Not Solving the Problem 101

Liberal politicians are calling for all sorts of "remedies" to the current gasoline "crisis" -- which has been caused by a natural disaster's interruption of the petroleum supply lines, and NOT caused by the evil petroleum pals of George W. Bush.

In no particular order, Florida Senator Bill Nelson (D) is calling for a "price freeze" on gasoline. New York Senator Chuck Schumer (D) is calling for the President to empty the petroleum reserve (a 60 day supply) to help ease the crisis. New York Senator Hillary Clinton (D) is calling for a congressional hearings (and likely prosecution) of "price gougers". Wow, the left REALLY CARES!!!!

Get. A. Grip. First, note that none of these "ideas" will help get more gasoline into the pipelines coming from the Gulf Coast. Only the repair of any damage to the Gulf Coast refineries and breaks in the pipeline system, plus restoration of power in any of those immediate areas now without it will fix that. Secondly, building more refineries elsewhere would be an enormous help in easing the east coast's dependence on one primary supply area -- not to mention easing the supply problems faced in summer months by refiners having to make a laundry list of different blends of gasoline to meet environmental dictates in different areas. More refineries = better ability to handle demand. To that end, the EPA chief yesterday relented and will allow a temporary elimination of the requirements for certain blend fuels in certain areas, so that gasoline already available can be shipped around the country to areas where demand is most critical. HOWEVER... I digress. Back to the "CRISIS"...

A self-fulfilling prophecy is helping to add to the fuel crisis. All of this talk of a "gasoline shortage" by the media (to be perfectly clear, it is a SUPPLY CRISIS) is also causing normally rational people to hurry out to the gas pumps to fill up, thereby pushing up demand (which is also increasing the upward pressure on prices). Now back to Bill Nelson's idea:

Believe it or not, freezing prices when demand is soaring will cause the demand to further rise. Tinkering with the marketplace's natural regulation of price due to fluctuation of supply and demand will cause more problems. Left alone, and IF the news media had been honest (portrayed the actual "crisis" properly or at least sought out an economist without an agenda to explain what was going on) and politicians stopped trying to fan the flames of a trumped-up crisis to get back at Bush, here's what would have happened:

1 - News comes that pipelines are shut-off by storm, and people can expect supplies to run low -- but things are being done to help alleviate the problem in the short-term (EPA rescinds blend requirements temporarily, refineries in other areas will help direct fuel to areas running low). Price starts to rise because people will go fill-up cars (natural reaction to the news of a pending shortage), raising demand in the face of shortage, but as the prices rise, maybe some will not fill-up ALL of their cars or fill all of their gas gans at home hoping to "stock-up". Remember, they're told it will likely be a TEMPORARY situation.

2 - People who think the price is too high won't use as much (may decide to car-pool, ride the bus if possible, quit driving as much by planning their trips out to the store, etc.). This will help slow demand, thereby putting a natural brake on the upward price pressure.

3 - The pipelines go back on at a lessened capacity. More supply will help ease price pressure as well, but people will likely continue to keep their tanks full, which keeps some demand pressure on the available supply -- prices stay up.

4 - Other measures help ease the crisis on supply, lessening demand as well, as people breathe a sigh of relief... prices start to come down.

5 - Supply lines are back up to 100%. Prices will continue to fall to an equilibrium level below the level they were before the crisis.

Don't expect the actual cycle to be this simple. Panic puts additional pressure on the supply as people think they better get it at whatever price before it's all gone!!! If you add price controls to the mix, the demand (at whatever that price) will be artificially high, which will cause the supply to run lower and lower. In reality, higher prices have a downward pressure on demand, as it becomes too expensive to use as much as you're used to using.

Let's hope the Left's effort to paint Bush as the cause of all this doesn't continue to spiral out of control and cause us to do irreparable harm to our economy.

As for Schumer's idea, the President has already said he will make available some of the petroleum reserve to help out. BUT THIS IS A DELIVERY crisis, not a shortage of crude oil. This will have no effect at all on alleiviating the supply line problem.

Hillary's idea will put artificial pressure on the marketplace. The natural pricing pressure from artificially increased demand -- in this case, from the "we have a CRISIS here" mentality -- and a temporary shortage in the supply (30 million gallons a day less due to the pipeline problems), pushes the price up. But scared operators (who don't want to be prosecuted for "price gouging") will artificially keep the price lower than the marketplace would equalize it, thereby working like price controls to cause the supply to dwindle quicker and pose a bigger problem.

In case you are wondering, this is not some pirated piece. I do have a degree in Business, and I DO understand the marketplace and supply and demand. I also have spent 28 years in the media and understand the pressure to focus the story on the unusual and/or in the worst light.

It remains to be seen whether sanity wills out or not.