Saturday, December 04, 2004

A solution to oil supply shocks

A large part of the difficulty of fluctuating oil prices is that consumers can’t alter their (direct) consumption of oil very much in the short run. Over the long run, they can purchase more fuel efficient autos.

We should restrict the amount of oil coming into this country by selling oil import permits. The resulting increase in price would eliminate the effect of supply shocks on US oil prices. As supply is restricted, the price of oil on the international market rises, pushing down the value of the import permits auctioned off by the government, creating a stable price for the end consumer.


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