There seems to be a lot of confusion about why gas and drug prices are so high. I am not an economist, but I think I understand why.
Back when I started driving, I recall gas was priced as low as 25 cents per gallon. This was back in the once-great state of Florida. Thankfully, that is about what I could afford on my $1 per hour salary.
In the 1970’s we were importing much of our oil from OPEC. They figured out that if they cut production and sales to the West, there would be a big supply problem, and increased demand. Prices shot up.
Sometime later our domestic oil production expanded, and prices were no longer determined by foreign sources. Unfortunately, the pandemic happened and driving was curtailed. Domestic oil production plummeted. So did the price, with some oil producers having to pay someone to take it off their hands. Many oil producers went bankrupt. Supply adjusted to the demand.
Then the pandemic retreated, and demand soared. But there were not enough domestic producers, so prices soared. And then Vladimir Putin invaded Ukraine, and world supply fell. Prices soared to today’s levels. It was not Donald Trump’s fault when prices fell, nor Joe Biden’s fault when they rose. Supply and demand ruled the day.
There are factors at play that make the problem worse. In California, no new refineries have been built since the 1970s. Oil companies have figured out how to make obscene profits by keeping the supply just a bit above demand, then shutting down the refinery “for maintenance,” keeping prices about $2 above the rest of America. Politicians get lots of cash from Big Oil, so there is nobody to rescue the consumer. Gasoline is priced almost $2 less in states like Arizona and Nevada that do not have refineries at all, and get most of their gasoline from California.
The solution is to get demand lower. Lower pricing will follow, until Big Oil figures out how to keep supply in check. Do not count on your elected representatives to help. Get a bicycle.
My next letter will explain why drug pricing is outrageous.
Thomas Oatway
Valencia
