There's always more to the story...

In a Reuters report at Wired News, Saudi foreign affairs advisor Adel Al-Jubeir says that the Saudis are not entirely to blame for high oil prices. According to him, there is actually a slight surplus in the production of crude oil. The problem is environmental laws and a lack of refining capacity in the United States.

"There has not been a refinery built in America in the last 20 years. So if you produce more crude oil but you can't refine it, it's not going to translate into gasoline," he said.

Al-Jubeir also said it was difficult for foreign oil companies and domestic suppliers to sell gasoline in the U.S. market because federal environmental regulations require dozens of different fuel blends be sold across the country to combat pollution.

As an example, he pointed out that a refinery in Springfield, Illinois, cannot sell gasoline in the Chicago market because the fuel formulas are different.

While politicians here are busy accusing them of price-gouging, unelected bureaucrats are layering on more and more regulations. We might have guessed that ultimately, the state was behind it. Next time it takes you $25 to fill your tank, direct your thanks toward Washington, D.C.

Who can even guess how many other products are unduly expensive because of government meddling?

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I once asked my macro-econ

I once asked my macro-econ professor exactly what "price-gouging" meant in terms of supply and demand. He replied that the term was not economically meaningful. It seems to me that he's right. At best price-gouging is meaningful only in a cultural context. The classic example being in the case of an emergency the demand for certain goods can skyrocket and thus so too would the prices. That's basic supply and demand though, of which a shop keeper would have no direct control. The shop keeper has the same choice he has to make everyday: whether or not to change the prices of his goods to reflect market forces. This could be considered a moral decision on his part, however if it is not immoral to change prices to reflect the market on any other day then arguably it should not be during an emergency either. My point is that it would not necessarily be immoral for said shopkeeper to raise his prices during an emergency to reflect the increased demand and limited supply. Rather it would be moral for the shopkeeper to attempt to keep the price low, because he has a vested interest in his community making a speedy recovery from the emergency and higher prices might interfere with that. That being said shortages aren't going to help much either.

Not to take any of the blame

Not to take any of the blame away from the politicians and bureaucrats (all of it deserved), but there is also a lot of rent-seeking going on here. The oxygenate mandate was largely introduced to benefit agri-business giants like ADM and Cargill.

The reporting burdens of the Clean Air Act also lend themselves to "big firm" bias. Larger firms are more easily able to cope with the paperwork burdens piled upon them, which puts small firms at a compartative disadvantage. So independent refiners go out of business and the big boys get a larger market share, courtesy of the new regulations.

Also, capital expansion has become much more expensive, thus cutting reserve capacity from the market. So with little slack in the system, whenever something (inevitably) breaks, we have short-term local price spikes that cannot be exacerbated by good old-fashioned arbitrage opportunities.

It's another classic example of industry being willingly "captured" by it regulators. The Iron Triangle at work.

If anything, I would argue

If anything, I would argue that "price-gouging" is moral because it ensures that scarce resources will flow to those who value them most (problems with IPUC's notwithstanding). After all, if demand skyrockets and you keep prices low, you'll just run out, and who benefits from that?

bq. _Not to take any of the

bq. _Not to take any of the blame away from the politicians and bureaucrats (all of it deserved), but *there is also a lot of rent-seeking going on here*._

(emphasis added)

You're right, but that doesn't deflect any blame from politicians and regulators--this rent-seeking behavior is only possible because of laws and regulations.

As I often ask my

As I often ask my students:

Why is "first-come, first-served" a "fairer" distribution system than "willingness to pay"?

The former merely favors people with a low opportunity cost of waiting in line over those with a low opportunity cost of cash. And it also allows the early-comers to capture rents that the original seller could just as well capture.

Next time it takes you $25

Next time it takes you $25 to fill your tank, direct your thanks toward Washington, D.C.

The next time it takes $25 to fill my tanks, I'll be in shock. Of course if I got something smaller than a Durango, and lived somewhere other than California...

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Your site is really good.