Guess what I paid for gas last week just outside of Youngstown? Just $1.13 for a gallon of regular gas. That’s a price that I had thought I would never see again. What a bargain. And what a sad turn of affairs.
Why has the price of gas tumbled so low? It is entirely due to the merciless, inexorable economic law of supply and demand. Yes, “merciless.” I wrote about this more than a decade ago when explaining the role of supply and demand in determining wages.
One virtue of the law of supply and demand is that the average layperson intuitively understands it. It makes sense that when the demand for something is rising relative to the existing supply, prices get pushed higher. Conversely, some combination of weaker demand and/or rising supply causes prices to fall.
It also makes sense that buyers and sellers have opposite perspectives. Buyers prefer low prices, while sellers, hoping to earn profits, prefer higher prices. Ultimately, though, in a free, non-socialist system, both parties end up paying the price determined in the marketplace by the interplay of supply and demand.
The price of gasoline has collapsed due to a “perfect storm” of falling demand at a time of robust supply. Recently, the rulers of Saudi Arabia and Russia decided to ramp up production in their nationalized oil industries in the hope of crashing oil prices and driving private oil-producing companies in the United States out of business. They literally flooded the market. The resulting glut exerted enormous downward pressure on gas prices. [Note: An accord to reduce production was announced over Easter weekend.] Then, on top of surging supply, demand for gas in the United States went into free-fall as a result of coronavirus-induced restrictions on economic activity, and indeed on movement itself. Prices could do nothing other than crash under those conditions.
Today’s bargain-basement price for gas makes me sad. As a consumer, of course, I prefer to pay lower prices than higher price for the things I buy. But as an American and a human being, I am sad. That is because the reason why gas is so cheap is that our economy and society have been crippled by the grim pandemic that dominates our headlines. I love to pay low prices, but not at the cost of fear, illness, and deprivation being suffered by those around me. I cannot tell you how fervently I long for the day when I pay $3 a gallon for gas and our people are healthy and our economy growing again.
I am sure that millions of other Americans share my feelings. And that reality disproves one of the false slanders that ignorant (and sometimes malicious) critics of free markets often make: that human beings are heartless, profit-maximizing creatures. On the contrary, we have values higher than the pursuit of profit. Indeed, we humans seek to make our lives better, but not at any price; not at the cost of misery for others.
Keep healthy, friends. And some day in the not-too-distant future, I hope you will celebrate with me when our country is healthy enough to have gas prices at $2 per gallon again.
Dr. Hendrickson is a retired adjunct faculty member, economist, and fellow for economic and social policy with the Institute for Faith and Freedom at Grove City College.