No Right to Cheap Gas

I am for managed capitalism, that is, I do not think the free market works, without regulation. I am in support of helping those who are in need, for whatever reasons, including gas prices when their level of poverty means they need it. But I am not for ensuring that everyone can have cheap gas whether they can afford it or not.

Gas should be expensive. Here’s why:

Believe it or not, oil and gas companies don’t generally want gas to be too expensive. 

They want to make money, as much as they can, of course, and for that they certainly like prices that are high enough, but not so high that there is demand destruction. Selling less oil at a ridiculous price doesn’t necessarily make them more money than selling more oil at a reasonably high price. Once people are pushed into alternatives, whether it is by finding ways to use less, because they simply can’t afford it, or by investing in solar, wearing sweaters, driving more fuel efficient cars (or electric), some of those changes could become permanent which then brings prices down anyway, and reduces demand long term. Eventually oil companies sell less at more reasonable prices.

They don’t want that, but we do.

It’s good for the environment, and it’s good politically because we are less dependent on Autocratic societies like in Russia and the middle east and Venezuela and Iran (and the undue influence of big oil in general, even here in the US). 

Historically, oil companies could control production to avoid going too far.

Things are different right now.  During the pandemic when oil demand dropped steeply, and the price of oil actually went negative (because people had bought futures and then couldn’t take delivery and had to pay people to take it), we saw a lack of investment in new production capacity. Those investments take time to pay off. Now that prices are so high that we might expect oil companies to increase production, they can’t, not without lead time, which is exacerbated by supply chain and labor issues that linger from the pandemic. 

So, even if the prices of oil justify it, the capacity to increase production isn’t there.  That’s why the price of oil was increasing as demand was ramping up post pandemic. Add Putin to the analysis, and the desire to get off Russian oil, and we’ve got a supply problem.

Is it gauging? Why do companies have to charge so much, just because they can? Here’s why. If they don’t charge what the market will pay, then we will run out of oil, short term. There has to be some demand destruction in order to wean out those who can change their behavior, so that there will be oil for those who can’t.  Because we have a supply problem.

The silver lining in all of this is many fold.

Solar, unfortunately, can never provide the amount of energy that we get from other sources, but it can provide a bigger percentage. Imagine if you can borrow money to put solar panels on your house, and your debt payments are less than the monthly energy bills you were paying. Even if that’s because your energy costs with fossil fuels has tripled, it pays for itself immediately. Suddenly everyone is doing it.

Demand destruction and the replacement of fossil fuels with other energy sources is not in the oil industry’s interest, but their inability to ramp up production in the short run creates a perfect opportunity for us to push it. The environment will benefit. Solar will benefit. Democracy will benefit. Oil will profit in the short run, but in the long run, they lose, and we win.

I’m not rich, but I can afford the higher fuel prices. I already drive a Honda fit.  I am happy to pay for a more sustainable future, and also to support Ukraine in this conflict (and whoever is next, if we don’t stop Putin now). If you drive a big truck, I’m sorry. Maybe next time you’ll buy something more fuel efficient.

For those who can’t afford to get to their minimum wage jobs, or pay for the inflation that high gas prices infect on so many other businesses, there has to be another solution. But that is a separate issue and speaks to the general availability of a living wage, and safety nets.  For companies that suffer from higher fuel prices, and potential wage increases, that can also hurt our economy.  I would support addressing all of that selectively according to need. Keeping minimum wage low to help companies that make billions doesn’t make sense. Companies that need it, could get wage help, if it’s in the interest of society to have those businesses. But, like cheap gas, why do we feel like we have a right to cheap labor, whether we can afford it or not?

Rise up, gas. The era of cheap energy is over. Good riddance.