Thursday, June 19, 2008

Who shall we blame for high gas prices?

From the LA Times:

The lines are getting longer, and Tang Yao is finding fewer gasoline stations open in his neighborhood here. But the 48-year-old motorist has no gripes about the price at the pump.

While consumers in much of the world have been reeling from spiraling fuel costs, the Chinese government has kept the retail price of gasoline at about $2.60 a gallon, up just 9% from January 2007.

During that same period, average gas prices in the U.S. have surged nearly 80%, to about $4 a gallon. China's price control is great for people like Tang, who drives long distances in his gas-guzzling Great Wall sports utility vehicle.

But Tang and millions of other Chinese are bracing for a big jump in pump prices. The day of reckoning? Everybody believes it's coming right after the Summer Olympics in Beijing conclude in late August.

"Everything will change after the Olympics," said Tang, a real estate businessman, as he waited for an hour to fill up at a service station in a Shanghai suburb.

Sorry, Tang, it's today:

Oil fell below $134 a barrel on news that China will raise retail gasoline and diesel prices for the first time in 8 months to help refineries recoup losses from record oil prices.

More from the a-holes who are playing with prices:

At a meeting of energy ministers in Japan over the weekend, a senior official at China's top economic policymaking body said the surge in crude prices should not be attributed to rising demand from developing countries such as China and India. Rather, Zhang Guobao, vice chairman of China's National Development and Reform Commission, blamed the high oil prices on speculators.

Which is exactly what our a-holes are doing:

In a pair of lengthy and sometimes testy closed-door sessions in the Senate last week, executives from Goldman Sachs and Morgan Stanley, two of Wall Street's largest investment banks, made the case that their multibillion-dollar investments in energy contracts have not led to higher oil prices. Rather, they told Democratic staff members of the Energy and Natural Resources Committee that the trades allow international markets to operate efficiently and that the run-up in oil prices results not from speculation but from actual imbalances of supply and demand.

But the executives were met with skepticism and occasional hostility. "Spare us your lecture about supply and demand," one of the Democratic aides said, abruptly cutting off one of the executives, according to a staff member in the room.

Another aide at the meetings warned the executives that no matter what arguments they muster, it would be hard to prevent Congress from acting. Referring to a vote earlier this year to impose new mileage standards on automobile makers, the aide said, "At 90 bucks a barrel, Congress rolled the autos for the first time in 30 years -- is it too much to think that Congress will impose more restrictions on you if oil goes to $150 dollars a barrel?"

Guess who's to blame.


DC Mail Vigilante said...

First, it's whom shall we blame.

Second, are you saying it's Congress's regulations that are pushing prices higher? Or that the speculators are in fact to blame?

Will McBride said...

Sorry for the confusion. I don't doubt that speculators move prices, but more fundamentally nobody plays with prices like government. When in doubt, blame government. It's an ongoing theme with this blog, as it was for Adam Smith. For instance, on famine he said: "famine has never arisen from any other cause but the violence of government attempting, by improper means, to remedy the inconveniences of a dearth."

Will McBride said...

To elaborate, speculators who keep betting on higher prices eventually get burned when price returns to fundamental value. Beaurocrats do not, since it's not their money.