February 22, 2012

RATHER THAN LEAVE OURSELVES VULNERABLE TO THE IRANS AND SPECULATORS...:

The Oil Market Panic (Richard A. Epstein, 2/20/12, Defining Ideas)

W. Howard Coudle, an ordinary American recently quoted by the Associated Press, says that the rise of his monthly gasoline bill from $60 to $80 in the last eight weeks has made a difference: "We're going to have to drive less, consolidate all our errands into one trip. It's just oppressive."

His are genuine hardships, as are those of millions of other Americans. Coudle's heartfelt claim of "oppression" is an early harbinger of political discontent. But the private adaptive responses of Mr. Coudle make far more sense than any political response to the rising price of oil. The question on the table is how best to respond to the disruptions in oil supplies, not to pretend that these disruptions do not exist. On this score, the great advantage of a market system is that it forces Mr. Coudle (and everyone else) to think hard about the relative value of the goods and services he consumes and to make cutbacks in a cheap and rational fashion. In both good times and bad, people are always having to decide which goods and services to spend their incomes on, and which to forego.

Price movements give them an accurate, instantaneous, and impersonal picture of how other people value various goods and services. When oil prices rise, its least valuable uses are the first to drop out of the system. The decisions are typically made on a continuous basis, so that if some people find that they have cut back purchases by too much (or too little), they can increase (or decrease) their purchases in the next pricing period. Spurred on by these price increases, people can also make changes in their spending patterns elsewhere to offset the inconvenience of the higher prices for oil products. Purchasing a hybrid, insulating your home, and moving closer to work are just some of the many ways to save money. Good luck to Mr. Coudle, who provides an object lesson in how that task should be done.

...we could just raise the price of gas permanently, via taxation, both filling our own coffers instead of those of Iran and speculators and creating the pressure for the changes Mr. Epstein welcomes.  Instead the price of gas will soon be plummeting again and the Coudles will return to all their inefficient behaviors.

Posted by at February 22, 2012 6:35 AM
  

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