This holiday season, American consumers have received an unexpected gift.
Mine came this morning when I filled up my car with gas. I paid $2.13 per gallon. This felt like luxury. It seems surprising, implausible, even wonderful. I asked around. Some people are paying even less, even $2. All the pressure is down. Down — despite everything.
Looking at the history, I found the following chart from the U.S. Energy Administration, already a bit out of date — the forecast doesn’t anticipate the extent of the fall– but it shows that gas prices are settling back to 1990’s levels and lower today in real terms than they were 40 years ago. Have a look.
That’s just amazing. Why? If all you followed were the policies and the headlines, you would think prices would be ten times what they are. The low price comes about despite a vast and unrelenting barrage of policies and attempts to raise the price. And it was only some 10 years ago that “peak oil” theorists were explaining to use how oil was running out and prices were going to soar.
The gas price seems to have a mind of its own. People are notoriously ignorant about this fact. They imagine that there must be someone, some powerful cabal, behind the scenes that is setting it.
When prices rise during natural disasters, people assume that there is someone acting to take advantage of the situation by boosting the price. Gas-station owners are routinely hauled before legislatures to testify.
The populist opinion about this matter is cringe worthy, but so is a large part of educated opinion. The common knowledge many people think they know is unaware of the great truth about global market pricing. No one in particular is in control of it. It is formed by the countervailing forces of supply and demand and is set by the nonstop testing of millions and billions of consumption decisions, trades, and speculations. The price is the culmination of countless factors at work. It is evidence of an emergent not designed order.
If the market price were a person, he or she would be the wisest, most clever, most powerful person on the planet, causing the multitudes, even the ruling class with enough weaponry to destroy the planet, to submit and bow down in awe. The simple and unassuming price — so humble and yet so decisive for human decision making — is this concise point of data, a mere number, that actually causes nations to rise and fall, topples the mighty from their perches of power, and humbles the arrogant and pretentious with its truth-telling, rational, and yet unpredictable movements.
Those who want to rule the world fear the market price for this reason, but the rest of us experience it as a gentle force that grounds our daily life in reality in the midst of artificiality, pomp, and phoniness. The powerful can shake their fists at it, the codified intellectual class may curse it, and the ordained moralists can denounce it, but no one can make it obey the dictates of those who purport to stand above it, much less make it go away.
The market price is our salvation from the despotism of those who would rule us. The price of gas is a beautiful example. And who benefits in the end? You and I. All the activities of the market are ultimately directed toward pleasing the consumers.
Think for a moment of all powerful interests in the world that have pushed for higher gas prices and yet keep seeing their ambitions frustrated by a reality they despise.
The environmentalists are desperate for higher prices because they are against driving and internal combustion generally, which they believe causes terrible things to happen to the planet. They want us cycling around on bicycles as in Mao’s China or riding mass transit or slogging from place to place on foot. They’ve been hectoring us about this for decades. A high price for gas is the best way to bring about their dream to raise prices and discourage consumption. They cringe with every penny drop. “Fracking” is their F-bomb.
The oil industry itself is similarly happy with higher prices because that brings higher profits and funds more drilling, production, and exploration. When the oil industry was closest to the presidency, under the Bush years in the father and son presidencies, they worked to keep the prices and production high. Even war for oil became part of this strategy.
Some of the world’s richest and most powerful states, from Saudi Arabia to Russia to Iran to the United Arab Emirates, consider high oil prices to be their lifeblood. A U.S. gas price that is double or triple the current one could mint a slew of new billionaires.
And in the U.S., many states and localities depend on oil for the entire revenue stream. Politicians in places like Alaska, Texas, and Louisiana are actually freaking out about this price trend. If they could fix it, they would.
Then there are the urban planners — not to speak of legions of intellectuals — who want prices to soar to punish all us drivers and instead use their subways, buses, and taxi monopolies. That we keep insisting on sitting in our comfy seats and driving these machines around makes them all crazy. A low price of gas only encourages us to do more of what we love and what they hate.
It’s been a huge priority for government generally to subsidize alternative energies that don’t depend on fossil fuels. So long as gas remains affordable, alternative fuels will not get the boost that regulators want them to get.
Then there are the central bankers run by people who are somehow convinced that a falling price of gas is a bad omen of generalized deflationary trends. For five years, they’ve fought relentlessly against deflation, but there is a crucial thing they can’t control: the rate at which people themselves spend and borrow. That’s been the rub. It’s because consumers haven’t cooperated that the Fed has not achieved its aims.
For now, Janet Yellen is calming people down by saying she is not worried about the falling price of oil. In a press conference, she actually made some sense. “It’s something that is certainly good for families, for households,” she said. “It’s putting more money in their pockets, having to spend less on gas and energy, and so in that sense it’s like a tax cut that boosts their spending power.”
Then again, she is there to put a happy face on all things these days. Meanwhile, economists swirling in the Fed space are freaking out. They observe that recessions over the last 25 years have correlated closely with a falling oil price (and they thereby mix up cause and effect by looking at the data alone). “That 800 pound gorilla known as oil?… The Fed will have to address it. It needs to be proactive,” former Atlanta Fed director Dorothy Weaver told the Wall Street Journal.
But address it how? If boosting the monetary base by $3 trillion over 5 years couldn’t engineer a consumer-price inflation, it’s hard to imagine what tools the Fed has left to push the price of oil one direction or another.
In fact, if prices could truly be controlled by government and special interests, the gas price would be the model case. What we see is the opposite: the forces of globalization, production competition (cartels have been impossible to maintain), technological improvements like fracking, and the unstoppable invisible hand have prevailed.
Take comfort from the gasoline price. It is an indicator that the powerful aren’t really what they believe they are. Decentralized markets always in the long run outpace and outwit the ability of elites to manipulate them.