Alpine Summit

Wednesday, September 21, 2005

I Believe Our Children Are... Idiots

I read a letter to the editor in my rag of a school paper today and a freshman majoring in Rangeland Ecology and Watershed Management (hippie) wrote a criticism of the price of gas in America right now.

Dear Editor,

Our fuel outlook needs to change.

The price of fuel has gotten out of hand. We will probably never see low gas prices again. People are already preparing for even higher prices. We need to curb the increasing price of gas by introducing more bio fuel into the mix. We have enough crops to supply a good portion of the demand. We need to build more sites to produce bio fuel so that it can be used widespread.

There needs to be legislation to limit the oil companies from raising the prices beyond a certain point. We have many alternatives that we can use but we choose not to.

Now, I understand that business, and commodity markets, aren't exactly everyone's cup-o-tea, but this kid is completely ignorant of how the world works- illustrated in this case by his grasp (or lack thereof) on the oil industry. I felt it was my duty as a business major to respond to this idiocy and hopefully negate the stupidity he's trying to inflict on people.

I wanted to respond to Dustin Southworth’s comments on oil prices. While he may know plenty about the environment, he knows very little about capitalist markets.

Mr. southworth’s first point that we are paying too much at the pump isn’t really true. While gas prices are indeed higher than we’re used to, in real dollar terms, we’re still quite a bit below the prices some of us paid in the 70’s during the oil embargo. We’re also paying far less for gas in America than our counterparts in, say, England(roughly $8/gal). So in terms of the rest of the world, our gas is still dirt cheap.

Southworth then says that by introducing more bio-fuels “into the mix” the price at the pump will go down. The problem with this is that it requires refining companies to outfit their operations to process bio-fuels on a much larger scale. This involves a lot of investment to outfit refineries, set up distribution chains with farmers, and any other host of logistical issues that not only cost time and money, but there would be no guarantee the price of oil will stay at a price to make all that effort profitable.

Southworth closes out his letter by saying we should introduce legislation to limit the price oil companies can charge for their product-- bad idea. The same thing was tried with electricity in California, and we all saw what happened there. The problem is that while our companies are limited to selling their product at a certain price, OPEC, from which our companies have to buy a lot of oil, are free to sell at whatever price they want. So as the price of oil is set higher and higher by OPEC and the international futures market, the profit margins of our companies gets thinner until they have no profit. When that happens, there isn’t any disposable money to spend on research or other things such as alternative energy.

It may be frustrating to pay $3/gal for gas, but it’s actually a pretty fair price given that the price at the pump is determined more by OPEC and futures markets than by our own gas companies. This issue is far more complex than simply pressuring our representatives to punish companies for trying to maintain profit margins. There are many factors to consider: demand on crops, jobs, tax revenues generated, etc. and I would encourage Mr. Southworth to take an economics class and learn more about how markets work before calling for the proverbial heads of oil companies.

I'm sure the hippies on campus will find some way of spinning this into some evil conspiracy theory on the part of these corporations, but whatever. I guess the first obstacle is hoping the hard-left people at the paper consider printing my letter.