THE BLOG
10/09/2013 02:56 pm ET | Updated Jan 23, 2014

Gas Prices: Should They Continue to Rise?

Sometime ago, someone asked in a local newspaper whether prices of gas should be going up or down at this time of the year. His assumption is that prices should not be going up because there is no shortage of oil and vacation period is relatively over for the time being. Stretching it further back, he observed that the Syrian conflict did not materialize. Other expected disruptions to the supply of oil did not occur. Apart from oil transportation route, Syria does not produce and export oil to the rest of the world. In all sincerity, the predicted evil days never materialized but the expectations of those times helped to push prices of oil and gas at the pump even higher.

The question is, why? In another place, I suggested that oil is the only commodity that has the power of spreading its price effects throughout the economy at the same time. No other commodity has that type of influence on our economy and the economy of the world. If that is true, the question then is why do we treat it in the same manner we treat other commodities with less simultaneous pronounced effect on both domestic and global economy?

After several suggestions from this author and others to the Commodity Futures Trade Commission (CFTC) to put some limit on how oil is traded, they appear not to respond positively. The suggestions were based on the results of research on the effects of oil speculation on distinct variables in our economy.

The fact is that as long as gas prices remain high, no amount of stimulus policy will revive or improve the job market. Those who do not have the access to make money from rising oil prices will be spending what little they have to buy gas to get to work and will have much less to buy the products workers are producing. As long as inventory remains on the shelf, no one will hire workers to produce more, thus a stagnating labor market and constant bickering by lawmakers on how to create jobs and grow the economy. You create jobs the moment you reduce gas prices at the pump. People will have more disposable income to spend on purchases of goods and services, thus igniting the need for workers to produce more. Unfortunately, higher prices in stores, which reflect the higher cost of distribution due mainly to higher gas prices, still tend to dampen the ability of consumers to purchase goods and services.

It is very clear to me that many people know what needs to be done right now to correct the situation but they are holding on to some political and profit expediency. Should anyone want to do these things when the very livelihood of those he/she cares about is at stake?

What is puzzling about the whole picture is that the ones who are supposed to work to ease the situation for the rest of society are not paying attention or they are playing games with the lives and welfare of those who don't understand and would not mind supporting them in their continuous drive in pursuit of ideological differences. The ignorance of the people to what is happening is mind-numbing and pitiful. At times, the transaction cost of pursuing a cause to change their circumstances is very high that the public decides to pretend ignorant, the rational ignorance syndrome.

There is every reason for me to believe that we are not all ignorant of what is going on. If you are one of those who understand the capricious nature of our circumstances, what do you suggest should be done to call attention of the elite to the plight of the middle class and the poor and force them to take immediate action to reduce this madness at inordinate ambition of the well-placed of society? It seems unreasonable to continue to produce and sell more gas-efficient cars or produce other types of fuels and pretend that the behavior is not having any impact in the marketplace for gas or that the construction of fast railroads in China and elsewhere is not reducing the consumption of gas and having a dampening effect on its price.
The rest of the world, especially Europe, is having more economic upheaval because they even pay more for oil and gas than we do here in the U.S. and also because they do not import as much cheaper goods and services as in the U.S. to dampen the inflationary pressures these oil speculatory behaviors create.

Elsewhere, in my discussion on quantitative easing, I pointed out that the purchasing of billions of dollars of government securities, even though it is meant to "release money into the economy," is not going to get us out of the growth dilemma in which we find ourselves and it is mostly unsustainable. That money is not going into the hands of the middle and lower income Americans who would spend it to purchase the goods and services that will spur job creation and employment. Increases in gas prices go to reduce consumers' disposable income, purchases of goods and services, gross domestic product, and lead to higher unemployment.

Efforts must be made to address the problem of rising gas prices. Some months back, there was a move to shut down some oil refineries across the eastern coast. I was wondering why the process should be allowed at a time when we needed and still need refineries to produce more gas to lead to its price reduction. It seems that refined oil is getting concentrated in fewer hands which can collusively, it appears, manipulate prices for greater profits. There should be a study to determine if, in fact, that is the case but intuitively, it seems obvious.

Again, the situation would fail to be a serious problem if the increases in gas prices are totally warranted. Many have pointed out that we really do not have shortage of oil. Furthermore, a lot of the money being used to purchase securities from financial institutions and others is finding its way into oil market where it does nothing but push up oil prices, which translates to higher gas prices at the pump. Reversing that trend is something that should be of primary importance.