The Truth About High Gas Prices

Republican presidential hopeful, Newt Gingrich, made a recent claim at a debate in Arizona that he had a plan to bring the per gallon cost of gas down to $2.50. With prices in many areas of the nation surging well north of $4 a gallon – some close to $5 – this is the sort of political campaign rhetoric that is going to get attention. The reality, however, may be a far different story. How much effect can one politician, even a United States president, really have in changing a problem rooted in global issues?

Crude oil price per barrel and the subsequent consumer price at the pump have always been a prickly beast but the modern oil market seems to be driven more by speculation over political events than anything else. Saber rattling by Iran in the Middle East? Oil goes up. Tsunami in Indonesia? Ditto.

Why Oil Rises…
The fly in the ointment of Mr. Gingrich's desire to lower gas prices is that oil is a global commodity driven by international supply and demand. Unless we decide to pursue a national policy of fuel self sufficiency (which might not be such a bad idea), the short term impact even a determined A

merican president can have is minimal, probably not nearly enough to slash the pump price in half, as Newt says.

Self Sufficiency…
So what about the idea of self sufficiency – would it work? Of course it would work but this is a decades long solution and modern consumers have a notoriously short attention span. Gingrich wants to boost domestic energy production by eliminating the EPA, allowing drilling expansion, and completing the Keystone pipeline project which President Obama recently vetoed, to great hue and cry from both sides of the aisle.

How much domestic oil could we produce? Apparently, no one has a clue. One government agency estimates that only an additional half a million barrels daily would be produced by 2030 with expanded drilling. The oil industry, on the other hand, claims we could reach 10 million barrels a day, which would more than supplant what we import from around the world.

With alternative energy sources still not much more than a glimmer on the horizon, somebody better get busy doing something, and let's hope it turns out to be more than presidential year electioneering.

The American Monetary Association Team

Flickr / Bernt Rostad

Share and Enjoy:
  • Print
  • Digg
  • StumbleUpon
  • Facebook
  • Yahoo! Buzz
  • Twitter
  • Google Bookmarks