"WHY ARE PRICES SO HIGH? Before using the guns of the federal government to try to force them down, people ought to first consider why it is that gasoline prices are so high. The usual explanation - "The oil companies are greedy and want to screw over the hapless drivers!" - makes no sense. After all, oil companies were greedy during the whole 1980s, when the price of a barrel collapsed to under $11 (in nominal terms) in July 1986. And automobiles weren't invented in the last three years, so it's not as if the US "addiction" is something new.
The general causes for high oil prices are pretty straightforward: Supply is restricted because of the mess in the Middle East (not to mention environmental and other regulations), while demand is booming as China and other developing countries grow much more quickly than people had anticipated years ago (when oil infrastructure decisions were made). On top of these "real" factors, the general uncertainty about the Middle East - especially the possibility of war with Iran - has caused speculators to push up the price even higher. Now high oil prices explain gasoline prices in part; if oranges are really expensive, you can bet that orange juice won't be cheap. But what is particularly strange is that oil prices are actually a lot lower than they were just last July ($64 and change as of this writing, compared to highs of $78 in July), yet prices at the pump are at all time (inflation-adjusted) highs. The immediate answer is that refineries can't keep up. (If there were a major strike at Tropicana packaging plants, then the price of orange juice would be higher still, than would be justified by higher orange prices.) There are all sorts of reasons people have given, such as the lingering effects of Katrina, new environmental regulations about diesel fuel, restrictions on new refinery construction, and so on." http://www.mises.org/story/2598 [Non-text portions of this message have been removed]
