JolieSimons.com

Slate recently ran a story explaining why gas is so cheap in my home state of Missouri. Of course, gas really isn’t that cheap her, because we are paying just a little under $4 a gallon. While this may be cheap for other states, compare this to the $3 we were paying on a few months ago and you can see that “cheap” is a relative term.

This got me thinking: are we asking the right questions when it comes to the rising cost of gas in our nation? Let’s take a look at the issues.

Congressional Democrats recently tried but failed to enact legislation to tax the windfall profits of oil companies. The logic goes that oil companies are, themselves, driving up prices in order to increase their profit margins. After all, profits for Big Oil have indeed skyrocketed as of late. If we tax this windfall, the logic goes, we’ve found a solution to high gas prices.

Unfortunately, this legislation doesn’t offer a comprehensive solution to the problem because it makes the assumption that blame and therefore a solution can be found within the confines of Big Oil. Similar plans by presidential candidates Obama and McCain to suspend federal taxes on oil for a short time will likely do very little to ease the problem, and any gains made by families will probably just end up compensating for higher food costs and general cost of living increases. The problem–and I say this with a must heavy heart as a commuter–is not so simple.

Let’s take a look at the idea of peak oil that’s being bandied about by environmentalists and pundits. Peak Oil, for those that don’t know, describes a condition of oil supply. Every year, oil production increases. At Peak Oil, the theory goes, oil production has reached the highest level available for the Earth’s supply and will only decrease from that point on, lowering supply and significantly raising cost.

Thing is, we keep finding more oil. Yep, there’s still lots of oil out there and we keep finding it. Also, our technology for extracting oil from fields that used to be off limits has increased, so the availability of oil isn’t really the problem. Is Peak Oil a possibility, even in the near future? Yes. Do we have to worry about it now? No. There’s still plenty of time for us to move our energy systems away from oil and into cheaper electric energy and alternative fuel sources and do so without famine and violence.

So what’s really driving up the cost? As you probably remember from school, supply and demand rules might apply to high gas prices. The emerging economies of countries like China and India need more oil to run. Is increased world supply actually driving up cost?

The short answer? No. World supply hasn’t increased significantly enough to explain the sharp rise in gas prices. Sure, the demand for oil has steadily increased as of late. However, if you compare the increase in oil demand with the increase in gas prices, it’s like comparing apples to oranges. There’s no comparison. Gas prices have increased much more than oil demand.

So what’s the real explanation for increased gas prices? Well, at the risk of sounding too simplistic, the problem may rest with commodities traders.

A recent deregulation of commodities trading has removed key restrictions from oil trading, meaning that the market is no longer the prim, proper, and well-behaved market of yore. Today’s market is much like the kid from a strict family who goes off to college and parties his way into flunking out. The market’s unstable and, without those rules that once governed the market well, oil-drunk commodities traders are slowly and steadily driving up the cost of oil. It’s not the refineries or even necessarily Big Oil. Our gas prices are going up because of bad laws and an out-of-control marketplace.

It remains to be seen what the true reason for high gas prices is and I’m sure history will write the real story eventually. For now, though, it looks like the simplest explanation may not be the best.