B’ Spokes: I’ve been mussing over the idea of what if Congress wanted to encourage a certain coffee chain known for their high priced coffee to lower their prices by giving them financial incentive to build anywhere and everywhere. After all it’s simple economics, when supply out strips demand the prices will drop.
Keep in mind that coffee is a local market while oil is a global market, so those who are supporting "Drill baby, drill!" are thinking along the lines that if we could just get that expensive coffee shop to open more stores on all four corners of their current location (same market) they’ll go "Oh look were are producing more coffee then what we can sell at this price so I guess we are stuck with that and well have to lower our prices."
My question is what kind of business will purposefully and continually invest capital to produce a product in greater quantities then demand so the end result would be they would have to lower their profit margins? And even if they started down this road what is the incentive to keep the excessive and less profitable operation going rather then just shutting it down so supply matches demand and current profit margins are maintained?
My challenge to Congress is if you wrote a bill that guaranteed $2 a gallon at the pump in exchange for drilling the arctic refuge that’s a whole different ball of wax then the current "If we let them drill wherever they want we will [wink, wink, nudge, nudge] all benefit."
A coffee shop will not open a new store unless forecasts shows there is enough demand to support that investment in capital. Why do we think oil companies will be any different? As long as there are locations (markets) that will support the current high prices of this coffee chain then that’s were they will build and no amount of making it easier and more lucrative for them to build is going to change that. And similarly as long as there are other countries (markets) willing to pay more for gasoline then that’s what the oil companies are going to cater to,
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Just to note this is related to the current discussions of the House version of the federal transportation bill that has removed bike/ped funding in favor of more oil drilling. Or more to the point, the above is my reaction to this:
"This debate is a debate we want to have," Boehner said. "ABC News reported last night that we will soon see $4-a-gallon gas prices. Maybe higher. Certainly this summer will see the highest gas prices in years. Your constituents saw that report, and they’ll be talking about it. When they do, tell them about this bill that we’re working on.”
https://thehill.com/blogs/transportation-report/highways-bridges-and-roads/210787-boehner-delays-highway-bill-voteoldId.20120301142515382
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