A case in point is the recent example of a Catholic television pundit who is desperately trying to blame someone for the high gasoline prices we are currently experiencing. At first, he railed against the “greedy oil company executives.” I e mailed him a few times and explained the reason for the high oil prices. He did not air my e mails, nor did he discuss the articles I sent him, but he changed his tactics and turned his wrath on “speculators.” He had an economist on his show who tried to explain the truth to him, but he shouted the mild-mannered man down and ridiculed his viewpoint. But this TV personality is not the only one who does this. People frequently attribute evil intentions to people whom they do not know. That attitude enters public debate and turns the country into a Petri dish of cynicism. Catholics should know better. Not only can we not, and should not, attribute evil intentions to others, not to mention make public those views of ours, but this is especially true in technical fields in which we have no real competence. So, I am now going to explain the complicated economics of petroleum prices in as short a space as possible and put an end to the calumny against the oil executives.
There are three components of economics: supply, demand and price. In a competitive market, price is set, not by anyone, but by the coincidence of supply and demand for the item at the point of sale. World demand for petroleum has skyrocketed over the past decades, not only for the United States, but for countries like China and India, which are growing technologically. In addition, the governments of China and India subsidize many companies that demand petroleum, so that the companies can buy more than they would normally—at taxpayers expense.
Supply is controlled in a number of ways. The oil producing countries of the Middle East are not in a competitive market, because their oil producing is by government owned companies. The government, not the market, decides how much they are going to produce and sell on the world market. In places like Saudi Arabia, I have heard that gasoline costs a few cents a gallon. This means that supply to the rest of the world is tight, while the supply to locals is flowing like water. Included in this mix is the fact that petroleum is used in more products than cars. Plastics, for instance, have a petroleum component.
Next, even if the United States had a larger supply of petroleum, it still has to be refined. This takes refineries. We have not built a refinery since the 1960’s, and this is mostly because of government regulations and the fact that no one wants a smelly refinery in their neighborhood.
Lastly, the value of the American dollar is shrinking, primarily due to the massive creation of money by the Federal Reserve and the gigantic amounts of dollars poured into the currency markets to fund the Iraq war. Even the president of Iran (whose name I will not try to spell) said, “We [Iran] send you [the US] the fluid of life [petroleum], and you give us worthless pieces of paper [dollars].” This means that the purchase of foreign currency, which we must do to buy petroleum, costs more.
So these are complex matters, and no one can be said to have evil intentions. We have different political, economic, social and political situations, and the complex mix results in higher gas prices. This does not mean that there are no solutions; but it does mean that there are no quick fixes.
Next time I shall discuss “speculators.”