So would a price floor on oil be a good thing...

Question

... or a great thing for the United States? Keeping the price for a barrel of oil above $95.00 or so, are there any downsides in the long run?

Answer 1

Artificially fixing the price of oil would punish those who are not fortunate enough to be early adopters of the new technology that replaces oil.  The demand destruction that will occur when we figure out how to run our cars on something else will drive down the price of oil, but there will still be a lot of old gas burning cars on the road.  The $95 price floor on oil would amount to a tax on people because they are too poor to afford the latest technology.

Answer 2

I doubt it.  The problem isn't that oil costs (prices) are too "low".  Price floors are designed to make people/organizations pay wages, etc at a higher price.  The minimum wage for example is an instance of this.  But no a price floor would not be good for oil.  Why?  There isn't any real need for it.

I really doubt that oil prices would fall below $95.  And even if they do- which could be a good thing in a way because prices would be lower (but also a sign of a bad thing because people aren't using oil due to it draining their wallet too much)- it wouldn't be practical.  I mean if it can go lower than 95, why not?  That would mean lower prices for everyone.

Lastly, government intervention on prices isn't good.  Many times when the government tries to control prices, many consequences occur.  Sometimes demand gets too high or there are problems with supply.  Or there is too little to match high wants for a product. Etc.  Government controls won't work.

So yes I don't support government intervention like this for oil.  Nor do I support other forms of intervention.  A tax cut on oil companies as some have suggest won't lower price and will just make oil companies better.  Subsidies won't help.  Trying to keep prices below a certain cost is ineffective, hurts the economy, and increases demand too high.  Lastly any tax- extra one- on oil companies would be ineffective too- they'd just increase prices.

The real intervention that would work is another solution.  Alternate energy.  Fund alternate energy development and work with corporations cooperatively to develop more of this. :D

Answer 3

I somewhat doubt the price of a barrel of oil dropping too low is a problem in the near future...

Answer 4

Although doing so would encourage the development of greener technologies and reduce our dependence on oil, price controls are usually not good things. If you have a price floor on oil, then that means there will be a "surplus" of oil on the open market. Suppliers will produce more oil than will be consumed by buyers. A better solution would be to tax oil and use the money to help develop things like solar and electric cars.