Gas Prices Soaring, Politicians Warring.

Gas prices are soaring. New Jersey has one of the lowest prices in the nation and it was around $3.59 a couple of days ago. On the same day, just across the state border, it was $4.29 in Rockland County, NY and the price shown in the above Chicago Tribune picture in Downtown Chicago. Obviously, nobody is happy about it. Every congressman is trying hard to put the blame on someone else, whether it is Bush administration's foreign policy or record profits by oil companies. But what people want to know is where this ends.

Some of the solutions that are floating around are suspending federal gas tax, enforcing higher fuel efficiency standards and forcing the oil companies to let go of their profits. I can dissect one by one to show how each one of these measures will not put a dent on the current scenario.

Suspending or repealing the federal gas tax could save about 20 cents per gallon to the consumers. Sen. John McCain has been promoting this idea. This would only lead to about $10 savings per month for the consumers where as it would deny billions of dollars from the federal infrastructure programs. There is also a chance of the gas station owners and the oil companies will readjust the prices so that the savings may not go into the wallets of the public. Well, this is not a chance, we've seen it happening in Illinois before.

Enforcing higher fuel efficiency standards is an idea supported by the white house hopeful Sen. Barack Obama. At first glance, it looks like a pretty sound idea. But in reality, it would not work the way it is envisioned. A classic example would be story behind Chrysler PT Cruiser. The car is designed in such a way that it would be classified as a truck by NHTSA for CAFE fuel economy calculations. This enabled the company to lower the fuel economy of its light truck fleet into compliance with CAFE standards. If there is anyone out there who can challenge it when I say that it is a small car, come forward. This is just an example that shows a way by which companies circumvent the Corporate Average Fuel Economy regulations. It is very clear that the regulations cannot improve fuel efficiency. Free market can. There is no better incentive for the manufacturers to improve fuel efficiency than a $5 per gallon gas price. We see that happening now. Look at how Chrysler is doing in terms of sales. Look at the Japanese companies with their smaller fuel efficient cars. You get the idea.

Another idea that Sen. Barack Obama has been promoting is enforcing windfall taxes on oil companies. He talks about record profits by Exxon Mobil of the order of $10 Billion. What he fails to bring into perspective is that Exxon Mobil made a profit of $10 Billion on an operating revenue of over $100 Billion. This is not a windfall. This is definitely not cut-throat profit. Earning 10% profit is the least that the investors can ask for from any company. Would Sen. Dick Durbin invest in a company that does not make at least some meagre profit? Go check out the share prices and the revenues and profits of different companies, oil companies or others and figure out by yourselves.

Now look at gas prices around the world: UK- $5.64, Hong Kong- $5.62 , Germany- $5.29, Italy- $4.86, Portugal- $4.80. Let us examine how these countries fare in terms of median household income. Well, most of them are behind the United states in this aspect. While I am at it, I should make one smaller point. In the UK, everything is more expensive, not just gas prices, than the in the United States and at the same time, people earn less. This has been the way things have been for a long time. There must be some way that the people in Europe got away with a higher cost of living.

One thing that we can be certain of is that the cheap gas prices of 90s are never coming back. These high prices would make the consumers reduce consumption voluntarily. The market will work if we let it. High prices would encourage conservation better than any environmental regulations. Entrepreneurs would race to develop viable alternate fuels if gas prices rose too much. However, the alternative sources have to be proven their viability in the free market for long term sustainability. Government subsidies won't cut it. Any source that is truly cheaper and cleaner and still viable would survive. Government does not need to support it. These high gas prices would make many of these sources more viable and this could help us in the long term by weaning us off our dependency of oil from the Middle East. We would definitely love to see us stop funding both sides of the war on terror.

Secondly, drill more in Alaska and Gulf Coast. This the only country in the world that denies its citizens access to known recoverable oil resources in the country. A blind opposition on more drilling is a terrible mistake that the democrats are making. Allowing offshore drilling, eliminating regulations that restrict refining, and suspending harmful tax rules that discourage domestic oil production would go a long way in helping reduce the gas prices. If you are concerned about the environment, you can create some basic guidelines to protect it. I am sure the drilling techniques have evolved in a long way in the last two decades so as to minimize the effect on the environment. People who blindly oppose any drilling are acting like they are oblivious of this fact.

In essence, if we hope to have a stable, affordable supply of gas, we must allow the free market to operate. The government can do certain things. But mainly, it should let the free market operate itself out of this situation. From a national security point of view, this is the time for America to innovate, conserve and adjust itself in many ways so that we do not have to vent all of our money to the states like the Venezuela and the ones in Middle East that definitely do not have America's prosperity and security as their first priority. The blame game must cease.

Check out the claims.

http://money.cnn.com/pf/features/lists/global_gasprices/price.html

http://en.wikipedia.org/wiki/Median_household_income