Wednesday, December 07, 2005

Gas prices constitute a failure of markets

Be wary of "good news" such as this: http://www.usatoday.com/money/industries/energy/2005-12-05-gas-price-lundberg_x.htm

Gas prices at any level nowadays do not reflect the actual price of the commodity. We pay a certain price at the pump, and then our government borrows hundreds of billions of dollars from Asian central banks in order to defend our country against threats around the world that are financed by the funds we pay at the pump. A low price of gas (or even 3+ dollars a gallon) bears no relation to the actual price we pay as a country, because our government's borrowing to defend against oil-funded threats to national security is not viewed as an immediate drain on our bank accounts.

If we were able to quantify the real cost of our oil consumption by taking the cost of defending against the oil-funded threats to our national security and adding those costs to the cost of production and distribution, the price we currently pay at the pump would be shown to be the great lie that it is. Markets are great for solving many -- if not most -- problems, but our government's ability and brazen willingness to borrow money renders markets completely ineffective when it comes to reflecting the real cost of oil.

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