I’m getting more than a little tired of the constant yammering about how awful gas prices are getting. (I’m not saying that I like paying $65 to fill up my tank, mind you.) But what’s really frustrating is that nobody seems to have the guts to point out that this is how free markets work.

Just look at what the Saudis said last week: supplies are being cleared at current prices. That means supply and demand are in balance. In other words, this is the goal of the free market. Supposedly, markets are supposed to find the optimal point of efficiency, where consumers are not paying more than they want, and producers are not making less profit than they want.1 So what’s the problem?

Well, there are plenty. But let’s start with just one: demand for oil (gasoline, diesel, other petroleum products) is relatively inelastic. In broad strokes, that means consumers2 can’t fully alter their demand along with price changes. I can’t really shorten my drive to work to save on gas. (One consequence of a relatively inelastic demand is that as prices rise, producer revenues rise.) Other things I can do to alter my demand — trade my car for a hybrid, get a new job, etc — take a long time and may have substantial transaction costs that offset any relief from the price of fuel. But that’s all pretty much Economics 101. High school economics, even, and not really the point I’m trying to make.3

My point is this: an (honest) free-market conservative cannot coherently argue in favor of “doing something” about high gas prices.4 The pain you feel at the pump is utterly irrelevant to the “free market.” This is what they’d rather you don’t realize. An “ownership society” means that there are non-owners. Unregulated markets often have outcomes that are disastrous for individuals.

Doesn’t it strike you as a little suspect that the staunchest free-market cheerleaders are all wealthy?

  1. Yes, this is a gross oversimplification. [↩]
  2. Remember that in this case a lot of manufacturers are on the consumer side of the oil market. [↩]
  3. In the case of oil, there’s also relative price elasticity of supply, which is even further from my point. [↩]
  4. The best they could offer — and this only from some of the non-purists — would be to argue that the relative monopoly OPEC holds results in a “market failure” and that something should be done about that. [↩]