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An OpEd

A recent Technician article attempted to educate the student population of the consequences of rising gas prices, especially rising diesel prices which manifest themselves most clearly in increased transportation costs that effect literally every sector of the economy. But from the very beginning, the article steps out on the wrong foot, by positing that ethanol fuel is a “more viable, less costly” alternative to gasoline. Well, the first charge is ambiguous to the point of meaninglessness, but the second is easily refuted. If ethanol were less expensive than gasoline, the free market would adopt it. The fact that it requires tax credits and subsidies to bring the fuel to market proves this point. It gets even better: even with an incredibly sloped playing field of huge taxes on revenues from oil, and tax credits for producing ethanol, it is still more profitable to produce gasoline and diesel.

Now, I realize that ethanol has always been a “green” solution, which may or may not be the case: that’s outside the scope of this column. However, attempting to cloak the effort in a shroud of economic credulity is dishonest.

Speaking of attempting to lend economic credulity, the further statement that “alternative fuel sources will truly be the only way to lower fuel costs” is so sickeningly ignorant, it’s hard to believe. To keep things political for a moment, it is a cinch to decrease fuel prices by decreasing the ridiculous taxes that are constantly being imposed on Big Oil’s “windfall” profits, which it is perceived that they have extorted from the American public by selling them a commodity that they require. The oil companies are in the business to make money, and the only way to profit is to increase prices so that revenues (money coming in) are higher than expenses (operating costs such as taxes).

But to take to an even more basic level, of the sort you find an introductory economics text, by using the fundamental principle of supply and demand, it is obvious that price can be lowered by increasing supply. This can be done in a number of ways. The first and most public is to stop relying on foreign oil and tap the oil reserves we have right here at home, including those in the Alaskan National Wildlife Reserve. But another much ignored way is to build more refineries. According to Reason Magazine, the United States’ “149 existing refineries have been running at maximum capacity,” because no new refineries have been built in 32 years. This is because of ridiculous environmental legislation that means that, once again according to Reason, a refinery being built outside of Yuma, AZ, is nearing its completion date in 2010, 15 years after the project began.

Returning the article, it goes on to simultaneously delve into fantasy and legitimate economic theory by stating that, “If there is an alternative, and if that alternative is relatively cheap and feasible, then the demand for gas would fall and that would help to lower the price.” This is absolutely true, and as stated above, if it is more profitable to sell this alternative fuel than gasoline, then the market will shift that way. However, this statement begins with two predicates, the second of which (“if that alternative is relatively cheap and feasible”) has yet to be fulfilled.

The article continues by stating that “As long as things stay the way they are right now and we don’t develop that energy, then you can expect the price of gas to stay pretty high.” While this is true, it is a type of true that is called “tautological” which means that it is always true regardless of circumstances. The quote can be reduced to the logical statement that “if nothing changes, then nothing will change”, which can be patently seen to be factually empty.

The article does cover one of the other chief bottlenecks in our supply of oil (which keeps supply low, and therefore prices high), the Organization of the Petroleum Exporting Counties (OPEC). OPEC is an alliance of nations with no meaningful exports aside from oil, whose economies are only kept going by the fact that the country was lucky enough to sit atop huge oil reserves. If the same nations and cultures had to cope with, for example, the rocky soil and tougher conditions of Europe, they would fail utterly because they have nothing to offer the world except keeping the oil flowing.

Allow me to illustrate the character of OPEC. In October 1973, a number of nations led by Egypt and Syria attempted to gang up and invade Israel on their holy holiday of Yom Kippur, in a conflict later called the Yom Kippur War. But Israel, never one to be pushed around, rallied back and purged their land of the invaders and defended themselves ably. Sore from this stinging defeat where a superior force was defeated by an army on their day off, the OPEC nations decided to stop shipping fuel to any nation that had supported Israel in defending their homeland from encroachment, leading to the famous 1973 “Energy Crisis” here in America.

The fact that our government is keeping us reliant on these thugs and endangering national security is astounding.

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Categories: The Technician
  1. March 29, 2008 at 7:38 am

    “If there is an alternative, and if that alternative is relatively cheap and feasible, then the demand for gas would fall and that would help to lower the price.”

    Another point the Technician overlooked: if there were a cheap and feasible alternative to gasoline, we would already be using it.

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