Cause and Effect Analysis
Jamie M. Eubanks
JSU News Bureau
JACKSONVILLE -- May 15, 2001 -- Could gasoline prices reach $3.00 a gallon here in the South? Many price projections say they very well could.
What is the cause of this gasoline panic? Is OPEC, oil refineries, the U.S. government, or environmentalists to blame?
Jacksonville State University Assistant Professor of Economics Christopher Westley won’t point any fingers. But he did offer some possible causes.
“OPEC is a cartel on crude oil,” says Westley. Thus, they are in business to control the oil market. “Had the U.S. government refrained from intervention in the 1970’s, the cartel would have soon diminished.”
However, Congress placed caps on gasoline prices and “they weren’t allowed to rise to the levels dictated by supply and demand conditions.”
Westley says that if left alone, the markets will fix themselves. But this is exactly what Californians don’t want. California’s governor, Gray Davis, is urging President Bush to place caps on prices Californians pay for gasoline.
These prices would then be funneled to the rest of country. In essence, we would actually be footing the bill for California’s gasoline.
California is in such dire need for energy because of its growth in population, poor planning and environmental standards.
“Because of California’s environmental standards, no new refineries have been built,” says Westley. “And all the while its population has been growing rapidly.”
With constant “rolling blackouts” in California, refineries are being shut down. This eventually slows the refining of gasoline and shortens the supply of gasoline to consumers.
“This is not a shortage of gasoline,” says Westley. “A shortage occurs when the market says it is below where it should be -- more demand and less is supplied.” There is not a shortage of oil—it’s just taking longer to refine it. And with the blackouts, this process is that much slower.
This is where the government comes in. “Any government policy made at this time should be to prevent hindrances [such as blackouts] to the refining process,” comments Westley.
As to Bush’s talking down the market, Westley completely disowns the thought of consumer confidence. “If the market was run by consumer confidence, the economy would be as simple as putting on a happy face.”
Could we end up footing California’s gasoline bill? If government intervention ensues, Westley says, we might as well take out our wallets.
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