"Its probably time to do some hearings in Washington to find out why gas prices are so high"
What? Hearings! Senator Graham, who has often been spotted following Senator McCain with a roll of toilet paper, apparently does not believe in the free market. About a week and a half ago, I explained all of this to my adoring public. In that post, I made the following common sense statements:
The price of gasoline is affected by two things specifically, the price of crude oil and the ability to refine that oil into gasoline. Just like any commodity, crude oil and refined gasoline are subject to the laws of supply and demand. In a normal situation, the demand for a product or service can be manipulated by raising or lowering the price. This is often done when the demand for something exceeds the supply. In other words, if demand is higher than supply, you raise the price, which normally lowers demand. With growing economies in places like China, India, and the United States, the demand for crude oil is higher than it has ever been. Therefore the price of crude oil is higher than it has ever been. Now that brings us to the issue of gas prices. Nothing affects the price of gasoline as much as the price of crude, but there is one other factor and that is refining capacity. We have not built a new refinery in this country in 25 years and during that time we have become quite prosperous.
In other words, what the government needs to do right now is absolutely nothing. That's right, government is not going to help this situation. Government will only make things worse.
Professor Thomas Sowell agrees with me on this issue. Of course he puts it much more eloquently and he uses history (as opposed to emotion) to back up his assertions.
Why, then, are oil prices so high?
There is no esoteric reason. It is plain old supply and demand. With the economies of huge nations like China and India developing more rapidly, now that they have freed their markets from many stifling government controls, more oil is being demanded in the world market and there are few new sources of supply.
What should our government do?
We will be lucky if they do nothing. But, with Congressional elections coming up next year, that is very unlikely. Candidates for Congress next year, and politicians hoping to run for President in 2008, are virtually guaranteed to come up with all sorts of "solutions."
These "solutions" will be packaged as brilliant new ideas, courageous and far-seeing. But most will be retreads of old ideas that remain untested or which have been tested in the past and found wanting.
Price controls, arbitrary new higher gas mileage standards for cars, "alternative energy sources," and other nostrums are sure to surface once again.
The last time we had price controls on gasoline, we had long lines of cars at filling stations, these lines sometimes stretching around the block, with motorists sitting in those lines for hours.
That nonsense ended almost overnight when President Ronald Reagan, ignoring the cries of liberal politicians and the liberal media, got rid of price controls with a stroke of the pen.
What happened is what usually happens when government restrictions are ended: There was more production of oil. In fact the 1980s became known as the era of an "oil glut" and gasoline prices declined.So according to Thomas Sowell, what should Congress do about this so-called crisis?
I know that may be a little hard for Senator Graham to understand.