The View From 1776

It’s convenient for politicians and economically-uninformed news organizations to lay the blame on speculators.  That thesis won’t hold up to scrutiny of the facts.  See Are Speculators Gouging Us At The Pump? on the Forbes Magazine website.

Gasoline prices, outside of socialized, closed economies, are a function of supply and demand.  If the supply of oil or refined products like gasoline drops and demand remains unchanged, prices will tend to rise until some users are unwilling to pay the higher prices.  When supplies equal or exceed demand, prices will stabilize or drop.

Non-governmental corporations such as Exxon-Mobil, BP, or Shell control far less than 10% of the world’s petroleum reserves.  Ninety percent or more of the world’s currently producable reserves and their production rates are controlled by government petroleum agencies around the world.  From time to time we see news reports that OPEC or Saudi Arabia, for instance, have decided to adjust their well output rates to bring world supplies into balance with perceived world demand.  It is these governmental oil producers who control world market supplies and therefore ultimately determine world petroleum prices.

When the oil supply from one of the those large governmental agencies is removed from the market, as is the case now with the civil war in Libya, world oil prices are bound to spike.

In addition to this basic determinant of world oil supply, there are two powerful inflationary elements affecting the prices we pay here in the United States for gasoline.

Environmentalist pagan religion adds a major push toward higher gasoline prices.  Environmental extremists have blocked most efforts to increase domestic oil production and they have for more than thirty years prevented building new petroleum refineries in the United States.  In addition, they have blocked nearly all efforts to expand capacity of existing refineries.

It’s elementary common sense that gasoline prices in the United States will rise when gasoline demand from a steadily growing population confronts regulatory limits on the supply of oil and gasoline. “Green” energy programs exacerbate the problem.  Producing every gallon of ethanol, for instance, requires the consumption of approximately 1.7 gallons of gasoline.

The other major factor driving up the price of gasoline is the decline in purchasing power of the U.S. dollar engineered by the United States Treasury Department and the Federal Reserve board.  See The Price We Must Pay.

The price per barrel of our growing oil imports is almost unchanged, measured in gold or silver.  But the declining value of the dollar forces us to pay higher prices in dollars.

The dollar, along with oil and other products, declines in value (i.e., its price measured in other currencies) when its supply increases more than the demand for it.  Indeed, the declining purchasing power of the dollar under President Nixon was a primary impetus for OPEC’s concerted action in the 1970s to take control of world oil production and to raise the dollar price of oil, then $5 to $10 per barrel.  That process has continued essentially unabated while the dollar has, apart for brief intervals, declined in purchasing power against trade-weighted indexes of currency values.  Today’s $70 t0 $110 per barrel is a reflection of the Fed’s steady inflation of the money supply to fund Federal deficits.

Higher gasoline prices, along with loss of purchasing power of our life’s savings, is a price we pay to fund the collectivized, socialistic, welfare state.  As noted in Don’t Blame Business For Our Inflation, politicians will always falsely blame inflation on businessmen’s “greed.” But only government deficit spending using fiat money can create inflation.  Inflation consists in increasing the money supply faster than the increase in production of goods that people want, the condition we endure today, in spades. 

In 1933, President Franklin Roosevelt arbitrarily imposed a 40% devaluation of the dollar. His aim was to provide phony funds to pay for his imposition of socialism on our nation.  In those days, the Federal Reserve’s ability to inflate the money supply was tied to the dollar amount of gold it held in reserve.  When the legal ratio of gold per dollar was sharply cut by FDR’s decree, the Fed’s power to inflate the money supply ballooned.

We are still paying for Franklin Roosevelt’s socialist welfare state today with relentlessly climbing prices, year after year, at the gasoline pump, in grocery stores, clothing stores, housing costs, and all other aspects of our daily lives.