Oil Prices and Our Choices

I find it almost funny that just a few months ago, everyone seemed to be concerned about whether or not the American economy was in a recession.  Now all we are talking about is inflation.  Well, that’s not entirely true.  All that anyone is talking about these days is how high gas prices are, and by default, we talk about inflation.

“I can’t believe these oil companies; aren’t they making enough money?”

Can’t the government do something about the “Oil Crisis?”  Why won’t the White House release oil from the national reserves?  What about a gas tax holiday this summer?  What about Congress?  They keep telling us that they can fix everything.

I write this as I sit in the time share my family has rented for the week in Boyne Falls, Michigan.  (A great vacation spot, by the way.  It is quiet and there is plenty to do.)  Like everyone else, I do not like the current gas prices.  And like everyone else, I believe that there are several factors as to why prices are as high as they are.

Bush and his oil buddies?  The oil companies?  OPEC? (The word “cartel” comes to mind.)  The falling dollar? Global demand?

These are probably all contributing factors.  But the real reason is behavioral.  In fact, it is our behavior.  For example, when I filled the family vehicle with gas yesterday - gas was $4.30 per gallon in northern Michigan - I was not happy.  In fact, I was a little ticked off.  But as I drove my family to the beach, it hit me: gas prices (and oil prices) are high because I continue to buy gas and refuse to change my behavior (or vacation plans).

At different times in my professional career I have taught both economics and investment courses.  And in these courses I have always discussed something I call “Aubry’s Golden Rule.”  Aubry’s Golden Rule simply states: “Those who have the gold, make the rules.”  While the price of gold is near its all-time high, so is “black gold” and that’s what has everyone worked up.  Of course, I did not coin the phrase “those who have the gold, make the rules,” but the phrase is used to drive home the point that those who control the (black) gold are making the rules right now, or at least setting the prices.

We live in a capitialist society, and for that matter, a capitalist world.  The vast majority of businesses are in business because of something called “profit motive.”  Businesses are in business to make money and this is not a bad thing.

You might say, “but Exxon Mobile and the other oil companies are taking advantage of the current global conditions.”

As an individual, I am not happy with the current prices of gas and oil.  As an investment advisor, I say congratulations to those that own shares in Exxon Mobile and the other oil companies.  (All of our clients do have a portion of their portfolios invested in Exxon Mobile and the other oil companies.)  The CEO and Board of Directors at these oil companies have a fiduciary duty to their company and, therefore to the company’s shareholders, to grow the value of the company.

Until people begin making behavioral changes, the price of gas could possibly stay where it is for a long time.  The following advice may seem harsh, but it is true: if you don’t want to pay the current price for gas, stop driving your car, or buy something that does not use oil-based fuel, like a bike or a horse.

Unless I plan to pedal home from Michigan, I need to quit complaining about the price of gas.  Although, after my wife and daughter rode horses today, they may be willing to ride a horse home - at least for a couple of miles.

We have the power to choose.  That is what makes America so great!  If we don’t like something, we can choose to do something else.  Are we willing to change our behavior to get what it is that we truly want out of life?  It’s all about choice.  How are we going to choose to use limited resources to satisfy unlimited wants?

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