The invisible hand. Seriously.

The straw has finally broken the camel's back. I have seen the one forwarded email about gas prices that is just one too many. (Really Mom, I'm not picking on you, just whoever started that silly forward you sent me, and the gazillions of others I've seen in the last year).

It's called supply and demand, people. The reason gas costs $3.50 per gallon is not because of a government conspiracy. It's not because the Middle-Eastern oil countries are gouging us to pay for expensive, man-made, middle-of-the-desert indoor ski resorts. It's not because the oil companies are price gouging. It's plain and simple, supply and demand. Gas is $3.50 per gallon because you, me and every other one of the ever-increasing car-driving, foreign-made-good-buying population of this world will pay it. That is all.

Yeah, I know people freaked out when gas first went above $.40. I was a little upset when gas first went above a dollar. But guess what? The number of oil-consuming people in the world has more than tripled since then. Oil is not an unlimited resource folks. Economics is the science concerning the production, distribution and consumption of goods and services. Economics deals with the idea of scarcity and resources. That's all. It's not magic, and it's not a conspiracy.

Lets talk about this for a minute. If I have a good or resource and I want to get rid of it, I have a few options. I can give it away for free, in which case I now have nothing. I can keep it forever, in which case I still have it. Or I can trade it for something else, in which case I now have something else that I wanted more than what I originally had. Very simple still. Giving it away and keeping it are uninteresting problems, so lets talk about trading it. First, we'll talk about opportunity cost. Opportunity cost is the cost of the next best alternative. Only. If I buy a pink sugar cookie instead of a Krispy Kreme doughnut, or a Milky-Way bar, or an apple, the cost associated with the pink sugar cookie is not giving up all three alternatives, only the alternative that I would have chosen otherwise. Anything other than the best alternative is nothing. So, going back to my problem, in which I have a resource and I think I want to trade it for something else, the main question involved is not, "How much can I get for this?" but, given that the opportunity cost is now either keeping it or trading it, "For what am I willing to part with this?".

Very subtle difference, but key to our issue of complaining about gas prices. If there is one person in the world that has something I'm willing to trade for my resource, my asking price is limited by him asking himself the same question. If I want what he has enough to no longer have my resource, and he feels the same, we can trade. If not, one or the other of us will have to sweeten the deal a little. However, if there are 2 billion people who all want what I have, now the idea of opportunity cost is very important. If I have a pink sugar cookie (something I obviously place more than $.75 value on) and someone comes to me with a Snickers bar that cost them $.75, they will have to keep looking, since I value a Snickers bar at about $.10. If I have that same cookie, and someone comes to me with a dozen hot, fresh Krispy Kremes, I will be the glad, (temporary) owner of a very happy, very satisfied full stomach, and I will hope they enjoy their new cookie. The opportunity cost of trading with the guy with the KKs is the cost of keeping my cookie, which up to this point was the "best" alternative. It was NOT the cost of a Snickers bar, since I don't want the Snickers bar. However, if the next guy in line is willing (for whatever reason) to trade me a Ducati for my pink sugar cookie, the opportunity cost of owning those KKs becomes _much_ higher.

So lets talk about gas. Just like my single pink sugar cookie, gas is a scarce resource. Once the oil field is dry, that's it. So now, I have a limited amount of gas, and 500 million people are willing to pay me $1 per gallon for it. If I charge more, I will sell less and my opportunity cost is obvious. I have surplus gas, and less money. Now, 15 years later, I still have gas (perhaps not as much as before) and 2 billion people are willing to pay me $3 per gallon for it. My opportunity cost for selling at more or less than where my willingness to supply meets their willingness to buy is high on both sides. If I sell for less, I run out because more people will buy more gas. If I sell for more, I don't sell as much and my profits go down. Yet again, plain and simple. On the other side of the transaction I, as one of those 2 billion people who want gas, have to make an opportunity cost-based choice. The cost of buying that gas is very simple: $3 per gallon. The cost of not buying the gas is also fairly simple: I have to walk to school (for reasons other than exercise) or the grocery store. Or I don't get to go to Newport this fall. A trip to Disneyland and beautiful Newport and Laguna beach is a high opportunity cost indeed compared to $3 per gallon for gas. But that's what it boils down to: I want the trip and the memories, or the convenience of taking a car to the grocery store, more than I want the money. So I pay $3 per gallon for gas.

Economics is no mystery. If I am willing to pay for an item, then I get what I paid for. If I am not willing to pay, I keep my money and go without that item. Sure, the money we pay for gas buys man-made ski resorts in the middle of the Arabian desert. But that's only because we want the gas more than we want our money, and they want our money more than they want their gas. Even with the inefficiencies inherent in the concept of the internal combustion engine it would be possible to build vehicles that are much more efficient than the ones you generally see on the road today. But they would be much more expensive than what we currently drive (tolerances would need to be tighter, etc) and we want our money more than we want a car that costs 5x as much, but gets double the mileage and the auto manufacturers want to sell 50 cars at $25000 more than they want to sell 2 cars at $100000.

So please people, stop the madness. The reason gas is $3.50 per gallon is not because somebody is taking advantage of us, or because the auto industry lobbies to prevent research on alternative fuels/technologies, or because the President was unable to "lower fuel costs" (how he would do that himself is a mystery indeed). It is because that TV that came from Japan or Korea cost a lot of money to ship, and we want the TV more than we want our money. It is because we want to travel and see the world more than we want our money. It is because many millions more people would also like to travel, or spend money on goods that we produce. In short, gas is $3.50 per gallon because we are willing to pay $3.50 per gallon for it. So next time you think about forwarding an email blaming the Arabs, or the oil companies, or the president, or the little purple men from Mars for high gas prices, do the world a favor and just delete it.

And now I will step down from the pulpit and get back to my multi-threaded webserver...