Saturday, September 27, 2008

Suggestion for Economic Debate about Gas prices

I have a suggestion for Democratic pundits about economic argument related to gas prices and why investing in renewables is good to bring down prices.

Look at last few months. When the prices went up, it was because of supply fears, when the prices went down, it was because of retracting demand. Simple economics, supply and demand. So if you want to make the prices go down you need to focus on demand, and thus use other substitutes to gas like wind, solar, or basically invest in electric cars.

Now, when supply expands it can decrease prices, sure. But why this argument will not work? Because when you drop the prices down temporarily because of expansion in supply, you stimulate the demand in the long run because the alternatives (to gas) become too expensive. Thus, you create the problem in the long run. Evidence? Look at 70s and the response.

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