They come with metronomic regularity, these media stories about "soaring" gasoline prices and the causes thereof, news stories which always identify the same two culprits, supply and demand. The stories always give various reasons why supplies are tight -- more often, why prices include a risk premium based on fears that supplies might become tight -- or why demand is higher than it is "should" be, given supposedly high prices.
Today, as the price of a gallon of regular ($2.70 nationally on Monday) "soars" almost to where it was (measured in constant dollars) in 1982, the "news" is: "Drivers Offer a Collective Ho-Hum as Gasoline Prices Soar'' (The New York Times, last Friday). People are not changing their behavior because the real, inflation-adjusted cost of that behavior has not changed significantly, and neither has the cost of the commodity in question, relative to disposable income.
The next wave of stories about "soaring" gas prices will predictably trigger some politicians' indignation about oil companies' profits. The day after Exxon Mobil's announcement that it earned $39.5 billion in 2006, Hillary Clinton said: "I want to take those profits, and I want to put them into a strategic energy fund that will begin to fund alternative smart energy, alternatives and technologies that will begin to actually move us toward the direction of independence."
Clinton's "take" reveals her confiscatory itch. Her clunky ``toward the direction of'' suggests that she actually knows that independence is as chimeric a goal as Soviet grain production goals were.
President Bush proposes reducing gasoline usage 20 percent in 10 years. Perhaps: After the oil shocks of the late 1970s, gasoline consumption fell 12 percent and did not again reach 1978 levels until 1993. This decline was produced by an abrupt and substantial increase in the price of gasoline, which no politician, least of all the president, is proposing. And we actually could get lower prices because the president and various presidential candidates have become such enthusiasts for federal subsidies for ethanol and other alternative fuels. If these fuels threaten seriously to dampen demand for oil, the Saudis might increase production enough to drive down oil prices, in order to make investments -- investors beware -- in alternative fuels even more uneconomic than they already are.
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