This morning I read that the House is considering a bill to make price gouging on gasoline a federal crime. It made me wonder if Congress knows that is not going to fix the problem or if they’re intentionally showboating. Then there’s the conspiracy theorist in me thinking, “I wonder if the oil and gas lobbying groups suggested it to them as a misdirection campaign?”

Just about everyone knows (now) that gas is expensive “because oil inventories are down.” It has been repeated in the news over & over. But what does that really mean? Is it really a simple problem of supply and demand?

The problem is the rate of consumption. Imagine a bucket being filled with water at the same time as water is being pumped out. As long as you pump out at the same rate as you’re filling the bucket everything is fine. If the rate of water going into the bucket is reduced while the amount you’re pumping out stays flat you’ll run out of water. How long it takes to run out of water in the bucket depends on the size of the bucket and the rate you pump it out.

U.S. gasoline inventories are that bucket and it isn’t a very big one. In a good week we have 10 days worth of gas waiting to be sold. Starting about March, gas inventories dropped every week to a low of about 8.8 days worth of gas (see this). Last week inventories started going up again so the price of gas might go down but then again, it might not because Memorial Day weekend is coming up and that means a lot of gas is about to be burned.

When oil inventories start dropping again and there isn’t an excuse like, “we had a fire at a major refinery” or, “it was a long weekend” you can be rest assured that the U.S. is entering what I’m calling, “the permanent oil crisis.” We may already be in a permanent crisis if you consider that the smallest little disruption causes oil speculators to jump and gas prices to skyrocket.

So the question remains: Will Congress ever work to solve the problem or will they just wait until the U.S. economy is destroyed by it? Don’t say “the market will solve the problem” because the “problem” is an externality outside of the control of the market. Does a shipping line wait until oil prices drop before they ship things? Do you decide to not drive to work because gas prices are high? Does the power company decide not to meet demand because oil prices went up? No. When the rate at which we can obtain and refine oil falls below demand it will already be too late for the market to adjust.

We need to forcibly diversify the U.S. energy portfolio now. Which would you rather have: An economy that suffers for a few years while we invest in alternative energy (particularly infrastructure) or an economy that is suddenly destroyed as a result of inaction? By doing nothing our government will ruin us. The market cannot correct itself without a catastrophe. No one in our present government at any level can say, “no one saw this coming.”