Gas prices rose more than 7% in January, which typically is one of the slowest driving months of the year. Leading experts predict pump prices may surge past last year’s record highs when highway travel picks up late in the spring. One expert, Carl Larry and the article Gas could be costly for Summer Motorists; he suggests that gas prices will rise above last year’s peak due to rising demand for fuel and the higher price of crude oil. He states, “We’re starting to see the economy come back, so demand can only go higher from where it’s at.” It’s the simple rule of supply and demand. As demand goes up, and supply gets shorter, (which OPEC will cut supply if crude oil is less than $40 a barrel), and then price goes up. So as a consumer, what’s the secret to helping keep the gas price down?
1 comment:
Aargh! Economists hate this issue. Keston has blundered into a pet peeve and is going to get both barrels. Don't take it personally - I am doing this because it is an important issue for everyone in the class to get their mind around. There is a really gross collective irrationality in this country about gas prices - for example, bottled water is more expensive than gas, but no one complains about that.
Gas prices are not at or near record highs when measured in units that can be taken seriously (and I'll forgive students for saying this only because this is not a macro class).
Gas prices are only near record highs in terms of pieces of paper called dollars. This is a critical distinction because the price of just about everything is at record highs in terms of pieces of paper called dollars. In fact, my income is at a record high when measured that way, and your's probably is too. Why doesn't anyone crow about that?
The reason is that value is not measured well by pieces of paper called dollars because the value of dollars changes with inflation. So, you really want to measure the price of stuff in terms of other stuff that has real value - like say the amount of time you have to work to pay for something. Using that scale, just about everything is cheap.
In those terms, gas prices are higher than they have been in the very recent past, but quite low by historical standards. I have to work about 3 minutes (before taxes) to earn enough to buy a gallon of gas. In 1989 when I started out at the University of Alabama I had to work about 5 minutes to earn a gallon of gas, even though the dollar price of gas was much lower. That is a real gain for me.
Having said all this, there is a nice point in the cited article. Economists have been saying for about 2 years that part of the reason that gas prices are rising is that the global economy is doing so well. Typically this is ignored in the major media. But it is mentioned here, and it is a good thing: why should we be worried if gas prices are rising if it is because we are able to buy so much gas we can force the price up?
Another note is that there is a seasonal cycle with gas prices. We see articles like this in the media every year from February through April. The reason is that this is the time when refineries have to shut down and retool for summer blends from winter blends. This creates shortages that push up prices (and make for a good story). It happens every year, but they don't tell you that.
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