Since we’re on a “gas prices”/economics kick over the past couple of days, let’s keep the ball rolling. A commenter in the Not really “record prices” thread asks:
Have you taken into account inflation…in relation to the fact that average wages have not kept up with inflation? Min. wage in particular would be much higher if it had kept up with inflation. I am willing to bet that, if the numbers were crunched, one would find that the % of income required to travel the same distance is much greater today than it was in the past.
So, I decided to do the work. First, the minimum wage isn’t what we should be looking at, but instead wages across all sectors. The US Department of Agriculture has a handy graph showing wages, in inflation-adjusted constant dollars, between 1981 and 2005.
In 1981, the average non-farm income per hour was $7.25.
In 2005, the average non-farm income per hour was $16.34.
That’s an increase of 125 percent.
Meanwhile, according to this web site, which is distinctly unfriendly to President Bush, conservatives, and oil companies, the cost of a gallon of gas in inflation-adjusted dollars has not fluctuated nearly as much.
In 1981, at the peak of the 70s/80s oil crisis, a gallon of gas reached $2.73 per gallon.
Today, a gallon of gas costs $2.94 per gallon.
That’s an increase of 7 percent.
Even if you use the peak price back after Katrina, last September, of $3.13 per gallon, that’s still only a 14 percent increase.
So in fact, the impact of a gallon of gas on the average income has not increased at all, but as a percentage of income has dropped dramatically.
In 1981, the average wage-earner had to work for 30 minutes to earn enough for one gallon of gas.
Even at the peak last September, it only took 11-1/2 minutes to earn enough for the same gallon of gas.
Makes you think. And since cars are generally more fuel-efficient today…
Update: In case, you don’t know what inflation-adjusted dollars are, here are two explanations: “Real v. nominal in economics” and “Constant dollars.”
Update 2: (From a comment I posted below) It looks some commenters are alleging that I made a mistake and used actual dollars and not inflation-adjusted dollars for the wage figures in 1981 and 2005. Just to double check, I looked for independent confirmation. The US Census Bureau offers historic income tables that are adjusted for inflation. The most comprehensive table shows a similar change. The figures will be slightly off because it is 1981 to 2003 and it is measuring yearly income not hourly wage. Still there is the same marked rise in income. A lot of wealth was created in this country during the Reagan boom and the other economic booms after that.
Technorati Tags: economics, gas prices, oil
Shouldn’t the comaprison be:
1981 2005 %increase
average wage $7.25 $16.34 125
average gallon ??? $2.94 ???
Your numbers were the peak in the 70’s and 80’s. The number to be compared is the average gallon in 1981 (if that is not an aberrant year). If you do that I think it will be more than 7% – 14%.
Sorry, I tried to make a chart with 1981, 2005, and % increase as the column headings.
The next row of numbers (showing average wage) were $7.25, $16.34, and 125.
And a third row of numbers for average gallon (which we don’t have) were ???, $2.94, and ??? The question marks need to be figured out. The chart looked great before I hit submit. Sorry.
No, no, look at the chart on the linked page. (This is why I provided links.) The average cost of a gallon of gas in 1981 was $2.73 per gallon. That wasn’t the highest price that year, just average. However, 1981 had the highest average cost of a gallon of gas of the years during the energy crisis.
Americans have been used to very very cheap gas for a long time and that boat has been rocked somewhat lately.
Ferde,
Do you understand the concept of inflation-adjusted dollars?
Check out what your socialist buddies are paying for gas these days:
4/10/2006
Belgium – 6.10
France – 5.80
Germany – 5.96
Italy – 5.91
Netherlands – 6.73
U.K. – 6.13
U.S. – 2.88
http://www.eia.doe.gov/emeu/international/gas1.html
Ferde,
You also are not taking into account that the OPEC cartel was intentionally keeping the price low, in part to disinsentivize U.S. and European companies from investing in more expensive supply solutions.
In other words, if you are able to by a back scratcher from China for 25 cents, you aren’t going to invest heavily to find a way to create back scratchers for $1. If, on the other hand, China is asking $100 for a back scratcher, U.S. companies would be cranking out back scratchers by the billions, trying to capitalize on the demand that would drive the price up to $100.
The socialist/environmentalists in this country are part of the Democrat constituancy. Any and every attempt to open oil drilling areas or refining capacity in this country has been opposed by the democrats. Now that the U.S. is experiencing a bump in the road, who do the dems point fingers at? Big Oil.
Kinda unbelievable, really.
And who is leading the charge for fuel cell research? American auto companies. Why? Demand. Big Business will save your bacon again, and you will be just as ungrateful and blind to the whole process.
I mean, gee, why doesn’t the government (because they love us) just tell those mean ol’ oil cronies of Bush and Cheney to locke the price of gas at $2.00/gallon? Or better yet, $1.00?
And if gas was free, do you think there would be much demand for fuel cell technology?
Gerald,
The reason is that the majority of the costs of Euro gas was/is tax and regulatory overhead. Not the price of gasoline.
Now that the price of oil is $75/barrel, the cost of the gasoline is increasing, so it shows up more in the price of U.S. gasoline, which has comparitively low tax/fees.
If you check out that chart, since 1996, Euro gas has gone from 4x to about 2x.
Another way to look at it is to say, well, if the cost of creating the product has gone up $2.00/gallon let’s see how that played out in Europe and the U.S.
In 1996 the average Euro price was about $4.00, and the U.S. price was $1.27
In 2006 the average price in Euroland is about $6.00, and $3.00 in the U.S.
It went up $2.00/gallon both in Europe and the U.S.
http://www.eia.doe.gov/emeu/international/gas1.html
To follow up:
If we add a bunch of taxes and fees on our gasoline, it will appear to go up less when oil prices go up, but you’ll be paying higher prices ALL the time.
I’m curious, by the way…who do the Europeans blame for their gas prices?
“If we add a bunch of taxes and fees on our gasoline, it will appear to go up less when oil prices go up, but you’ll be paying higher prices ALL the time. “
After the price spike last year following Katrina, our local congressman (Dem.) suggested added a $5/gal. tax to gas to force Americans to drive less. Boy, that would hit the millions earning less than $30K per year…to borrow a phrase, “World Ends: Women and Minority hit the hardest.”
“I’m curious, by the way…who do the Europeans blame for their gas prices?”
I would guess George Bush. Recently, someone reminded me of the California brownouts and how it was Bush’s fault. Their memory was weak though, as I “lived” through one brownout period in the summer of 2000. GW Bush did not enter office until January 2001.
In 1981 I was working at a gas station pumping gas. Yes, I’m a renaissance woman I know
. Gas was $.97 to $1.25 per gallon for the whole time that I worked at that gas station which was until 1984 (the year I graduated from High School).
Maybe gas was $2.38 in California or for about a week somewhere but not where I lived which was in New England.
Maybe the cost of gas has tripled. Has the average salary tripled? Doubt it.
You are not as sensitive to this issue as some people are because you do not commute to work. Furthermore you are not driving a family friendly vehicle, yet.
Right now we are spending over $500 per month on gas. I’m not sure how long we can keep this up. Our consumption may be higher than average. My husband drives 90 miles to work each way and I drive a suburban (8 kids). The long commute allows our children to attend a Traditional Catholic school our biggest priority.
Exxon and the other gas companies are robbing people and I think it’s immoral. Catholic teaching advocates a living wage not gouging and manipulation. And a living wage goes for the owners and executives of the company as well as the employees.
Mary: Inflation-adjusted dollars.
And I love your assertions about my life that you have no possible knowledge about.
Norcica: Your comment is unhelpful. Either come right out and say it or don’t bother. Oh and nice use of argumentum ad hominem. Don’t bother responding with logic, instead attack the speaker.
MaryAlexnader: I should also have pointed out that my consumption habits are irrelevant. That’s a red herring. You should address the facts.
“Right now we are spending over $500 per month on gas.”
I could be wrong but I would assume your family is paying much much more in taxes (federal, state, local, sales…)each month and those so caring politicians who are demanding an investigation of big oil tend to ignore this.
Minimum wage is a red herring because hardly anyone supports a family on it. Walter Williams happened to cite the figures today in his syndicated column.
Read the whole thing and you’ll see that minimum wage earners supporting a family on that money are a vanishingly small part of the populace. On top of that, I’d like to know how many of those minimum wage earners over the age of 25 also own a car that they have to put gas in.
It’s one thing to make assumptions—“I bet…”, “there are probably …”—but I think it’s better to use facts and data.
This topic is in the news for one simple reason, I filled up my tank today and it cost me $36 dollars. Hmmm, I recall that recently it cost me $27 to fill up my tank—somebody just stole $9 from me.
Who can tap this feeling of outrage and injustice fastest… politicians? Television news? Catholic blogs? I’d add talk radio to this list but they seem fixated on illegal immigrants.
Anyway, my point is from one point of view another $1 per day in commuting expenses very little. At the same time, paying $35 for something that cost $25 only a few days ago is an issue.
Regardless of non-farm incomes, the price of milk during the Ford administration, and any number of economists that want to get on TV trashing or defending a market economy, you are living way beyond your means if it’s painful when your mandatory expenses spike slightly. And let’s define slightly: less than 5% of your net income.
I’d say that anyone truly hurt but this rise in oil prices; you were already in trouble but didn’t know it.
Mary is the postcard for this. What were your monthly gas expenses earlier this year? $440 per month? That’s insane!
I don’t know what life choices Mary’s making or why but I’d bet that $440 towards a mortgage rather than gas could put you 179 miles closer to wherever you need to commute to. And let’s not underestimate the value of an extra 15 hours per week with the family and not spent commuting 180 miles.
It seems to me that people don’t want to give up the “boogie-man” idea.
If it simplifies your life to think that there are greedy oil people sitting up late trying to rip you off, enjoy.
If you really want to understand how the economy works, listen to what is being said and try to learn something. No one is ripping you off if you CHOOSE to pay for something, no matter what the price is. Any more than someone that sells a house for $700,000 when they paid $300,000 for it three years ago.
Some people can’t pay $700,000 for a house, some people can. The oil companies are making huge profits because the market supports the current prices. If it didn’t, prices would drop. That would increase supply and the price would drop even more. If China buys less, prices drop even more.
This is pretty simple stuff. Oil companies are making huge profits, and I’m happy for them. Just like I was happy when I sold my house for $700,000.
Quit thinking that you are OWED cheap gas. You aren’t owed ANYTHING. Gas companies don’t exist to make your life easier, cheaper or better. They exist to make a profit. That is up to you. If gas prices are your problem, deal with it.
It is truly mind-boggling how people can complain about the price of gas and not complain about taxes.
If gas has gone up 30% in the last two years or so, you may be paying another $100-200 more per month?
Give me a break. About 25% of that is taxes and fees. You paid with it with post-tax dollars. This means you had to earn about $150-$275 to net your $100-200.
That amounts to $75-125 in taxes, just on THE INCREASE you are paying!
The irony is that you don’t have a choice in paying the taxes, but you do have control over how much gas you buy.
Why do people complain about what they are in control of, and ignore the money taken involuntarily out of their paycheck ever month?
Mind boggling.
Dear Dom,
What assumptions have I made about your lifestyle? You are expecting your first child, as you’ve told us. You work from home, as you’ve told us.
John,
I don’t pretend that 8 children with 5 in Catholic school is a recipe for wealth and financial security. But there are some things more important than money. I know, I know if only we’d used NFP but don’t worry I’ve heard that argument before and there are more important things than NFP and money.
You can argue the benefits of a free market economy but pure captitalism, especially when it is exploitative of the human person has always been condemned by the Church.
I heard today on the news that in Venezuela gas is only 12 cents/gallon and only 35 cents in Iran. I guess Massachusetts is still better than either of those countries. Marginally.
Just sign me living on the edge- LOL!
John: The income numbers are constant dollars.
MaryAlexander: You have made assumptions about how much I drive and consume gas. Nevertheless, it’s irrelevant because it has nothing to do with the truth of what I’m saying.
Hargreaves: There are so few people supporting families on the minimum wage that using it as the basis for thinking on this issue is just another example of “most extreme case” debate.
It looks some commenters are alleging that I made a mistake and used actual dollars and not inflation-adjusted dollars for the wage figures in 1981 and 2005. Just to double check, I looked for independent confirmation. The US Census Bureau offers historic income tables that are adjusted for inflation. The most comprehensive table shows a similar change. The figures will be slightly off because it is 1981 to 2003 and it is measuring yearly income not hourly wage. Still there is the same marked rise in income. A lot of wealth was created in this country during the Reagan boom and the other economic booms after that.
“How could I have been so ignorant??”
I can’t answer that one.
If you have to drive 30 miles one way to work, that’s 60 miles round trip. If your car got 20m/g, that would be an increase (using your numbers) of $1.80 per day. What are you complaining about? Good Lord!
Again, on that $1.80/day, you have already had about 75 cents take out in INCOME taxes, not to mention the other taxes and fees. For what? Just because you had the audacity to earn it.
If you get a $50.00/week raise, the government will take more out of your check than this increase in gas prices. And why? Because your boss thought you deserved a raise. Go figure.
But back to the market:
Yes, if the retailer purchases an orange for $1.00, and then the next day his supplier charges him $2.00, the retailer may choose to average out the price between his $1.00 and $2.00 inventory, but he is likely to choose a sale price that will earn him the highest profit. If people will pay the $2.00+mark-up he will sell his $1.00 orange for the highest price the market will bear.
And THAT is at the retail level.
Remember, the refineries have tanks as well. And their tanks are full of oil that was purchased at $30.00/barrel and now they are purchasing oil at $75.00/barrel. They are upping prices because a)their current costs of manufacturing are not going to be covered operating as if oil was still $30.00 per barrel, and b) the market is supporting the current price.
It is that simple.
The only way the oil companies could be ripping people off is if they are hording oil/gas, and colluding with each other to limit supply, then I’d say they were guilty of a crime. There have been congressional investigations of this since the Clinton administration, not to mention media scrutiny and they have found nothing untoward.
But, again, we all have choices, and one of them is to not buy gas. If enough people stop paying the $3.00/gal price, I guarantee you the price will drop. GUARANTEE!
Why? Because supply will build, relative to demand. The oil companies want to sell gas for as much as they can, but if the price becomes the barrier to sales, they have to lower prices.
There are other issues affecting supply, though. One is foreign dependence (we get 60% from imports), environmental blocking of domestic drilling, local restrictions on refinery construction (nimby – not in my back yard), and other factors.
Demand is simply how much gas/oil product Americans CHOOSE to use. They choose big cars, to live far from work and school, to not car-pool, to use multiple cars and so on.
I can’t afford a Mercedes, so I drive a Dodge. I adapted to the reality of the marketplace. I don’t complain and say that Mercedes owes me a car, and that they are motivated by greed in denying me a Mercedes. They could make cheap cars, could they not? But they are catering to a market that will pay what they are asking for their product. They have no obligation to make cars available to everyone.
Have you seen picture of China? Millions of people ride bikes. Some people have to save for up to a year to afford a bike.
We are a spoiled, whiney culture that thinks that all of our riches are entitlements. They are not. We are entitled to nothing. We have to earn it. Just like the oil companies.
BTW, now is a great time to think about investing in oil exploration companies. The price is finally gotten to a point where the oil companies can see a reward-to-risk benefit justifying more drilling.
Also, it is likely congress will begin to lighten up on drilling restrictions.
Also consider internet retailers.
Well, wages per hour and income per year are not the same thing, so I will concede that they could be off. And I admit I’m not a mathematician, so I’m unsure whether saying that 125% increase is technically correct.
I will point out that you are making a big assumption with 2000 hours worked per year. Are people indeed working the same number of hours per year as they did in 1981?
In the end, I think the general principle remains: a gallon of gasoline has less impact on the average person’s income now than it did in 1981.
Let’s not forget how horrible things were in 1981 after four years of the peanut farmer and 18% interest rates.
If by chance you tried to buy a house back then, gas was probably not your biggest problem.
I’ll take 2006 any day of the week. Although we did have Reagan on the job back then, reducing the highest tax rate from 70%, again, lest we forget.
The realistic choice isn’t whether or not to walk 30 miles each way to work every day. Your choice is where you choose to live. By choosing to live 30 miles from work, you choose to drive 60 miles/day. If I remember from my econ classes correctly, this is called your opportunity cost. You “incur” opportunity costs with everything that you do. Sometimes you feel it in the wallet (i.e. gas prices), and sometimes you don’t (i.e. should I watch TV or read a book). Even if something is free, your opportunity cost is the pleasure you give up by chosing one activity or the other.
And yes, it’s perfectly fine for a grocer to pay $1.00 for an orange, offer it for $1.50 one day, and then charge $2.00 the next day. Remember, you don’t own the oranges. If you don’t like it, find your own supplier, and try to sell the oranges cheaper.
Given the choice, I would much rather pay $1.00/gal for gas than $3.00. However, that isn’t the current reality. If you don’t like this, move closer to work, drive less, use less oil to heat your home, or buy a hybrid. Decrease your consumption.
Dom, I wholeheartedly agree with your assertion that the cost of a gal. of gas today has less impact than it did in 1981. Not only do your statistics back up your claim, but my own anecdotal evidence reminds me of the painful truth. I was there, and vividly remember the impact of those high prices. We could not afford gas for two cars, so I bought a cheap moped for my commute to grad. school and rode the bus to work. Dh got the VW – that was our luxury ride.
Our local paper reported this week that car dealers are seeing no increase in interest in fuel efficient cars – vans and SUVs continue to be the top sellers here. Suggestions for HOV lanes were met with a big yawn, and increased bus schedules did not result in higher ridership. Apparently no one around our area is feeling enough pain to choose to make any lifestyle changes.
DaVinci Decoder Ring’s comment about gas concerns being overshadowed by housing costs is right on target, too. Back in the early ‘80s, we bought a house w/ an ARM that had an accrual rate above 18% and a payment rate of 13% – instant negative amortization. As mortgage rates killed demand, the value of our house dropped. When circumstances beyond our control forced us to sell the house we took a loss. However, we did pay our debts in full and chose to do without any nonessentials instead of just walking away from the house.
Currently, my dh commutes an avg. of 36 miles/day (he works in multiple offices.) We could choose to live closer to his primary office, but that would mean paying about $6K to $8K per year more in property taxes. Instead we chose to live in an unincorporated area where both housing costs & prop. taxes are lower. The trade-off means that we now spend about $90 – $100/mo. more for gas than if we had chosen to live closer to work. We also don’t have all of the services provided in the nearby towns, but that’s fine with me. I’d prefer to pay for what I use (library fees) and not for what I don’t use (indoor raquetball courts & “free” movies on summer weekends.) Life’s full of tough choices.
My kids will graduate from college in 12 – 18 months. They will start their careers with far higher standards of living than we enjoyed. Income taxes are much less, transportation costs are relatively cheaper, and housing is more affordable (assuming they choose something similar to a traditional starter home and don’t expect to have 2400+ SF w/ a jacuzzi & gourmet kitchen right away.)
You bring up a good point, UAHmama. When my decidely middle-class parents married in 1959, they lived in a one-bedroom basement apartment that had the bathtub in the bedroom. My dad also had a very good union job at Raytheon. My brother’s first crib was the drawer of a bureau.
You don’t hear many stories of middle-class newlyweds just scraping by anymore. I don’t know anybody who doesn’t have a computer, cable TV, and other luxuries of the day.
As a nation we’re spoiled and wealthy.
Mary Alexander,
The Roman Catholic Church has about 800 years of Scholastic proof and support of Free Markets, and about 1 person (typically the person who is also the leader of the Social Justice department) in each Diocese claiming that Social Justice means that the government should set prices for everything.
There is no “Catholic Teaching” justifying theft, and that is just what you are advocating.
Let’s start with obeying the 8th commandment before condemning others for working hard to make money.
JBP
Ferde,
The price of gas is up because of supply and demand. XOM made a handsome profit. Good for them!
You won’t move an inch because you think businesses are here to provide you with what you want, at the price you want to pay. Gee. That’s a tough position to be in, since ALL businesses are trying to get you to pay as high a price as possible for their product.
Oh well. Good luck with that extra $1.80 per day those scumbags are “cheating” you out of.
Maybe you can move closer to work, unless those evil home owners are trying to cheat you out of buying a home at a price you don’t like. Maybe the governmnet will cap what homeowners can make when selling their homes. And maybe Toyota can start giving Prius’s away for free.
So Bill,
The arithmetic is pretty much valid. There is not a whole lot of spin in Dom’s numbers.
High gas prices hurt for sure. But what can you do? At some point the whole country needs to adjust for a future with $3+ gasoline. Maybe we have to walk more..move closer to inner city..demand more salary to make up for fuel costs.
Any or all of the above can make a dent in higher fuel prices. Rather than condemning others who have made money in the Oil industry, (which is one of the 7 deadly sins, and a clear violation of the 8th commandment) I am convinced we need to look to ourselves for the answers to these inflationary problems.
JBP
Everything is more expensive and more expensive every day. No one’s saying it doesn’t hurt. But placing blame on “eeevil” oil executives or George Bush doesn’t fix anything. If we’re going to find solutions as a nation we need to understand the truth of the situation.
On an individual level, we need to make decisions. Do I drive to the store or do I walk even though it’s less convenient?
Frankly, with the amount of luxury most Americans have, I can’t imagine the poor people of the world have much sympathy. The poorest Americans are still wealthier than 90 percent of the world.
If the budget is tight, that’s hard. I willing to be you’ve already cut the cable TV, the cell phone, and the Internet access to make ends meet. No more eating out, no more coffee at Dunkin’ Donuts every morning. If you used to smoke, no more cigarettes.
These are all tough choices, but if you need to buy gas to get to work to support your family, you make the tough choice. You have to have priorities. But we make them until all that’s left is the essentials. And just maybe we’d be better off without all the extras in the long run.
Dom,
I agree completely, but your answers aren’t as easy as blaming some evil conspiracy. It’s like trying to convice people that Oswald killed Kennedy. It goes on and on, despite the facts.
I wasn’t going to belabor my point but now that I have been attacked and accused of authorizing the government to steal and therefore break the 8th commandment- (out of line, uncharitable, and vicious comments) by John Powers, I would like to propose these quotes from Rerum Novarum, an Encylical of Pope Leo XIII:
“Equity therefore commands that public authority show proper concern for the worker so that from what he contributes to the common good he may receive what will enable him, housed, clothed, and secure, to live his life without hardship. Whence, it follows that all those measures ought to be favored which seem in any way capable of benefiting the condition of workers. Such solicitude is so far from injuring anyone, that it is destined rather to benefit all, because it is of absolute interest to the State that those citizens should not be miserable in every respect from whom such necessary goods proceed.” (#51)
and
“If, therefore, any injury has been done to or threatens either the common good or the interests of individual groups, which injury cannot in any other way be repaired or prevented, it is necessary for public authority to intervene.”(#52)
And we started our married life in a basement one bedroom apartment, without a bathtub in Flushing, Queens. No cable tv either, still don’t have it. Not everyone who is upset about the greed of the gas companies is a rich, spoiled, lazy American.
So Mary,
How do Leo XIII words justify your enthusiam for populist violation of the 8th? Theft is theft, be it rich from poor, poor from rich, or government from its citizens.
God gave us a system of Markets (also Addition, Subtraction, Melodies, Harmonies etc). It is up to man to use them for good or evil.
Oil companies making a middling profit margin on the world’s most competitively priced commodity surely does not justify breaking the commandments. Your proposal to steal from the hardworking to satisfy your political goals smacks of the ultimate in Vanity, one of the Seven Deadly.
JBP
John Powers wrote:
“How do Leo XIII words justify your enthusiam for populist violation of the 8th?”
“Your proposal to steal from the hardworking to satisfy your political goals amacks of the ultimate in Vanity, one of the Seven Deadly.”
Dear John,
When did I advocate breaking any commandment? When did I advocate theft? What are my political goals? How have I exhibited Vanity?
I can’t decide if you’ve totally misread what I’ve written? have an axe to grind with me on another issue? or are just a complete nut?
Please help me out here since I am at a loss to understand your unwarranted attacks.
I work in Church restoration, so I will happily accept your observation that I could be a complete nut.
“Exxon and the other gas companies are robbing people and I think it’s immoral. Catholic teaching advocates a living wage not gouging and manipulation. And a living wage goes for the owners and executives of the company as well as the employees”
Quote from above.
You are proposing
1) That you have a greater knowledge of wealth distribution than the market. Vanity.
2) Living wage for the owners. So you can take away money from some so that you are happier. Violation of the 8th on the Tablet.
JBP
Yes, I saw your website.
Do you think it is possible that gas companies are exploiting people? Or are large companies only capable of virtuous and legal activity? I think that is what you are proposing.
I haven’t advocated taking money away from anyone. You have entered into rash, caluminous judgement against me and engaged in detraction.
I think that the oil companies are exploiting people. I think exploiting people is wrong. I think the conduct of the oil companies should be examined by the govermental authority. I never advocated stripping them of their wealth, increasing taxes or any similar thing.
The Church has always denounced actions by large companies that harm the worker. If that is occurring it is wrong. You ignore the encyclical by Pope Leo because it does not fit in with your worldview. That is Americanism.
MA,
If providing services at a competitive rate is exploitation, I wish local phone service, public education, healthcare would exploit me.
Oil has to be one of the most competitive markets in existence. Competition tends to provide goods to a consumer at the lowest possible price.
I find the living wage argument to be a justification of theft. I find government investigations of “price gouging” to be some of the worst political claptrap, and certainly a waste of time and money. Especially when the same government makes obscene tax burdens on fuel, and taxes imported ethanol an additional 50 cents per gallon, it is rather easy to identify a major culprit in high gas prices.
If I have a heresy, it is the Americanism of Cardinal Mundelein and the Knights of Columbus. I’ll cop a guilty plea with my co-conspirators any time…but Pope Leo is not condemning the market in that encyclical, he is condemning immoral players in that market. Providing competitive products at competitive prices is not being condemned. Surely these large companies are providing a market transactions to the “worker”, which is completely justifiable.
Ask yourself, could you provide cheaper gasoline than Exxon does? If you can, why don’t you do it?
JBP
Ferde,
I can’t afford a trip to Rome, but somehow I am able to fill my gas tank. Hmm…how does that work?
I know about the Standard oil, and I think it was Goodyear tires as well pulling up the light-rail tracks in L.A. That was a crime. At the time, it was the biggest trial in U.S. history. They had to use an abandoned school to house all of the separate courtrooms necessary to pull off the trial.
The real crime? The companies were found guilty and only charged $1 in damages. Why? Because our “saints” in the government (the biggest corporation in world history) are (surprise!) no more saintly than those in the private sector. In fact, they have passed laws making it impossible to sue the federal government or employees of the federal government. Convenient.
But, as John Powers asks rhetorically, if someone could, right now, provide gasoline cheaper, wouldn’t they make a killing? I mean, if I could sell gas for 2.25/gallon (and still make a profit) right now, I’d corner the market on gasoline sales in my city.
The fact is that the competition in the oil and gas industry is so fierce (because the profits are so huge) they have had to become extremely efficient. The reason there are no “reasonable” alternative fuels is that the oil/gas industry have had a hundred years to refine the process of exploration, drilling, refining, distribution to be extremely efficient. It is this reason that our gas is ONLY $3.00/gallon.
Maybe ethanol or fuel cell tech makes sense and will be cheaper. But the only way it will make sense is if they solve all of the above processes and make them as efficient/cheap as the oil/gas industry have made access to gasoline.
I think that day is coming, but it will only come if there is a demand for alternatives. That is what the high price of gas is doing right now. Thank you, market forces!
The 9/10ths of a cent on the gallon of gas is part of the state and federal taxes.
I still haven’t heard any of these “greedy oil execs” commenters explain who gas is twice and three times as much in Europe where industry is much more heavily regulated. Is it the greedy oil execs or the greedy governments piling on taxes?
I don’t know why adjusting for inflation doesn’t work. You have to compare constant dollars—apples to apples.
I picked 1981 because that was the last time we had a huge spike in gas prices. I’m comparing gas price spikes, then and now.
You also made the error of not adjusting for inflation on the per gallon gas price in 1986. 90 cents is 1986 dollars; in current dollars it would be just under $1.50. Of course, that was after several years of the Reagan revolution that lowered prices using sound market principles and economic theory.
Mr F,
I will bet you $10,000 I can start an independent refining company within 1 month.
If I start the company, you owe me $10K. If I don’t, I owe you $10K.
JBP
Well yes F,
So please rail against the regulation rather than the capitalists. It is regulation which is enemy of the consumer, not those that provide goods for a agreed upon price.
I have worked in regulated markets before, and been sued by none other than Elliot Spitzer. Government control of industry is the problem keeping new entrants out.
JBP
Sorry, Ferde, you can’t just assert something. You must prove it.
See, I can find support for what I claim. (That’s just one example; look up “tenths gas price” on Google.)
Now it’s your turn to offer evidence or proof. (BTW, that’s Guideline Number 4; You don’t seem to have got the hang of good debating yet.)
You can continue to make unprovable assertions of giant conspiracies to impoverish you through high gas prices, but nobody’s going to take you seriously.
In fact, I think that at this point arguing with you is a dead end. Again, unless of course you care to back up your wild claims with actual evidence.
(Believing it in your heart isn’t evidence either.)
(I’m just saying.)
Mr F,
Agreed, many regulators are captured by industry, so why have them? and why does the left-wing cheer for more regulation of things like…gas prices?
Spitzer wanted my company’s money. He got it. We gave up very quickly, so that he could rip us off without anyone going to jail. His anti-enterprise is completely backed by the State of New York, most of the Press, and the left-wing. Easier to pay some fines than to fight with them.
All prices are (pretty much) the same in most commodity markets. A bushel of corn, pound of sugar, ounce of gold etc cost the pretty much the same in Decatur Illinois as it does in Decatur Alabama. That is one of the defining characteristics of a commodity.
JBP
You used to have to pay 5K for a computer that was 1/100 as powerful as one you can by for under a thousand dollars now.
Homes, on the other hand, have gone up 10x in the last thirty years or so.
It is supply and demand. Simple. Straight forward. No conspiracies. No “evil doers”.
Imported oil is controlled by OPEC and other suppliers. The refined gas prices are purchased at auctions by distributors, not set by oil companies. The price of gas was held artificially low because for years, because OPEC flooded the market with oil. Why? Too complicated to explain here. But the point is that we lived with artificially low prices for nearly twenty years.
The market is working. Just chill out and see what happens. I predict that all kinds of new ideas will start coming forward. More hybrids, fuel cells, better electrics. More companies offering telecommuting. More efficient Internal Combustion engines.
I don’t think the prices are going to come back to “normal”, because China’s economy is booming and I hear this is supposed to continue for the next 15-20 years. They have been, and will continue to consume more and more of the world’s oil supply. That is going to drive the price up, by increasing demand and depleting supply.
XOM’s “crazy profits” amounted to about 10%, which is below the Dow’s Idustry index. How much of this “profit” should the democrats tax? The last time this happened, in 1990, it made gas prices rise.
Also, it made the oil company stocks take a dive, because who wants to invest in a company that can ONLY underperform, or be sanctioned by the government?
This hysteria reminds me of the “RED SCARE”, but now there’s an evil oil executive under every rock.
BTW, Yahoo! made 45% profit last year. Should we string them up?
F,
We have told you. Supply and demand. There is no downward pressure now because the demand it propping the price up at its current level. It isn’t like the airlines’ price wars (driving prices down), because there are no downward forces (low demand, excess carrying capacity, decreasing costs).
The price of gas will only come down when supply increases, costs decrease (sub-$75/barrel) or demand decreases.
That’s it.
Profit bonanza: To clarify, XOM (the biggest company, who made the biggest profit) made just over 10% profit last year.
To correct something I said above, the Dow Industry Index shows that the average profit of the Oil Industry over the last thirty years was around 8%, which was below the Index average.
Still, 10% profit shouldn’t get people’s panties in a bunch.
I really apologize for my spelling. It’s almost 2:00 am. That’s my excuse.
No Ferde you post assertions. Facts are backed up by evidence. Just because you say something doesn’t make it true. You must point to an authoritative source that backs up your assertions.
But then everything you post right there tells me you don’t understand the first thing about economics or free markets or anything like it. What’s more you refuse to believe what anyone tells you that contradicts your set notions.
It’s pointless to continue this discussion with you.
So F,
If you think there is price fixing in Oil, because all the prices are approximately the same, is there also price fixing in Corn, where a bushel costs pretty much the same nationwide?
JBP
Would that be “number-futzing” or about 5th grade arithmetic?
JBP
Ferde,
OPEC sets prices (in an often acrimonius struggle), by forcasting production. Supply. Not a contradiction.
Uh, precisely by flooding the market. That increases supply. The cost of refining drops, because the oil companies’ costs drop. If demand doesn’t drop, the oil companies make more profit, because their costs have decreased. If there is any decrease in demand, THAT is when the downward pressure is applied, and the oil companies have wiggle room to compete on pricing.
That is not the situation now, and I predict never will be again.
Now, as fears over Iran, Iraq and the rest of the ME, increased demand by China and other factors are driving the prices up ($75/barrel), the futures market is paying more because they see risk to the supply and (largely because of China), increased demand.
The prices are going higher.
Evil intent is not necessary to explain this.
Ferde,
I know you won’t believe something coming from the mouth of an oil executive, but Lee Raymond, on Charlie Rose, talked about the billions XOM had spent on alternative fuels. The problem from their stand point was that the efficiency of the existing oil/gas/IC model was impossible to improve upon in the short term. In other words, to transition would take decades, and represent huge losses to publically traded companies. If a CEO of a publically traded company suggests to his shareholders that he doesn’t plan on making a profit for a few decades, he won’t be the CEO for long.
Does this show a flaw in capitalism? Lots of liberals thinks so. For example, Europe has a significantly better mass transit system than we have in any U.S. city. A long term commitment like that may take a governmental iron fist to push through, because the market is fixated on the short term.
But if alternative energy solutions were achievable why have countries with nationalized energy policies not leaped ahead with these mythical alternatives?
France went nuclear, but the libs in this country fight that tooth and nail. Europe taxed it’s gasoline so much that the auto makers responded by building smaller, more fuel efficient cars.
The market here is now starting to have similar impact. Here is a new thing I heard about yesterday:
http://www.hybridtechnologies.com/products.php?sec=3&id=2
It still only goes 150 miles on a charge, so it isn’t for everybody. I also heard that it will cost you about 65K.
See? It isn’t that easy or cheap to improve on a process that has evolved for over 100 years. I invested in fuel cell tech about five years ago, and I’m still waiting for that to show up!
Relax, and give the market some time.
Ferde,
Congress was run by democrats for 44 years, ending in 1994.
Why is it that only the U.S. Government can discover these great alternatives? What about all of Europe? You know, the people paying $6.00/gallon? Are the oil companies squelching innovation over there as well?
I gave you my explanation for why there have been no alternatives; It has not been cost efficient relative to the evolved model, for the public or private sector.
I lived in the San Fran Bay area while they were discussing a light rail system. This is NOT a conservative area. The biggest obstacle was political jurisdiction and environmental lawsuits. Not oil companies.
Part of the obstacle to mass transit in the U.S. is our affluence. While Europe was trying to rebound from two world wars, the U.S. had a booming economy. Everyone could afford a car, and if people have their choice, they will usually choose a car over MT. Also, the biggest growth in our country’s history took place after the advent of the automobile, so we are infrastructurally and architecturally automobile-centric.
So, again, there was no demand for public transit. We can’t even keep AMTRAK alive without government assistence.
“Speculators” I assume you are referring to the futures market. From Investopedia: The Futures Market is an auction market in which participants buy and sell commodity/future contracts for delivery on a specified future date.
No one “sets” the price. People attempting to capitalize on a move in the price BID on the contract. This isn’t collusion. It is competition.
BTW, the first hybrid car introduced in the U.S. was a Toyota. Not one U.S. tax dollar was spent on developing it. Meantime, the U.S. companies (including GM) were building eight cylinder SUV’s and muscle cars.
You may think this is all part of the big conspiracy too, but here is info from the U.S. Dept. of Energy, explaining why gas is so high, etc.
http://www.fueleconomy.gov/feg/gasprices/FAQ.shtml#High
Click on:
Why a gasoline prices so high?
Ferde – please correct me if I am wrong, but you seem to place all the blame for high gas prices on the big fuel companies. Yet, in your own post you blame the government for not funding research for alternative energy vechicles, and for not developing effective, nationwide mass transit. You also blame the US auto companies for building SUV’s and muscle cars. Neither of them are “controlled” by the oil industry. Yes, they have lobbyists (sp?), and yes, their lobbyists (like MANY others) are probably shady. Further, the car companies build the cars they build for a simple reason: Supply and demand.
I would LOVE a mass transit system akin to the ones in Europe. However, European citizens have an absolutely rediculous tax burden.
Norcica,
Creating wealth during an economic boom sounds like a tautology. Sort of like your are taller when your height increases…how could it now be true?
How is the dastardly Dom betraying his gentle readers by his calling a “boom” a “boom”?
JBP
That is, with a tautology, -how could it NOT be true-
jbp
Ferde,
So whose information do you trust?
CATO Institutes Tom Firey,
“With gasoline prices soaring and consumers upset, the American political machine is preparing its standard response of bread and circuses. Politicians are calling for investigations into why the prices have soared, demanding windfall profits taxes on oil companies, and are demanding the breaking of Big Oil. And, of course, they’re making these calls in front of giant banks of TV cameras and lights.
“It’s all smoke and mirrors.
“The politicians well know why prices have spiked this spring. For the past few years, there has been little gap between world oil production and world oil consumption. Against that background, any small disruption can produce a major price spike in oil and gasoline. And we have experienced a number of disruptions.
“On the oil supply side, we have:
*geopolitical tensions between the United States and Iran;
*continued lack of production from Iraq;
*civil war in Nigeria;
*continued production outages in the Gulf of Mexico;
*and increasing speculation and stockpiling in the oil markets as a result of uneasiness over the other problems.
“On the refining, processing and delivery side, there have been a number of short-term problems in the United States:
*some refining capacity in the Gulf of Mexico remains offline from last fall’s hurricanes;
*much of the rest of U.S. refining capacity is overdue for routine maintenance as a result of the post-hurricanes demand, and the industry is now trying to get caught up on that maintenance;
*the annual spring changeover from ‘winter-blend’ gasoline to ‘summer-blend’ gasoline is producing its usual short-term shortages, as refineries are taken offline for reconfiguration;
*the disappearance of MTBE as a fuel additive to reduce emissions has produced a dramatic spike in demand for hard-to-handle ethanol as a substitute. This has further increased the price of gasoline.
“The call for a windfall profits tax has become standard whenever any industry experiences a boom and consumers are unhappy. However, the politicians seem uninterested in returning any of that money to consumers; instead, the politicians want to bring that money to Washington for government use. This leaves the public with a choice: Is it better to have windfall profits in the oil industry where, at least, that money becomes incentive for competitors to find and distribute more oil and gasoline, or is it better for that money to go to the construction of more Bridges to Nowhere?
“The one somewhat-new element in all of this is the call by some lawmakers to ‘break up’ Big Oil—that is, American-based oil companies. They claim that those firms have become too big and powerful, and are purposely engineering the current price spike. This charge indicates how little the politicians understand the global oil industry. American oil firms and all other private oil firms around the globe control, combined, only about 20 percent of the world’s oil. The true ‘Big Oil’ firms are the state-owned oil companies of the Middle East, Latin America, and Eurasia because they dominate the global oil market, and it is their production that sets the price of oil and gasoline. The American oil and gasoline price spike is simply following a global oil and gasoline price spike. Political efforts to ‘break up’ U.S. oil companies will have little, if any, beneficial effects—unless we only want bread and circuses.”
F,
Because the price is rising. Demand is price dependent. If the price rises, the demand typically is reduced. Quantity demanded on most items is relative to price offered.
JBP
F,
You can read the basic economic formulas about the relationship between quantity demanded and price in about any economics textbook published in the last 800 years. It is theoretically sound, and in practice, very easy to observe.
You and I both know the regulators are corrupt, but you contend that more regulation would somehow make for less corruption: why? Spitzer and the other AG’s are some of the worst offenders at preventing competition in business (ex. try to start a moving company in Illinois). Who needs them?
Yes, I would like to get rid of the FDA and the FAA. Two of the most over-regulated and under-technologized industries where inefficient fatcats are kept afloat by their partners in the regulatory agencies, despite all market signals to the contrary.
JBP
The Energy Information Administration (EIA), created by Congress in 1977, is a statistical agency of the U.S. Department of Energy. We provide policy-independent data, forecasts, and analyses to promote sound policy making, efficient markets, and public understanding regarding energy and its interaction with the economy and the environment.
If you read Firey’s comments, you’ll see that production is/was just about at capacity. The Hurricane and other factors put the supply at risk (I have no idea what the margin of supply is, but we certainly hear the word “glut” anymore), causing the futures market to bid up, expecting increased demand (summmer, china, etc.), with some risk to the supply.
Everyone I hear talking about this says prices will continue to go up. Some say for 2-3 years.
So, no gas lines right now. And maybe we won’t see them, but I wouldn’t be surprised. Why?
Another informative article:
http://www.cato.org/pub_display.php?pub_id=6370
Should read:
DON’T