Reality Check

Gas Prices and the Energy Crisis

Why are gas prices so high? Why hasn’t the economy forced their prices back down? What can we do to stop them? After nearly eating a mold encrusted muffin I bought at a Shell station this morning, I’m feeling particularly inspired to tackle these questions and present the most effective and realistic solutions I have seen for lowering gas prices.

Today I stopped at a Shell station on the way to work to grab some breakfast. I was low on gas and hungry, so the Circle K food store seemed like the perfect solution. I picked out a delicious looking ham-egg-n-cheese muffin. The gas prices were abnormally bad, so I decided to just fuel up my stomach and make the car wait. When I got to work, I opened up the breakfast my mouth was watering over for so long only to find the entire bottom of it was covered in a dull grayish-turquoise-mold.  So I started out my day with an empty stomach and empty gas tank. It has been a while since I have felt comfortable filling up a full tank of gas because the gas prices have been so bad lately. Sometimes I feel like I’m playing the stock market just buying gas every couple of weeks. So why can the gasoline industry get away with these unfair and unreasonable prices on something we all need to survive? Once again, it all boils down to simple economics.

What causes such high gas prices?
 

To understand how gas companies can get away with these prices, you must first understand how our market economy works. The key to economics is supply and demand. When demand rises, prices can rise. If enough people need something badly enough, they will pay more for it. When a resource less common, it is more valuable. This is why a diamond is so valuable, while water is so cheap. Diamonds serve no purpose other than looking good, but we will die without water. Oil is relatively rare compared to other natural resources, and practically EVERYONE needs gas for their car.
 

As if the sheer economics weren’t making oil companies rich enough, the top oil producers organized a cartel to further strangle consumers. A cartel is an organization of producers of a certain good who all agree to charge a set price on what they produce. This creates an effective monopoly, which is devastating to market prices. The reason you can go to Wal Mart and buy a shirt for 1/10 the price of the same shirt with a brand name printed on it is because of market competition. One supplier undercuts another, and people buy from the cheaper one. The first supplier must then either raise quality or lower prices to keep from losing all its customers and dying off. This happens in just about every sector of the economy and causes most products to become affordable to the everyday consumer. In a monopoly, there is no competitor to undercut the supplier, so there is no need to lower prices or increase quality. They can charge whatever they want and no one can do anything about it. This is why you can’t just go down the street to the thrift gas station and buy the cheap gas for affordable prices.

How Can We Lower Prices?
 

So what can we do about this? Are we just helpless to the economy? We are still consumers, and as such, we technically still hold the power in the economy. It just takes a lot of organization to effect change. If people don’t buy a producer’s goods, they make no money, and therefore have to bring people back to buying their products, or go out of business. In my opinion we have three main options. We can create competition, forcefully lower prices by boycott, or make the necessary progression into the next era of energy solutions so we no longer need oil.

The first solution would be to bring in new competitors for the oil industry who would not be a part of the cartel. In order for a monopoly to exist, they must keep competitors from entering the market. If a new company were to come in and offer reasonable gas prices, we would all buy from them. Unfortunately, because of the Middle Eastern control of the world’s main oil reserves, it will be very difficult for anyone to gain a good enough supply of oil to sustain America and compete with the oil cartels. If this could be done, the competition would drive cartel prices to compete with the market and all gas prices would go down.
 

The second solution would be to directly control the economy through public boycotts. There was an organized attempt at this, but it failed miserably. The public set out one day where they would not buy gas. The gas companies lost millions of dollars in sales on that day, but they knew the American people couldn’t live without their precious gas for long. The next day they simply raised prices to higher than they had been and made up for their losses immediately. If we want to hurt them, it has to be for more than a day. I heard one proposal for a boycott that could actually work. If the public would buy gas from only the smaller companies, the larger companies would suffer a sustained loss. With their customers in steady decline and no hope for people to come back, they would be forced to lower prices to bring people back to their company. With their prices lowered, people would flock to them, and their competitors would be forced to lower prices to keep up. This would keep fluctuating until they found equilibrium at an affordable price.

The third solution is in my opinion the best. It is also very difficult to accomplish. It would involve weaning our economy off our oil dependency. Our oil reserves will be used up eventually. The only question is when. We have the technology for electric driven cars. We have other options to generate electricity without the need for fossil fuel. I won’t go too in depth on this right now because there is too much to cover on the logistics of moving our society off our oil dependency. I will say that we need a solution. When you think of what happens when the power goes out in a city for a day, you might imagine what would happen when the whole power grid goes down indefinitely. If we don’t find a new source of dependable power, this could become reality. We have lots of options for personal transportatoin. Many people are taking to carpooling and biking short distances. Smaller modes of more efficient transportation such as Segways and electric scooters are becoming more popular. We just need to bump this up to a larger scale solution.

My neighbors used to drive a sleek black BMW, but they recently traded it in for a disgustingly orange Volvo. They are extremely happy with the trade-in because they got the car from a scientist who equipped it with a special engine that runs on vegetable oil. They stop at a restaurant every now and then to pick up the oil left over after frying their food. The restaurants are always happy to part with it because it saves them the trouble of disposing of it. And in return, my neighbors get to live without ever having to pay for gas. If these were on the market, I know I would buy them (preferably not the old, ugly Volvo model). As more fuel efficient vehicles come into the market, gas demand should diminish and prices will have to go down to keep up.

The oil prices of today are a symptom of a larger, more eminent problem. Our technology is in a race against our oil consumption. We will either come out with clean, cheap energy, or society will be thrust into chaos and depression as our last energy reserves are used up. Our fuel consumption seems like such a menial problem, but in order for our society to continue on its current course of prosperity, we need to find ways to adjust and adapt to the changing world we live in.

I would like to hear your input on this too. What solutions would you propose to drop gas prices or replace our oil consumption with better energy sources? What energy solution would you see our society going toward in the future? I appreciate your feedback so don't hesitate to reply.