Originally Posted by Jeffand
Prices of oil are determined by supply and demand.
Supply is tight prices go up.
Supply is high prices go down.
You forgot the converse:
When prices go up (due to whatever forces have caused the rise in prices; government, low supply, high demand), then eventually people will modify their behavior and demand will go down.
If the price is too high, then people will eventually drive less. They will become more travel-conscious. They will consolidate their trips, and cut out unnecessary travel. This is what happened after the hurricanes in Florida and the South. This is extremely important, because it is the market's self-defense mechanism that prevents SHORTAGES.
Temporary shortages, due to hurricanes, earthquakes, or other extenuating circumstances, well that's one thing. Sometimes they are unavoidable.
But long-term shortages
denote that something is fundamentally BROKEN and preventing the market from functioning as it should. A broken market will in turn prevent the economy from functioning as it should, thereby exacerbating the suffering. My evidence is the food lines in non-capitalistic countries. Tuesdays you wait for bread. Wednesdays, you wait for "meat." It's never fresh, and it's never prime rib, either.
You can also see the same thing happening in countries such as Bolivia, where the government simply stole gas stations and other properties from the rightful owners, or Zimbabwe, where Robert Mugabe stole the farms from those rightful owners, the people who also knew how to farm.
The situation is particularly dire in Zimbabwe, where poverty and starvation are rampant.
Back to Florida...when the hurricanes came (and when some of the prices naturally but temporarily rose due to drawdown of gasoline supplies), we DID respond by driving slower and less often. I was here, driving 50 MPH WITH the flow of traffic on the freeway! I witnessed it. That controlled the demand. It nipped the demand in the bud, before it became a supply problem, before painful shortages could happen. As a result, there was plenty of fuel for emergency services and evacuations.
I only wish all cars had autostop, so that they wouldn't burn gasoline when stuck in traffic!