Gun shortage shows future of Obamacare

The news that the threat of new restrictions on the Second Amendment has spurred a sharp increase in the number of Americans seeking to buy guns should not come as a surprise to people who consider the incentives created by the actions of government. In many ways, the run on guns reported last week by Examiner can shed light on what can be expected as the reforms of the Affordable Care Act go into effect.

In economic terms, the run on guns is the result of an artificial increase in demand. This is driven by the threat of interrupting the supply of guns, particularly assault weapons like the AR-15. People who think that they might want to own an assault rifle are buying one now, while they are still legal, rather than waiting.

The effect of this increased demand is two-fold. Some retailers, like the pawn shop in Cartersville, increase the price of their AR-15s to react to the increased demand. As the price of the guns increased, more and more buyers found themselves priced out of the market. Eventually the price and level of demand would find equilibrium, where the number of guns and the number of buyers would be equal.

Other stores, like Atlanta’s Bass Pro Shop and the Barnes Store in Carrollton, that did not increase their prices to reflect the new levels of demand, found that their stock of the guns was quickly depleted, leading to a shortage. The price that they charged was based on the old, lower level of demand so there were too many buyers for the supply of guns.

The lessons on supply and demand learned from the increased demand for guns apply directly to the changes that are forthcoming in the market for healthcare. When the Affordable Care Act goes into full effect next year, the Congressional Budget Office estimates that there will be an additional 14 million Americans who become covered by health insurance. This represents a massive increase in the demand for health care services. This will be a permanent increase in demand rather than a temporary one as with the gun buyers.

The assumption made by the architects of the Affordable Care Act was that most of America’s uninsured were young people who chose not to purchase insurance because they were healthy. It was believed that these young people would purchase health insurance policies to comply with the law, but then not use them. In effect, the young and healthy were being forced to purchase insurance to subsidize the older and sicker people.

The assumption that new insureds will not use their insurance is probably not a good one. The Kaiser Foundation estimates that by 2016 the average annual premium for an individual health insurance policy would be approximately $5,000. For a family, the average premium would be $12,500. The national average salary is $42,979 according to the Social Security Administration. This means that 11 percent of the average individual’s salary will go to pay for health insurance. If the worker is the single breadwinner supporting a family, health insurance costs will eat up nearly 30 percent of his income. (In some cases, these insurance premiums will be paid in part by government subsidies. The Kaiser Foundation offers a calculator to estimate premiums and subsidies here.) It seems likely that if a person is forced to spend thousands of dollars each year for insurance, they will use it as much as possible. They will avail themselves of the preventive care services in their plans and go to the doctor for each sniffle, cough, sneeze and stubbed toe. This will translate into almost immediate shortage of doctors.

The dramatic increase in demand for health care services will disturb the equilibrium in the market. In a free market, the increase in demand would lead to an increase in prices. In the real world, health care is not a free market. Prices are already somewhat controlled by the government, through reimbursements for Medicare, Medicaid and Social Security, and by insurance companies with negotiated rates.

There are several possible responses to the increased demand. The most obvious would be to increase the number of doctors to match the new demand. The problem is that doctors take years to train. Medical school takes four years after obtaining an undergraduate degree. After medical school, new doctors do a one year internship, followed by four to six years of residency, depending on their area of specialization. Essentially, it takes a decade to fully train a doctor, not counting the undergraduate degree. Even if we start training multitudes of new doctors now, they will not fully enter the system for another ten years. To cut the training time short would sacrifice the quality of the education and the depth of experience.

A second possibility would be to allow doctors to raise their prices. As with the AR-15s in the pawn shop, when prices rise, more buyers find that they don’t really need that product after all and demand falls. To some extent, insurance companies are trying to control the cost of health care by using increased cost sharing already. Many health policies are moving away from flat copayments to a model where the insured pays a percentage of the cost of their care. In theory, this means that the insured will shop for better prices and use less care. In reality, few people know how much their care will cost until they have already received it.

The problem with letting prices increase is that one of the stated goals of the Affordable Care Act was to reduce the cost of health care (or to at least slow its rate of increase). Higher prices are certain to be unpopular with voters as well as politicians. Prices are already starting to rise because of new coverage mandates and community rating according to a study by the American Academy of Actuaries detailed in Forbes.

The other alternative is for the government to impose price controls. The effect of price controls can be seen in the gun retailers who maintained the price of their AR-15s below the actual market rate. High demand means that there are not enough guns, or health care, to go around. Doctors will not accept new patients. Existing patients may not be able to get an appointment when they need one. Waiting rooms will overflow and wait times will be long. Patients who are truly sick might not be able to see a doctor when they really need one.

Think this can’t happen? It already has.

Because government reimbursement rates for Medicare patients are below market rates, there is already a shortage of doctors for Medicare patients. The Atlanta Journal reported last year that many Georgia retirees are unable to find a doctor who will accept Medicare. The problem is not limited to Georgia, however. According to the New York Times, many doctors around the country no longer accept Medicare. The Times notes that there are already thousands fewer doctors than needed and that the problem will be compounded by the new health law and retiring Baby Boomers.

Massachusetts, where Romneycare served as the prototype for Obamacare, is also suffering a severe shortage of many types of doctors. The Associated Press reports that seven of 18 medical specialties were in critical or severe shortages in 2012. These include shortages of basic specialties such as family medicine, internal medicine and general surgery. Predictably, this means that patients in Massachusetts have long wait times. According to Boston.com, only half of Massachusetts primary care physicians are accepting new patients. Once a patient finally locates a doctor who will see them, the average wait is 45 days for an appointment. In spite of the subsidies in place under the law, half of the respondents still say that affordability is still the most important health care issue.

The problems with government controlled health care are not limited to Medicare and Romneycare. As Examiner reported last year, shortages of health care are common in countries where health care is run by the government. In Canada, the Montreal Gazette reported in 2012 that wait times for cervical, breast and ovarian cancer surgery is three times longer than government bench marks. This is a death sentence for many cancer patients. In England, the Independent reported in 2011 that the National Health Service is openly rationing many types of health care. In 2008, the Daily Mail described how patients were left in ambulances for up to five hours so that hospitals could meet government targets for timely care. One of the most horrifying examples of government health care run amok comes from the Netherlands where CNN reported in 2004 that health officials were working with doctors to create guidelines to kill people with “no free will” including children, the mentally retarded and people in comas. In 2012, Wesley Smith, senior fellow of the Discovery Institute, estimated in the Daily Caller that as many as six percent of Dutch deaths involving end of life career involved doctors intentionally killing their patients.

Around the world, government control of health care costs lives when people are unable to get the medical care that they need in a timely manner. It seems that no government and no commodity, whether it is health care or guns, is immune to the economic laws of supply and demand.

Originally published on Examiner:
http://www.examiner.com/article/gun-shortage-shows-future-of-health-care-under-obamacare?cid=db_articles

Delta refinery may mean competitive advantage

In a move that is the first of its kind for an airline, Atlanta-based Delta Air Lines is buying its own refinery in an effort to control fuel costs. Along with labor and aircraft, jet fuel is one the highest cost factors for airlines. High fuel costs over the past few months have put pressure on airline profits and led to reduced schedules and higher fares.

The refinery purchased by Delta is outside Philadelphia and was previously owned by Phillips 66 according to the Atlanta Business Chronicle. A subsidiary of Delta, Monroe Energy LLC, will pay $150 million for the plant and then spend another $100 million for retooling to maximize production of jet fuel. Delta expects production to start in the third quarter of 2012 and forecasts a savings of $100 million this year and $300 million per year thereafter. This means that the investment could pay for itself in less than two years. According to the Wall St. Journal, the deal will supply 80 percent of Delta’s fuel needs in the United States. The refinery had been slated to close if no buyer was found.

The purchase of the refinery is no panacea for fuel costs. A major factor in the cost of fuel is the cost of crude oil. This price is largely fixed by OPEC and varies with changes in demand, interruptions in supply, and international tensions. Delta will still have to purchase oil at market prices to refine. The Wall St. Journal notes that Delta has contracted with BP to provide oil for the refinery for three years.

The company may also find problems with distribution of the jet fuel once it is produced since Delta needs fuel at airports around the country. If the fuel is produced in Philadelphia, it must be transported to where the airplanes are, notably to Delta’s hubs in Atlanta, New York, Cincinnati, Minneapolis, Detroit, Memphis and Salt Lake City.

A partial solution to this problem lies in Delta’s deal with BP. When oil is refined, it produces a variety of fuels, not one specific type. Even though Delta is primarily interested in jet fuel, its refinery will also produce other fuels such as gasoline. The Wall St. Journal notes that Delta has agreed to trade these by-products to BP in exchange for jet fuel at other locations. This eliminates the need to transport at least a portion of the jet fuel across the country.

The purchase makes sense from a standpoint of controlling costs, but there are risks as well. Delta has no experience in the oil industry. Running a refinery is radically different from running an airline. However, as noted in the Wall St. Journal, Delta spent $11.7 billion on fuel in 2011. The $150 million purchase represents less than two percent of that total. Given the estimated savings of $300 million per year, the risk is an attractive one.

Cheaper jet fuel may change the economics of many routes that Delta flies. Smaller destinations may become more profitable under the new cost structure. Destinations that saw flights reduced or eliminated as fuel prices rose may see a return of Delta service. Delta’s competitive advantage in fuel costs may translate to lower fares on some routes.

If the move works, other airlines are likely to follow suit in purchasing their own refineries. Delta might even consider additional purchases in other parts of the world given the airline’s role as a major international carrier. Fuel costs are even more expensive in other countries due to higher taxes and labor costs so the potential savings could be even more attractive.

An additional factor for consumers is the question of the impact of the conversion of the Philadelphia refinery on gasoline prices. In the past few months, refinery closures have caused increases in the price of gasoline, sending the price at the pump near its 2008 highs. As the Philadelphia facility retools to produce more jet fuel, it will necessarily produce less gasoline. This may lead to an increase in the price of gas for drivers.

 

Read this article on Examiner.com:

http://www.examiner.com/article/refinery-may-give-delta-air-lines-competitve-advantage

Rising fuel costs may hurt airlines

The airline industry is one of the segments of the economy that is most vulnerable to steadily climbing oil prices. Fuel is a large part of the cost of running an airline and when fuel prices increase it cuts into an already thin profit margin. When fuel prices spiked in 2008, CBS News reported that for every $1 per gallon that the price of jet fuel increased, it cost each airline an extra $60 million per year.

Airlines coped with higher fuel costs in several ways. To passengers, the most obvious methods were fuel surcharges on tickets and adding fees for baggage. The companies also grounded older, less fuel-efficient airplanes, changed schedules to drop less profitable routes, and furloughed (laid off) employees as the demand for air travel decreased. Four years later, fuel costs are once again approaching 2008 levels.

Although the airlines were starting to finally recover following the 2008 oil shock and subsequent recession, it is likely that the current increase in oil prices will blunt the airline recovery. As oil prices increase, so will the price of tickets. Basic economic theory teaches that as prices increase, demand will decrease and the airlines will sell fewer tickets.

The price of tickets is not the only problem however. Rising oil prices also mean that other goods and services will cost more as well. If people are paying more to fill their car with gas, as well as more for food, energy, and practically everything else then they will obviously have less money to spend on airline travel. The same logic applies to business travel as well. If the business is paying more for other budget items, there will be less money to send employees on business trips. In many cases, new technology such as online meetings and teleconferencing can take the place of face-to-face meetings.

A Raymond James analyst told FlightGlobal .com that 2012 could be a good year for the airlines if they focus on profitability at the expense of market share. In essence, carriers would keep capacity low and focus on profitable routes while maintaining maximum efficiency. This means slow or no growth for most companies with hiring mainly to replace attrition.

How bad the situation will be for the airlines is directly related to how high the price of oil goes. If the price of oil stays below or near its 2008 high, then the effect on the airlines will be minimal since bankruptcies and cost cutting have already made them much more efficient that they were previously.

However, as the Atlanta Conservative Examiner notes, if the Iranian nuclear crisis results in a military strike or war then the price of oil could double or more. This would be catastrophic both for the airlines as well as the economy at large. In that case, the outlook for both airline profits and hiring would be extremely poor.

This article originally published on Examiner.com:

http://www.examiner.com/aviation-in-national/rising-fuel-costs-may-hurt-airlines

The Economics of Oil Prices

This past weekend oil prices shot to near-record highs again after several months of decline. While on a weekend trip to visit the grandparents, we were unpleasantly surprised to see gas prices climbing as quickly as the gas station attendants could change their signs. Even at high prices, many stations were selling completely out of gasoline.

To understand the reason for the fluctuations, we must first see the big picture. Oil prices have been increasing over the last few years for a number of reasons. More demand is one of the most important factors. The United States has been using more oil every year. The demand of other countries is increasing as well. China and India are both becoming industrialized nations. As they industrialize, they use vastly more oil than they did in the past.

Additionally, much of the easily tapped oil has already been drilled. Oil fields are increasingly difficult and expensive to tap. Even nations like Saudi Arabia have already pumped much of their easily accessible reserves. New oil fields are often found far out to sea or in very inhospitable areas, such as the arctic. There are new sources of oil, such as Colorado’s oil shale, but many of these are also more expensive to produce. Many oil-rich areas are also politically unstable, which makes the supply of oil uncertain.

Furthermore, oil prices have also been affected by the weak US dollar over the last few years. When the dollar is weak relative to other currencies, it takes more dollars to pay for the same barrel of oil.

Over the summer, oil prices have been driven down by several factors. First, high oil prices did what global warming alarmists were unable to accomplish: They persuaded people around the world to use less oil. Oil demand declined in the first half of 2008 and is forecast to continue falling in 2009.

Basic economic theory is that as prices rise, demand will fall. This has been true in other oil spikes as well. When oil prices increased sharply in the 1970s and 1980s, they led to economic slowdowns, which, in turn, caused the price of oil to drop. In the 1980s, the price of oil not only dropped, it collapsed and didn’t recover for about twenty years.

The dollar also gained over the summer of 2008. As the dollar grew stronger, the relative price of oil decreased. As the dollar increased in its value, it took fewer dollars to buy each barrel of oil.

A final factor in the oil price decline was President Bush’s decision to repeal the presidential ban on offshore oil drilling in mid-July 2008. Conservative estimates are that there are at least 18 billion barrels of oil off the coasts of the United States that are currently off limits to oil companies. Drilling will still not be allowed unless the congressional ban is allowed to expire, but President Bush sent a clear message to oil producers that the supply of oil might increase dramatically in the next few years. The effect was an almost immediate decline in the price of oil.

Many people place the blame for high oil prices squarely at the feet of the oil companies. While the oil companies once had the ability to set prices, that is no longer true. Most producing countries nationalized their oil fields and facilities in the 1960s and 1970s. They then formed OPEC, a cartel tasked with organizing oil production and stabilizing prices. Currently oil-producing countries set the price for their oil and buyers simply choose whether to buy or not. Given the high demand for oil, usually the choice is to buy regardless of price.

There are few cures for high oil prices. One is to reduce demand. This can be accomplished through alternative energy sources. One of the most practical solutions is to shift to electrical power. Electricity could be supplied cheaply through nuclear, wind, and solar power. All of these energy sources require large capital investments to start, however. Costs to consumers for new cars and home heating systems would also be significant. Conservation is promising way of reducing demand as well.

Increasing oil supplies is the other way to reduce oil prices. Billions of barrels of domestic oil reserves are going unused because of environmentalist-inspired bans on drilling. These oil reserves could be used to buy time to shift to other energy sources. Because much of the pre-production work has already been done, these oil reserves could be brought to market in as little as two years.

Supply could also be increased by new sources of oil. A process to turn coal into gasoline was invented by the Germans in WWII. Since the US has some of the world’s largest reserves of coal, this process holds much promise. Due to large investments for facilities to process the coal, this is not cost effective when oil is cheap, but is being considered now.

A common question is why retail gasoline prices rise faster than oil prices. The answer can be found in how gas stations are supplied. Over the past few years, gas stations have only been making a few cents profit on each gallon of gasoline. When gas prices rise, the station owner knows that his next shipment of gasoline is going to be more expensive. He raises prices so that he will be able to pay for the next shipment of gasoline. If he doesn’t increase the price immediately, he knows that he will lose money.

Conversely, when prices fall, the gas station owner sees an opportunity to make a little more profit for a short time. As he loses customers to gas stations with lower prices, he will eventually have to lower his own prices or be stuck with a large inventory of gasoline.

Last weekend, the run on gas stations had several factors. One is that the newest refinery in the US is over thirty years old. Due to government restrictions and costs, refinery capacity has not kept pace with increasing demand. As a result, US refineries are operating at about 97% capacity. When there is any interruption, such as that caused by Hurricane Ike, there is the possibility of an interruption of supply and a resulting shortage.

Another factor is that the public was panicking. Even though news reports were saying that there was no possibility of a shortage, as prices rose, the word went out among friends and families that it was time to fill up, before prices rose further. This created an artificial surge in demand. As economic law tells us, when demand rises, price follows. As station owners saw that they were going to sell out, it was obvious that it was better for them to sell out at a higher price than a lower one.

This may strike some as price gouging, but it can actually be a good thing. Rising prices prevent hoarding by those who don’t need the product. If someone doesn’t need gas, they won’t pay the higher price. Therefore the gas will be available for someone who does need it and is willing to pay the higher price. If the price stayed low, then hoarders would quickly snap up all available supplies.

Oil prices will probably decline again in the next few weeks, but $100 per barrel oil is likely here to stay. As long as demand remains high and supplies are constrained with no slack available at the production facilities, we should prepare for price spikes every time there is an interruption, whether real or perceived. The only real answers are to reduce demand through conservation and alternative energy sources, while simultaneously boosting supply and production in the short term.

Sources:
The Prize, Daniel Yergin, Simon & Schuster, New York, 1991
http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/oil_market_basics/demand_text.htm
http://www.dailyreckoning.com.au/future-oil-production/2008/05/22/
http://www.api.org/Newsroom/us_june08_oil_demand.cfm?renderforprint=1
http://www.ogj.com/display_article/339235/7/ONART/none/GenIn/1/IEA-cuts-2008,-2009-oil-demand-forecasts/
http://www.cnn.com/2008/POLITICS/07/14/bush.offshore/index.html

Coping With Record High Fuel Prices

Record fuel prices have Americans, as well as drivers around the world, feeling gas pains at the pump. High oil prices also drive up the cost of many other items due to production and delivery costs. High gas prices are certain to be a major issue in this year's elections.

Currently, the high price of oil reflects increasing demand around the world, particularly from developing countries such as India and China, as well as constraints on supply. Supply is limited by the high cost of exploration for new oil fields and bureaucratic limitations on opening new refineries.

While the high cost of gasoline is a problem for many, there are a few groups who benefit from high price of oil. Oil producing countries reap huge profits from expensive oil. Environmental groups seeking to reduce oil consumption have sought to artificially drive the price of oil even higher by increasing gas taxes. Alternative energy companies are an attractive investment when the price of oil is high.

For groups who seek to keep the price of oil high, there are several courses of action. First, they should work to keep demand high by discouraging conservation. Drivers should be encouraged to not to carpool or combine trips. Drivers should also be told not to slow down. Driving over 60 mph dramatically increases fuel consumption, especially in gas guzzling SUVs. The effective cost of gasoline increases by about twenty cents per gallon for each five miles per hour over 60 mph. For example, driving 70 mph means that you may as well pay an extra forty cents per gallon to fill up your tank. Not maintaining cars and keeping tires properly inflated also increases fuel consumption.

Keeping demand high is also accomplished by preventing the adoption of practical alternate sources of energy. Many sources of energy that are wildly popular hold little promise for a market the size of the United States.

Brazil has become almost totally energy independent through the use of ethanol-based fuels and many would like for the US to emulate their model. The problem is that Brazilian ethanol is sugar-based while only corn-based ethanol is widely available in the US. Corn ethanol is not as efficient as sugar ethanol. It actually takes more energy to produce and distribute corn ethanol than the ethanol itself provides. Additionally, it would take an area roughly the size of New England to provide enough ethanol to meet American needs. Finally, diverting corn to ethanol drives up food prices, which means that consumers would simply trade expensive gas for expensive food.

Solar and wind power are trendy sources alternate energy, but neither is ready to supplant oil as the primary engine of the world economy. Both require large capital investments in infrastructure and both are subject to changing weather. In the future, better means of storing large quantities of electricity and cheaper solar collectors and windmills may make solar and wind power more attractive, but presently they are not cost-effective or practical.

To keep gas prices high, consumers should also make certain that the supply of oil does not increase. The most effective way of doing this is by continuing to elect politicians who make it difficult to explore and drill for oil domestically in the United States. Current US policies prevent drilling in much of Alaska, the Gulf of Mexico, and federal lands in the continental US. These areas hold 635 trillion cubic feet of natural gas, enough to supply 60 million homes for 100 years, and 112 billion barrels of oil, enough to supply US needs for about 60 years.

Additionally, Congress and state governments are jointly responsible for high taxes on gasoline. Taxes on gasoline make up about 15% of the cost of a gallon, while oil company profits only account for about 4%. A reduction in gasoline taxes would provide relief at the gas pump for American drivers, and some presidential candidates are calling for a gas tax moratorium. Others are calling for increases in the gas tax, however, arguing that higher prices will decrease demand and spur conservation.

Government red tape also contributes to the high cost of gas. Environmental regulations make it a difficult and expensive proposition to build refineries to convert oil into gasoline. The last US refinery was built in the 1970s, although a few new refineries are under construction.

Environmental regulations also require that refineries manufacture expensive blends of gasoline in certain areas and in the summer to decrease pollution. Changing formulas is expensive and requires the refinery to stop production to make the changes. Making fewer types of gasoline would lower the cost and allow more gasoline to be produced.

Government regulations also slow the construction of nuclear power plants, the most practical form of alternate energy currently available. Advances in nuclear plant design allow nuclear power to be safe, clean and cheap. France currently supplies about 80% of its energy needs through nuclear power. Environmental groups and government regulations make it difficult to build nuclear plants in the US, however.

In short, there are two ways to lower the price of gasoline: by either increasing supply or decreasing demand. As long as people around the world continue to use large quantities of oil and limiting oil exploration and drilling, oil prices will continue to stay high.

How NOT to Lower the Price of Gas

Record fuel prices have Americans, as well as drivers around the world, feeling gas pains at the pump. High oil prices also drive up the cost of many other items due to production and delivery costs. High gas prices are certain to be a major issue in this year’s elections.

Currently, the high price of oil reflects increasing demand around the world, particularly from developing countries such as India and China, as well as constraints on supply. Supply is limited by the high cost of exploration for new oil fields and bureaucratic limitations on opening new refineries.

While the high cost of gasoline is a problem for many, there are a few groups who benefit from high price of oil. Oil producing countries reap huge profits from expensive oil. Environmental groups seeking to reduce oil consumption have sought to artificially drive the price of oil even higher by increasing gas taxes. Alternative energy companies are an attractive investment when the price of oil is high.

For groups who seek to keep the price of oil high, there are several courses of action. First, they should work to keep demand high by discouraging conservation. Drivers should be encouraged to not to carpool or combine trips. Drivers should also be told not to slow down. Driving over 60 mph dramatically increases fuel consumption, especially in gas guzzling SUVs. The effective cost of gasoline increases by about twenty cents per gallon for each five miles per hour over 60 mph. For example, driving 70 mph means that you may as well pay an extra forty cents per gallon to fill up your tank. Not maintaining cars and keeping tires properly inflated also increases fuel consumption.

Keeping demand high is also accomplished by preventing the adoption of practical alternate sources of energy. Many sources of energy that are wildly popular hold little promise for a market the size of the United States.

Brazil has become almost totally energy independent through the use of ethanol-based fuels and many would like for the US to emulate their model. The problem is that Brazilian ethanol is sugar-based while only corn-based ethanol is widely available in the US. Corn ethanol is not as efficient as sugar ethanol. It actually takes more energy to produce and distribute corn ethanol than the ethanol itself provides. Additionally, it would take an area roughly the size of New England to provide enough ethanol to meet American needs. Finally, diverting corn to ethanol drives up food prices, which means that consumers would simply trade expensive gas for expensive food.

Solar and wind power are trendy sources alternate energy, but neither is ready to supplant oil as the primary engine of the world economy. Both require large capital investments in infrastructure and both are subject to changing weather. In the future, better means of storing large quantities of electricity and cheaper solar collectors and windmills may make solar and wind power more attractive, but presently they are not cost-effective or practical.

To keep gas prices high, consumers should also make certain that the supply of oil does not increase. The most effective way of doing this is by continuing to elect politicians who make it difficult to explore and drill for oil domestically in the United States. Current US policies prevent drilling in much of Alaska, the Gulf of Mexico, and federal lands in the continental US. These areas hold 635 trillion cubic feet of natural gas, enough to supply 60 million homes for 100 years, and 112 billion barrels of oil, enough to supply US needs for about 60 years.

Additionally, Congress and state governments are jointly responsible for high taxes on gasoline. Taxes on gasoline make up about 15% of the cost of a gallon, while oil company profits only account for about 4%. A reduction in gasoline taxes would provide relief at the gas pump for American drivers, and some presidential candidates are calling for a gas tax moratorium. Others are calling for increases in the gas tax, however, arguing that higher prices will decrease demand and spur conservation.

Government red tape also contributes to the high cost of gas. Environmental regulations make it a difficult and expensive proposition to build refineries to convert oil into gasoline. The last US refinery was built in the 1970s, although a few new refineries are under construction.

Environmental regulations also require that refineries manufacture expensive blends of gasoline in certain areas and in the summer to decrease pollution. Changing formulas is expensive and requires the refinery to stop production to make the changes. Making fewer types of gasoline would lower the cost and allow more gasoline to be produced.

Government regulations also slow the construction of nuclear power plants, the most practical form of alternate energy currently available. Advances in nuclear plant design allow nuclear power to be safe, clean and cheap. France currently supplies about 80% of its energy needs through nuclear power. Environmental groups and government regulations make it difficult to build nuclear plants in the US, however.

In short, there are two ways to lower the price of gasoline: by either increasing supply or decreasing demand. As long as people around the world continue to use large quantities of oil and limiting oil exploration and drilling, oil prices will continue to stay high.