The NYTimes ran an article titled “Oil Industry Says Biofuel Push May Hurt at Pump” in today’s paper. The gist of the article is that a governent push towards biofuels is keeping oil companies from investing in increasing their production thereby driving up prices . . . oops.
“Gas prices are spiking again — to an average of $3.22 a gallon, and close to $4 a gallon in many areas.
And some oil executives are now warning that the current shortages of fuel could become a long-term problem, leading to stubbornly higher prices at the pump.
They point to a surprising culprit: uncertainty created by the government’s push to increase the supply of biofuels like ethanol in coming years.
In his State of the Union address in January, President Bush called for a sharp increase in the use of biofuels, along with some improvement in automobile fuel efficiency to reduce America’s use of gasoline by 20 percent within 10 years. Congress is considering legislation calling for a nearly fivefold increase in the use of ethanol.
That has forced many oil companies to reconsider or scale back their plans for constructing new refinery capacity.”
So here’s my wild thought, what if it’s not an oops? I don’t think this is true but here’s a conspiracy theory that popped to mind:
Let’s say that “the government” had the goal of reducing oil consumption in mind. Theoretically this could have all kinds of nice benefits: decreased pollution, less asthma in children, less dependence on foreign oil and other benefits you can probably think of. It would have all kinds of costs as well.
The best way to reduce US oil consumption would be to raise prices. From a societal standpoint the best way to raise prices might be increasing the gas tax. This would be regressive, but theoretically the government could make it up to those of us not-so-rich people with tax breaks/credits in other areas. The problem is that this solution is politically intractable. Would any politicians have the courage to call for this solution even if it was “the best one”?
So . . . what other way could the government raise the price of gas without having the public approve of it . . . oh yeah, they could create uncertainty in the oil markets, thereby raising prices and having the same effect and inducing the same benefits . . . except that all that money that would have been raised in taxes is instead collected by the oil companies . . . but all those good things (less asthma etc) would still be achieved . . .
Oops?
Granted, this argument stipulates that 1) consumers would believe that prices are permanently raised therefore adjusting their behavior and 2) that numerous politicians could collude in this way, but I thought it was an interesting thought experiment.
So that’s my musing for the afternoon.
Posted by furthermusings 
Posted by furthermusings
Posted by furthermusings 


