no war has ever done this. Every war has forced the nations involved, to do with less.

And isn't this logical? If a nation converts its economy into a machine for creating goods just so it can destroy them, then it is simply throwing its wealth away. An economy improves by using it's wealth to create goods that are reinvested into the economy. In times of war, a nation toils to throw it's wealth away. How can this enrich a people?

The war in Iraq has actually decreased Iraq's oil production, while driving the price of oil higher. Other nations are seeing their oil production decline. Gwahar is dying, Saudi Arabia is likely in decline. At best they are getting tired of running ever faster to stay in one place.

But the US Gov needs even more fuel in order to wage the war in Iraq. To keep winning for the next fifty years or more under the Bush plan, the US Military will need to keep increasing fuel usage as the world runs out of oil.

As I've argued before, the US Gov has infinite quantities of money. They will get the fuel they need. It is likely now that the US Gov uses more fuel than US private industry. In order for the US Gov to keep increasing fuel consumption, while supplies stagnate and fall, the US public will have to do without.

There are three paths we can take.
1. Ration fuel. Distribute fuel coupons and limit people to a maximum quantity of fuel per month. Many people will not be able to use their gas guzzlers to get to work under such a plan.
2. Let the market sort this out. Let prices of gasoline rise until demand is destroyed. When people become unemployed, they'll use less gasoline. they'll buy less stuff. Less stuff bought means less shipping.
3. Force prices low for political points. Let the fuel run out on a regular basis. This will lead to hoarding and thievery. Desperate people who were otherwise law abiding will start stealing fuel, to get to work, take the kids to school etc...

All three have problems. With number three, even law enforcement and emergency services will run out of fuel on occasion, and will be unable to respond to emergencies. If fire departments can't get fuel, then they won't be putting out fires.

With number two, price shocks will cause major economic damage. Taxes will go higher as municipalites pass ont he prices of fuel to citizens.

The first option stands the best chance of maintaining order in my view. It will be cheated, but it will help to insure that essential services get the quantity of fuel they need, in order to operate.

With a slower economy and the housing boom ending, we're likely to see an increase in friction fires, started by insurance papers rubbing together. We need to insure that emergency services continue to operate. If we don't, then fires are going to cause more damage and loss of life than necessary.

Politician's are promising that they'll keep gasoline prices down. Maybe number three is the choice we'll make for now?

For most of us, rising prices have been the major concern when it comes to gas. But on Friday, it was a different problem plaguing some Sioux Falls drivers.

As people pulled up to a gas station is southeast Sioux Falls, they were greeted with signs they didn't expect. Stations out of gas because of a shortage.

Gas terminals are empty across South Dakota. From Sioux Falls to Yankton to Sioux City, they are all out. And tankers cannot find anywhere to fill up.

"More so this summer it seems and they're saying it's supposed to get worse before it gets better but there's just not enough fuel coming down the pipeline into the delivery system," said BP owner Shane Oien.


Thankfully, gas prices are still down 24 cents from where they were last week.


At 4:51 AM, Anonymous Anonymous said...

No less than Sun Tzu points out that war can be thought of as the consumption and destruction of resources.

I fear for the future in the US.

At 4:25 PM, Blogger FlyingMonkeyWarrior said...

Iran is rationing gas and there are riots.


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