Heavy Lifting - thoughts and web finds by an economist
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Friday, August 31, 2007
There might be a conspiracy to increase gasoline prices in the short-run, but this FTC report suggests that it isn't likely.
Market factors explain increases in the national average retail price for gasoline during the spring and summer of 2006, according to a report sent to the President today by the Federal Trade Commission and the U.S. Department of Justice’s Antitrust Division.
Admittedly, record profits did not help quell the suspicions of many that there must have been a conspiracy afoot. In the end, it looks like there was a perfect storm of changes in regulation (MTBE to ethanol, Clean Air Act of 1990, etc.), demand increases, post-Katrina/Rita delayed maintenance and the transition to ultra low-sulfur diesel.
The upshot is that clean air mandates, which aim to provide a public good called "clean air," are not free. Either we have cheap fuel and we get potentially contaminated ground water (via MTBE leakages) and less clean air, or we get cleaner air and water but pay more at the pump, at least in the short run.
I recently heard some petroleum expert on the radio suggest that we likely would not see $3.00 per gallon gasoline in perhaps five years. Given what the FTC reports, I might be more prone to believe that prediction, assuming no further shocks to the U.S. or world economies.
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