Articles are available for reprint as long as the author is acknowledged: Domenick J. Maglio Ph.D.

Wednesday, August 02, 2006

The Supply and Demand Hoax

Someone sneezes in Crete or North Korea shoots off a missile that self-destructs in 45 seconds or China increases its imports of building material: the inevitable result is the skyrocketing price of crude oil.

The price of gas steadily increases although it rarely goes down. Straight-faced politicians tell us it is simply a result of the “Law of Supply and Demand”. In 2006 this reasoning is a pathetic attempt at placating us while anyone connected with the oil industry rakes in the dollars.

In an ideal world, according to Adam Smith, as the supply of a commodity goes up, the price comes down to attract more buyers and as the supply goes down the price goes up. As individuals realize the great potential for making a profit they are motivated to increase the supply. This greater supply causes the price to go down. These are the forces of supply and demand.

Our economy has progressively moved away from allowing these free market forces to operate. We are living in a regulated world. The modern oil market is anything but free. It is not being shaped by competitive forces. It is being manipulated.

The following are blatant examples of interference with the laws of supply and demand. Our government has been hijacked by special interests ranging from speculators, to environmentalists, oil producing nations and politicians. This has created an oil policy that does not serve the general public but does serve the special interests and the politicians who are trying to be re-elected These self-serving influences are anything but free in shaping the market. The result has been the following:

Denying the opportunity to explore for oil.

Limiting the number of refineries that has remained constant for the past 30 years.

Arbitrarily creating the need for all kinds of artificial blends of oil. This has made the process more complex and more expensive.

Dictating the amount of oil pumped internationally through a cartel of producers (OPEC) for their perceived national interests.

Speculating is done through a circus like process to increase the price of oil. By buying up all the available oil groups of investors essentially corner the market. This allows them to set the price. They have a vested interest in emphasizing every negative event worldwide and ignoring positive ones to insure a substantial profit.

The following is a comprehensive plan to unleash the forces of the free market by reversing the power of the government, OPEC and environmentalists.

Government should not only allow but encourage the drilling for oil in Anwar and offshore USA. This will increase our supply of oil. It is lunacy to have Cuba drill for oil in association with China just miles from Key West while American entrepreneurs are unable to tap these resources. The environmentalists were stunned into silence when there were no catastrophic oil spills affecting coastal areas associated with off-shore drilling during the violent hurricanes of the past several years

All forms of energy conservation and new sources of energy should be made a priority. Solar, nuclear and wind power should be encouraged through tax breaks especially when less technologically advanced countries such as Turkey and Greece currently have extensive solar and wind power programs.

Laws restricting the building of refineries should be removed. Instead tax incentives should be used to motivate entrepreneurs to begin construction. This will prevent oil companies from making exurbanite profit margins

Fuel blends should have a minimal national standard. Any state that wants to up their standard and the price could do this on a state-by-state basis. Environmentalists can pay higher prices for whatever blend they choose.

These steps should be taken to increase the supply as well as decrease the demand for oil. This will quiet the whining of political hacks that are disguising nonsensical failed policy behind the mask of false economic law.

As Americans we pride ourselves on our freedom to do business while keeping the government’s sticky fingers out of our pockets. Our strong opposition from both the right and left of the political spectrum to the eminent domain Supreme Court decision put all segments of governments: local, state and federal, on notice to back off from destroying our right to private property. Our reaction was loud and clear.

We need to do the same with these ridiculous laws governing our energy policy. We need to raise our voices to pressure our government to unleash the forces of competition.

We have been free too long and are too sophisticated to swallow the hogwash fed to us by our leaders. Our current politicians in their pandering to special interest groups to get re-elected seem to have forgotten the interest of the people and the good of the country.



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