Gas Prices...What Can Be Done?

The economics of extracting resources is quite simple and intuitive. If you own property that has oil in the ground, then you have to decide how rapidly you wish to deplete your resource. If prices are low today, and you expect them to be much higher in the future, then you will hold off pumping a lot.

http://www.aei.org/publications/pubID.28383,filter.all/pub_detail.asp

With rising gas prices listed as the number one concern in the upcoming election, voters need to educate themselves about their options for attempting to lower fuel costs. While I personally agree with many Democrats that the U.S. needs to look into alternative fuel sources, that is not a solution to the current problem. The oil is eventually going to run out. At that time, we will need proven alternative methods in practice. For now, however, we should not let planning for the future blind us to our current situation.

The U.S. Department of the Interior claims that there are about 86 billion barrels of recoverable oil in the nation's outer continental shelf. That is roughly ten times our annual consumption of 7.5 billion barrels per year. Democrats argue that oil discoveries can't affect the current high price, because any newly discovered reserves take so long to deliver.

However, a recent study by economists Param Silvapulle and Imad Moosa of Monash University in Australia found strong evidence of what is called bidirectional causality. Future prices and spot prices are inextricably linked. This apparently an already widely known truth among economists, as noted in the quote above, that knowledge of prices in the future will certainly effect actions and prices today. So, while I am happy to learn that most economists understand the probable effects 86 billion barrels of oil will have on the current market, voters seem more then willing to remain blissfully ignorant.