Niceguy: You need to frame this debate more clearly and ditch the irrelevant references to other commodities. You seem to udnerstand the economics of supply and demand. And you probably understand that the price of a good or service is not always tied to the cost of producing that good or service.
So, what you have here is a confluence of issues:
Gas is still pretty cheap, and if you adjust for inflation, has remained pretty steady in price even with the recent run-ups. But peopel only think of the recent run-ups, not the long period when gas actually fell in price when adjusted for inflation.
Gas is usually sold by very large companies, that make easy targets for politicians trying to score a quick win. And of course there’s no love lost on many of the Middle Eastern oil producing countries and OPEC by the American public.
Americans love their cars, often make some stupid decisions (eg, buyin a gas guzzler when gas is cheap) and don’t like to own up to them later when conditions change.
These things come together to create a climate where it’s very easy to yell: Somebody needs to do SOMETHING!!
Yes but where? I don’t see or feel that in my daily life. You said that freight goes up. That makes sense but why hasn’t the cost of bread or beer of corn nuts risen ?
This is what I don’t understand. According to the laws of supply and demand, petroleum should be along the order of other precious finite commodities. It is not. Who is getting bamboozled here and how and why?
Mr.Niceguy, the only thing your list of ‘commodities’ has in common is that they are liquids. There is simply no correlation among the purposes for which they are intended, so your argument that gasoline is too cheap to worry about is unsupported by your OP.
Now, if you had started off by comparing the total relative costs to, say, transport one person one mile by a gasoline-fueled car, by electric-powered tram, or by bicycle, I could see a valid comparison; then again, it might turn out that the presumed advantage in real cost of transport by gasoline-powered personal vehicle is not so clear-cut as you believe.
Even if we accept your argument that gasoline is ridiculously cheap right now, it is clearly a finite resource. No matter what we do, if usage continues at rates far in excess of replacement, which seems clearly to be the case, it will only become more scarce and expensive; eventually too expansive to be a viable fuel. Any savings now will help extend its availability later. What’s wrong with that?
In the meantime, since you’ve asked whole crapload of (I presume) rhetorical questions, I 'll ask you a couple of real ones: 1) why does it upset you personally that some might object to the cost of gasoline? 2) Given that in many locations of the US, it is next to impossible to travel any significant distance if one doesn’t have a access to a personal, gasoline-powered vehicle, can you not see that many, especially those who exist on low incomes, might indeed by concerned by sudden rises of more than a few percentage points in this commodity?
Corn nuts, beer, and bread are overinflated, costwise. That means that they are not as sensitive to increases in gas costs as other commodities.
It may also be that grocery stores are doing things–like buying fewer quantities or sponsoring fewer promotions–that the average consumer couldn’t detect.
I don’t know why you can’t feel the pinch in your daily life. I most certainly pay more for milk and cereal than what I did just a year ago.
Here is your problem – you said “these other things are really plentiful when compared to petroleum”. That is a false premise – petroleum is plentiful. There is plenty of petroleum. There is enough oil on the market today that, based on the laws of supply and demand, a barrel of oil costs about $50. You seem to think that this clearing price is too low – you are basically saying that your gut feeling as to what the price should be is more accurate than the world oil market because milk costs more than gasoline. Actually, what that means is that there is just a LOT of gasoline being refined.
Now, there are predictions that, in the future, the supply of oil will decrease, and that the demand for oil will increase. When and if that happens (the demand increasing bit is pretty well agreed upon, but you can find smart people on both sides of the future supply question), the cost per barrel of oil will rise. And that will cause gasoline prices to rise. But, as of today, the laws of supply and demand put the price at $50/barrel. And no one is being bamboozled.
You are right. There is plenty of fuel on the market. Seems to me that no one should squawk about production cuts right ? So what’s up with subsidizing a product like this ? What’s up with all the political pressure ? Are you sure supply and demand is in control ? If so, cool.
I think supply and demand are working just fine. Petroleum may be a finite resource that will run out some day, but for now, there’s plenty of it that can be pulled out of the ground for less than $50 a barrel. If people are willing to pay $50 a barrel for it, there’s going to be companies willing to spend $40 to pull it out of the ground and get it to market to make $10 a bbl.
The supply of oil works pretty well in the classic supply and demand construct. If people wanted less oil, then the price would drop and companies would stop producing oil in fields where it costs the most to drill for it – and the supply will go down. If people suddenly want a whole lot more oil, the price starts to go up and fields that would not have been able to profitably produce oil suddenly can. Supply goes up to meet demand.
So there’s nothing right or wrong about gas cost $1.81 a gallon. That’s the magical place where people are willing to buy it, and companies can profitable produce it.
I think the bigger problem with the economics of fossil fuels is that using them also places economic burdens on the entire population that cannot be accounted for in the price of production. So the people burning up the gas in their SUVs aren’t paying for the degredation in air quality, and the damaging effects of the pollutants caused by their use of fossil fuels. But that’s a whole other story.
Another thing to consider. We americans get our gas prices at an obsecenly low rate when compared to other countries in the world. Although it wouldn’t surprise me if we are making up that extra difference we “save” with all the taxes we pay to fund a bloated military to influence countries to sell us oil at low prices.
Can you flesh that statement out? How, exactly is gas subsidized? Yes, we have a transportation infrastructure that is mstly designed around cars, but gasoline is quite heavily taxed when compared to other goods in the US, although it’s taxed a lot more in Europe.
Niceguy:
This site is a good place to start to get some facts on the situation. It’s got 2003 prices as quotes, but the general principles are the same. Note that federal and state taxes average about $.40 per gallon, not included regular sales tax.
(If you think Sierra Club is too biased, you can go back and look at the original cites to organizations like the Office of Technology Assessment and so forth.)
…And, of course, the reason that it is taxed a lot more in Europe is that the Europeans are trying to better account for the external costs…still most likely incompletely but at least doing a better job at it than we are.
Once the mid-west runs out of ass water because they have drilled it all out, then they will want Superior’s far away ass water at any price. There are ongoing discussion concerning an agreement to prevent such diversions: http://www.speakongreatlakes.org/
True, but you can traverse the entire breadth of those countries for about half a tank. I can’t even reach the eastern border of my own state for that.
