Bryan Caplan  

Am I Wrong to Blame the Fed?

Holocausts of Communism Test N... Discussion Topics...

Arnold agrees with my causal analysis of the dollar and gas prices, but doesn't think I should blame the Fed.

Well, let me put it this way: If Bernanke were to publicly say, "Federal Reserve policies are the main cause of high gas prices, but we pursued these policies for good reasons, namely..." I'd stop complaining. But I'm not holding my breath; it's easier for the Fed to let the oil industry take the heat. Under the circumstances, it's worth shining a spotlight on the Fed and asking its leaders to fess up.

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COMMENTS (5 to date)
aaron writes:

Don't know, but you miss blaming politicians.

Think of what whould happen to the price of gas if our gas consumption declined 4.3% along with our driving. In reality, our driving declined this year, but we used about just as much gas.

Prices could be lower if politician cared the slightest about properly managing traffic and getting good information to people (e.g. that accelerating faster is more efficient than accelerating slowly).

Probably the cheapest and most effective thing we could do to lower demand is properly timing traffic lights, setting proper speeds, and getting good information to the public.

If you want to get gas prices down (besides magically deciding the dollar will be stronger), start pressuring proper traffic managment in your community and talking lawsuits to ones you pass through.

Gary Rogers writes:

Markets are all about confidence. Confidence that oil will be available in sufficient quantities in the future and confidence that the dollar will hold its value. Right now confidence in the dollar suffers from the fact that homeowners are over extended and unable to pay their mortgages. To make matters worse our government has run up 9.5 trillion dollars in debt and has made additional promises for the future that cannot be funded from our current projected earnings. There is no sign that we will balance our budget any time in the forseeable future. The Fed can explain some of its decisions, but if it really tells the truth confidence will not improve. What would improve confidence is for our politicians to sit down together and create a rational budget and stick to it. What do you think the chances of that happening are? What else can we do to make holders of dollar denominated debt confident that we are not going to try to inflate our debts away?

Chris writes:

If exchange rates were a primary factor wouldn't the price of oil & gasoline in Europe be declining or staying flat in relationship to the euro's strength compared to the dollar?

This isn't happening (at least I don't think so) so exchange rates don't appear to be a strong influence on the price of gasoline in the US.

Is this an accurate description?

Andy writes:

Why do you think the Fed is responsible for the exchange rate? You haven't been reading Menzie Chinn's entries on Econbrowser if you think uncovered interest rate parity has any power over the time period you are talking about.

Floccina writes:

Interestingly one could blame the higher gasoline and commodity prices on communism and in particular Mao. If China had not wasted many years in communism their growth would have been longer and steadier and so we would have adjusted to different demand structure using petroleum more efficiently. It is the delta that creates the crying about higher prices. If China had never gone communist we might all be driving hybrids by now.

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