Gasoline Prices

Reading some of the breathless press reports, you’d think the world was about to end, and all because of high gasoline prices — which many in the lamestream media just assume (or they’ll slyly imply) is due to the relentless gouging of the consumer by those evil oil companies. The harping about the package earned by the retiring Exxon CEO, complete with unflattering photograph, is a typical example of the mindless sniping of the media. Unfortunately for all of us, it’s also apparently typical of the shallow “thinking” of the average American consumer.

Gasoline prices have most definitely gone up. I felt the pain myself during a recent trip of almost 2,000 miles in our gaz-guzzling SUV.

But the reason for this increase is not gouging by the oil companies. If you’re looking to place the blame for high prices, look to your political representatives — for it is their anti-business legislation and policies that are the biggest cause of high gasoline prices. Skeptical? Consider these points:

1. The global demand for oil is growing faster than the global supply for oil, and has been for decades. You don’t have to be a professional economist to be aware of the inevitability of price increases under these conditions (though many in the lamestream media appear to be blissfully ignorant of this). Why is global demand rising? The current biggest drivers are China and India, with a healthy contribution from the rest of the developing world. The United States is still by far the biggest consumer of oil, but the growth (the most important part in understanding the price rises) is primarily coming from elsewhere. Why isn’t the supply rising as quickly as the demand? Well, here’s one component: the largest undeveloped oil fields remaining in the world are all in North America — the oil offshore from California and Florida, the oil fields in Alaska, and the vast oil shale deposits in the western United States and in Canada. What’s stopping those from being developed? Your political representatives, that’s who. Of course, they’re reacting to what they believe their constituents want, so take a good look in the mirror while you’re at it.

2. The FTC has had a team of people watching gasoline prices for several years now. Their entire job is to watch for gouging — and they have utterly failed to find it. Even the reports about gouging during the recovery from hurricane Katrina have largely turned out to be false. If a team of professionals can’t find evidence of gouging, why do Americans still believe it exists?

3. Spot shortages (temporary gasoline shortages in a particular area for reasons unrelated to global supply and demand) are a big driver for short-term price changes. The United States has a plague of spot shortages, and has had for many years. Why is this? It turns out that some of the biggest contributions to current spot shortages are the direct result of political interference: the ethanol mandate, the MTBE fiasco, and number of fuel mixes required in the United States. The ethanol mandate was passed by Congress as a sop to the agricultural interests — it requires that over 17 billion gallons of ethanol be used as an oxygenate in fuels by the year 2012. Trouble is, our domestic ethanol production can’t even begin to keep pace with this mandated “demand”. Then to make it worse, the legislators — the ones we all elected — added a 54 cents per gallon tariff to imported ethanol. The MTBE fiasco just exacerbates the ethanol problem. MTBE is the only practical alternative oxygenate to ethanol currently available. Decades ago, its use was mandated by Congress to reduce pollution. Now that we’ve discovered that MTBE itself is a dangerous pollutant, the manufacturer’s of MTBE (remember, its use was mandated) are exposed to liablity suits — and Congress has refused to immunize them. So (what a surprise!), the MTBE manufacturers are dropping production as fast as they can do it — so ethanol is the only remaining oxygenate available, and between the domestic shortage and the import tariff ethanol is costing the oil companies nearly $3 a gallon to buy. Of course that gets reflected in the price at the pump. Thank you, legislators (not!). Last, but certainly not least, is the crazy patchwork quilt of “boutique” fuels required by various local legislation in the United States — 17 different fuel mixtures at last count. These requirements mean that every national oil refinery has to make a guess at what combination of 17 different fuels will most closely match the demand. The state where I live (California), just as an example, has a unique set of fuel requirements all to itself. If my state’s consumption of gasoline goes up by a couple of percent in a manner unanticipated by the refiners (a nice weekend can do that), then the refiner can’t simply ship a little more from, say, Idaho — that nasty Idaho gasoline wouldn’t be allowed in our state. So a spot shortage develops and prices shoot up — needlessly. Whose fault is that? Why, it’s those goldarned dumb-as-a-stump legislators again — the ones that the even-dumber-than-a-stump electorate sent to office.

Repeat after me: gasoline prices are not higher because of price gouging by oil companies. Instead, gasoline prices are higher because of brain-dead, anti-business legislation passed by legislators elected by us. The best way to change this would be to elect smart, pro-business legislators. Where we get them, or the voters who would vote for them, is a mystery that I have no clue how to solve. It’s enough, some days, to make one feel a bit hopeless. Especially the “voters” part…

Then there’s a whole 'nother issue, on which I’ve pontificated before, but which is guaranteed to get a bunch of people foaming at me. It’s this: gasoline prices are not too high. Gasoline is still a spectacularly good value for the money, and I can prove it easily — just look at how people behave. When any item is priced above its value, people find ways to avoid using it. For example, gold sheets make a very nice roof — fireproof, attractive, non-tarnishing — but very few people roof their house with gold, as it costs too much. It’s not a good value as a roofing material, and their behavior reflects that. Now consider how people behave with gasoline. Do they act like they believe it’s not a good value? Not hardly! The easiest, most painless ways to avoid consuming gasoline are assiduously avoided. We drive 70 MPH on the freeway, even though we all know that we’d save (a lot!) of gasoline by driving at 55 MPH instead — and how hard would that be, really? If we thought gasoline wasn’t an outstanding value, then most people would be driving at 55 MPH (or even less) — and that observably ain’t a happening thing. Sales of gas-guzzling cars aren’t appreciably slowing; most people still drive by themselves to work; most of us make many short, spontaneous (and convenient) trips instead of carefully planning. I could go on and on, but the bottom line is this: very, very few Americans are behaving as though they really believed gasoline was overpriced — we’re just whining because the price went up.

So repeat after me: gasoline prices are not unreasonably high. In fact, they are an extremely good value — a bargain when compared with most things we buy. Gasoline is so cheap that I’m going to use just as much of it as I want to, on the slightest whim — and I’ll continue to do so until and if prices rise to the point where it doesn’t seem like such a terrifically good deal. That would be somewhere around $8 or $10 a gallon, I suspect…