What is a gallon of gasoline worth?

For that matter, what is anything worth?

One correct answer is: “Whatever people are willing to pay for it.”

Less than a year ago, we collectively explored the edge of the envelope on gasoline prices. It turns out that the value of the miracle elixir that propels the average family’s SUV 18 miles down the road has been established, by us, to be in the range of $3.50 to $4.00 per U.S. gallon. At $4.00, we began to consume significantly less, but the effect was not noticeable at lower price levels.

It would appear that Obama & his people have noticed.

OMB Director Peter Orszag admitted as much on This Week With George Stephanopoulos.

[Note: 3/22/2012 link no longer works. Transcript immediately below the fold.– Ed.]

STEPHANOPOULOS: The Republicans have taken aim specifically at the revenues in this package, especially the idea you have to get about $600 billion from capping carbon emissions. Here was Newt Gingrich speaking this week.


GINGRICH: How dumb do they think we are that they can pretend that an energy tax isn’t an energy tax, and they can pretend that every retired American who uses electricity isn’t going to pay it, and every person in New Hampshire who uses heating oil isn’t going to pay it, and every person who drives a car isn’t going to pay it?


STEPHANOPOULOS: You’ve talked a lot about honesty and transparency in the budget. The Republicans are saying you’re simply not being honest, that this revenue from the carbon — from capping carbon tax is going to be a tax on everyone, pure and simple.

ORSZAG: What’s very clear is this budget delivers a tax cut to 95 percent of working families. I mean, I think we have to come back to the basic question here. I just reject the theory that the only thing that drives economic performance is the marginal tax rate on wealthy Americans and the only way of being pro-market is to funnel billions and billions of dollars of subsidies to corporations.

That is the heart of this argument. And I think it’s — I think we’ve already — we’ve seen what the effects are over the last eight years.

STEPHANOPOULOS: But you do concede that this capping of carbon emissions is going to increase energy rates for just about everyone in the country? And that is the equivalent of a tax, isn’t it?

ORSZAG: Well, I think we have to be — let’s be fair about this. Either you’re going to look at what — what is collected through the tax code and what’s returned through the tax code.

And on that basis, there’s a tax cut for 95 percent of Americans, or you have to go all in. Let’s also count the benefits that families get through Pell Grants, the benefits that they’ll receive through constraining health care costs, the benefits that they get from weatherizing their homes, and so on. All in, this budget makes the vast majority of American families much better off.

STEPHANOPOULOS: So you’re not — you’re not disputing that this package — the cap-and-trade on its own will increase prices for — for most Americans, but they’re going to be getting other benefits in the budget?

ORSZAG: Absolutely.

Orszag, who appears to be the love child of Stephen Colbert and Nathan Thurm, apparently doesn’t know how to answer a question directly. But what comes across loud and clear is that the new administration fully understands that their plans to tax energy to pay for health care and to “get off our addiction foreign oil” and to Stop Climate Change! and whatever else they think of, will make energy more expensive for every consumer.

Simply put, the $2.00 difference between the current price and what we got pretty used to paying for a gallon of gasoline eight months ago is a pretty tempting target for a Big Government Socialist.

From my perspective, however, there’s another answer to the question in the title.

Something, in this case a commodity, is worth whatever it costs to replace it in inventory.

For oil & gas, that means keeping enough rigs running to find new supplies as fast as they’re consumed. It also means that the activity has to be profitable enough to be attractive to the investor.

As I tried to explain in my recent diary, we are exploring the edge of another supply/demand envelope: rigs are being shut down and workers laid off. The stock market has been the coup de grace for several public independent oil and gas exploration firms. Their focus is on survival, not on putting drilling rigs back to work. So far, rig activity has fallen off due to the fall in oil and gas prices,but Congress passes the punitive measures in the President’s new budget, drilling will be even less attractive.

Fewer rigs working means less supply. As supply dries up, there will be upward pressure on prices, so if we return to the supply/demand picture we had just last summer, and we layer the government’s share of the take on top of that, the only limit on price will be, once again, whatever the neediest customer is willing to pay.

High energy prices are a keystone of the Democratic strategy. Not only do current gasoline prices represent a fat revenue target, their alternative energy promises are only feasible if they’re competing with artificially high fossil fuel prices.

As I suggested in the above-referenced diary, we as Republicans need to expend every effort to make Obama and the Democrats own energy prices. Let every “ding” of the gas pump evoke “Obama”. Hang it around his neck like a smelly, dead carp.