Mexican Gasolinazo Spurs Protests
As the world rang in the new year on January 1, a new energy reform went into effect in Mexico, causing gas prices to rise almost 20 percent and angering Mexican consumers in the process.
Until then, the Mexican government had kept gas prices artificially low across the nation as a through government subsidies at its state-owned oil company, Pemex. However, with deregulation, prices skyrocketed in accordance with the market. This increase spurred Mexican citizens to rise in protest in the first two weeks of January.
According to NPR, Mexican Treasury Secretary Jose Antonio Meade stated, “[The new reform] is the necessary step we had to take," due to the government’s growing fiscal inability to pay for the subsidies as world oil prices continue to rise.
However, three years ago, when Mexico opened its oil industry to outside investors, President Peña Nieto promised cheap energy, including gas, for Mexican citizens. This unfulfilled promise exacerbates public discontent and underlies the recurring protests.
In a January 1 article, The Washington Post interviewed Iván Rosales, an employee at a trucking company in Mexico City, who said, “If the price of gasoline goes up, we’re going to pay more [for] everything else...I don’t mind paying [gasoline] taxes, but where are the services? [Politicians] always prefer pocketing the money instead of spending it as they should.”
To Americans, paying for gas at market prices is the norm. For Mexicans, however, this new energy policy comes as an unwelcome change in the economy. To show their outrage toward a government that they believe is greedily searching for profits, Mexicans turned to looting, forcing gas station closures, and blocking roads.
On the other hand, Forbes contributor Tim Worstall says Mexico’s new policy demonstrates what the country should have been doing for decades. According to Worstall, selling gas at production cost (Mexico’s practice before the energy reform) is simply not sensible due to opportunity cost.
“To an accountant, perhaps [you are not losing money], to a politician, perhaps not. To an economist, you are most definitely losing money. The cost of something is what you give up to get it…. The other side of the equation is true, too; an economic loss arises from not getting what you could get for something,” he stated.
For economists, it may be easy to think of prices in these terms, but for consumers, it may not be so simple.
Decades of government corruption coupled with discontent during most of President Peña Nieto’s presidency fueled social eruption in Mexico during this Gasolinazo. Mexicans fear prices of other goods will rise as well, and public enemy number one continues to be their president. A Mexico City protester told El País, “I have had it with Peña Nieto’s greed at the cost of Mexicans.”