Sunday, September 14, 2008
Gas Prices
In the last week the price of a gallon of gas has gone up almost 50 cents a gallon. I know that a lot of this has to do with the hurricane and down refinery rigs, but it almost seems unfair. The oil companies are still making the same huge profits, yet it is the consumer that gets hurt in the end. The rapid increase saves the profits of the oil companies, but the price gauging is incredible. I find this unethical that the general public is the victim in all of this. The oil companies should take a hit for this and not the public. Instead of big business taking a small hit it once again gets put on the shoulders of the American public. So my question is why can the government bail out companies like Bear Sterns, and Freddie Mac, but the all these price hardships get put on the middle class.
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A couple comments:
1. Don't be too quick to call it price-gouging. Oil prices are directly influenced by an international market, subject to significant fluctuations due to, for example, fear about possible hurricane damage -- and these fluctuations feed on themselves. If everybody is buying because they think supply will dry up a bit, this feeds on itself further, and others will start buying just because everybody is buying.
2. Still, your point about who suffers losses is very clearly a good point. The idea of a market is that those who risk their money in corporate ventures should be the ones who have to pay if they take bad risks! This, actually, was the way that investments were judged to be moral or immoral, back in the day when people cared about usury.
But there are only a few oil companies, and they're pretty much all within a penny or two of each other in pricing in any given market. So do we have the competition necessary to drive down prices? No. And they're all buying from the same oil market, and can therefore pass on a significant proportion unexpected costs directly to the consumer. It goes pretty directly against an ideal conception of a capitalist market. This is what makes oil companies safe investments for those who buy stocks, but it comes at the price of uncertain costs on the part of the public.
3. I wouldn't be so bothered by oil company profits if oil companies didn't receive so many tax breaks and governmental assistance. Look into that, if you have a couple minutes to spare for google searches.
4. The middle class? What about the working class? While it's true that the middle class might be more likely to have longer commutes, since they're more likely to live in suburbs and exurbs, still -- like food and clothing, gas prices only scale up along with income to a very limited extent. So, everybody pays not-too-far from the same amount in gas, but that represents an expense for Americans that is proportionally larger the poorer you are. It is, in other words, a regressive cost.
We should talk about this on Tuesday. It's a great example of the deviation of our economic situation from an ideal capitalist market.
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