Thursday, September 01, 2005

Your choice: Expensive or none

Okay, I want everyone to think of your favorite product. The product has to be something you buy at least several times a year. Okay, are you envisioning it? Good. Now I'm going to give you a choice-you can continue to buy it, but only at much greater expense than usual, or after tomorrow, you can't buy it at all.

Most of you are going to want to have the freedom to continue to buy that product, even if at greater expense. Now I want you to substitute "gasoline" for your favorite product, because that's what we are looking at right now. Because of hurricane Katrina, the gas supply is tight right now, there is no denying that. I know a lot of people are bitching about the gas stations jacking up prices immediately, but you shouldn't. The reason gas prices are jumping is not because "big oil" is trying to profit off of your back. It is because they know that if they don't raise prices, we are going to consume as much gasoline as we usually do. If we do that, the supply of gasoline is going to outstripped by demand very quickly, and there would be widespread gas shortages. Gas shortages will not be good for you, for the economy, or for "big oil". The quick increases in gas prices are in part an attempt to bring the demand down a little bit to ensure a steady supply of gasoline to the market. Yes, gas stations are making a higher margin on that gasoline that was in their tanks before yesterday, but before long, they'll be back at their regular margins and their volume will be way down because of the higher prices, so don't think that all is rosy for retail petroleum. I'm not trying to tell you that gas companies are raising prices out of benevolence. What I am saying is that they are not going to profit off of this the way many people think, and by protecting themselves with higher prices, they are in a sense protecting us from us, and hopefully ensuring a steady supply of gasoline instead of widespread shortages. It is the market at work, and next Tuesday when you can still put gas in your car, you can thank the market for the price increases of this week.

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