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Friday, May 18, 2007

OK, I'm one of those Democrats "seething" at the injustice of high gas prices. Geroge Will, who I bet hasn't had to worry about what it costs to fill up a tank with gas in a lot of years, pooh-poohs the ridiculously high gas prices: "In real (inflation-adjusted) rather than nominal dollars, $3.07 is less than gasoline cost in 1981."

Here's the BIIIG problem with that. Average salaries/pay rates haven't kept up with the rising cost of goods and services -- especially gasoline. I'd be interested in what the "real (inflation adjusted)" salary/pay rates are, as well. I mean, you can't draw an informed conclusion without that datum.

Oh, and why has gas consumption gone up a little over 2% in the past year? Could it be that fewer people are flying because flying is so damn expensive? And why is flying so damn expensive? Hmmmm.

Also, when have we EVER seen gas prices increase so radically so fast? Prior to Katrina, I can't ever remember a time when we would see a pump price increase by 10 cents per gallon within a week's space of time. Now it's routine. The reason for these unconscionable price hikes is that the oil companies, when they saw we would pay anything for the gas, simply decided to kick up the price. It didn't matter how much or how quickly, they knew we would pay, because we HAVE to pay. What real choice do we have? Of course we're being gouged, and the oil industry is laughing all the way to the bank with their record profits.

I saw a program on TV recently about alternative fuel sources, including hybrid, biodiesel, hydrogen and compressed air. What most of these developers have done on literally a shoestring suggests to me that with a concerted government effort, we could be in business with, say hydrogen, almost right away. Here's one outfit, in Norway, that's, uh, paving the way. for a comprehensive look at U.S. government info on this topic check out the 2007 Cyber Guide to Hydrogen Energy, Fuel Cell Cars and Vehicles, Federal Government Research (Three CD-ROM Set).

In the realm of oil/politics fiction (maybe), check out The Formula,featuring George C. Scott and Marlon Brando, and directed by Rocky and The Karate Kid's director, John Avildsen.

UPDATE: Thanks to an anonymous commenter, it appears that, comparing 1981 to 2004, average weekly wages between the two are essentially identical. So, while wages have remained the same, look at where gas prices have gone. It IS more for schlubs like us, because our wages haven't kept up with gas prices.


Anonymous Anonymous said...

Not looking to start a fight, but I think you have your facts wrong on the wage comparison between 1981 and today. See the statistics here:


As you will see when you compare 1981 to 2004 (the last year that statistics are provided for) the average weekly wages are pretty much the same for those years -- 277.35 to 277.57. The minimum wage has lagged inflation, but that isn't a real good measure of spending power as it doesn't take into account how many people are making the minimum wage.

8:09 PM  
Anonymous Anonymous said...

With respect to gas prices. Fluctuations like the ones we are seeing now are actually pretty common when you use the price change from a percentage standpoint. See here:

As well, the oil companies don't set gasoline prices, the market does. It is a simple supply and demand system. See here:


Lastly, I think that Hydrogen as a fuel source is a laudatory goal. To state that we could switch over right away is overly optimistic. There are numerous scientific treatises on the subject. See here for example:


8:36 PM  
Blogger Rick said...

I'll believe gas is too expensive when people cut back on discretionary driving.

I don't see car pools. I see gridlock. I see full parking lots at the beach and the mall. I see the freeway full of cars headed out of town on the weekend and a demand for more blacktop to accomodate them.

I reduce my driving based more on avoiding gridlock than the price of gas.

Gas is cheap cheap cheap. When it becomes expensive people will be careful with it.

8:39 PM  
Anonymous Anonymous said...

You're wrong in your update. Your conclusion is fautly, and opposite of the truth the link showed. Not sure how you missed it, except for perhaps partisan bias coloring your perception.

The link showed that wages are essentially the same WHEN ADJUSTED FOR INFLATION. So our wages have "risen" in raw numbers, but stayed around the same in "real" numbers. Likewise, gasoline prices have risen in raw numbers, but are actually LOWER today in "real" numbers, as George Will says.

So apples to apples wages between now and 1981 - the same.

Apples to apples gas between now and 1981 - gas was higher then.

So gas in 1981 was higher both when adjusted for inflation AND as a percentage of an average worker's wages... than today. We are better off now.

Also, this is a separate issue, but the wage thing is misleading, too. While raw "wages" are "the same" adjusted for inflation - implying buying power is the same between now and 1981 on most items, that doesn't account for the fact that now we tend to have WAY more benefits built into our jobs than we did in 1981.

Many jobs offer health insurance, pension plans, 401 K contributions, etc. Not many jobs offered these things in 1981.

So jobs are actually "worth" far more today than they were in 1981.

Also, capitalistic advances mean that many things are much cheaper to buy than they were then, because of increased efficiency and productivity in the marketplace.

Your dollar actually goes much further today compared to your wages and benefits.

Wages = same. Gas prices = lower. Benefits = more. And all that = we're much better off today than the whiners would have you believe.

8:41 PM  
Blogger Robert said...

Gas prices, adjusted for inflation, have been basically flat for 30 years. (Leaving out the OPEC price spike of the 1970s.)

(Here's a simplified graph that shows the trend: huge increase in nominal price, flat trend in actual (adjusted) price):


It's natural to want explanations for perceptions of an unfair world, but when the perceptions aren't accurate, the search for explanations just turns into conspiracy theorizing.

8:44 PM  
Anonymous Anonymous said...

I'll start a fight: Seethe all you want to Demo-Boy! You and all your pals ignore the facts and the economics of this at your own peril!

Your "Green" comrades have made it impossible to build new refineries and demand complex and generally worthless multiple formulations for gasoline for summer usage, taking up valuable refining space in our few remaining refineries. Result? Our few refineries have to shut down in the Spring to re-tool, resulting in a smaller supply to meet a growing demand!

From that, what does Econ 101---which being a Demo, you never took, Gay Film Studies being far more important to your life--- tell you about prices? Simple, Simpleton, THEY FRIGGIN' RISE!

Record profits? Ha! What record? Percentages? No, just gross revenues: If they sell more gas to more people, of course they're going to set new gross profit records, again, just simple arithmetic!

Are their profit percentages at record levels? Flatly no!

Quit emoting and try learning some facts and economic concepts before you "seethe" again!

8:55 PM  
Anonymous Anonymous said...

Your post is easily one of the most ill informed blog entries I've seen on the net.

Gas prices are high because of two factors - crude oil prices are high and we haven't added refinery capacity in 30 years. Oil prices are driven by the world market but refinery permit policy is set by Federal, state and local governments. Who runs the government ? Mostly lawyers. So truth be told, it's the lawyer's fault.

8:57 PM  
Blogger Cervus said...

What we are seeing is the result of a confluence of factors:

Fallout from Katrina and Rita. In 2006 and 2006, refineries postponed or did without the normal maintenance in order to keep production up while damaged refineries were repaired. We had a lot of capacity down after those storms!

Rising demand higher (over 3% some weeks) over the 1.5% increase refineries normally plan for. While some refineries have closed, they have actually been expanding existing facilities.

Low gasoline imports due to labor problems in Europe. We actually import a lot of gasoline from them.

A very cold April that caught everyone off guard, increasing consumption just when the refiners normally go offline for turnarounds.

A spate of refinery problems.

And more and more problems in Nigeria, from which we get a lot of light, sweet crude that's most easily turned into gasoline.

All in all, 13 weeks of supply drops don't surprise me. Frustrates me, yes. But it doesn't surprise me.

9:10 PM  
Blogger asdf said...

You're a lawyer, so you've had a college education. You're also an adult. Yet your comment ammounts to: "Mommy, mommy make the bad men stop charging so much for gas. It's just not fair!"

Very embarassing. Hopefully your clients don't see this.

9:25 PM  
Anonymous Anonymous said...

The commenters have laid to rest the idea that gasoline prices have risen relative to either wages or constant dollars in the recent (30 year) past. What about the future? I believe we are about to get hammered by two simultaneous blows, one self-administered and one imposed by the Real World.

The Real World blow is the decrease in the availability of "east oil". Easy oil is the crude that is easy to recover. We are having to drill in deeper off-shore waters, go to expensive directional techniques, or endure unstable political environments to get crude. As these trends continue, the price in real dollars will go up.

The self-imposed blow will be the carbon tax imposed to decrease CO2 emissions and save us from climate change.

Because of these two trends, I expect the commenter's observation that consumers are driving whenever they please will be a fond memory in another thirty years.

9:26 PM  
Blogger John Thacker said...

And while the average weekly wages are the same, the cash value of benefits has increased since 1981. Compensation isn't wages. Of course, one can argue that workers aren't seeing any extra benefits for the ever-more-expensive medical benefits. There's definitely something to that. OTOH, there have been some real advances in health care since 1981.

9:38 PM  
Anonymous Anonymous said...

Er, hydrogen is not a source of energy, it's an energy storage medium. You still have to generate the energy used to either separate hydrogen from water, or, more economically at least today, from methane - natural gas.

With today's technology, you're going to need a lot of power plants of one kind or another (hundreds of nuclear plants based on the estimates I've seen and even more coal or whatever) to generate enough hydrogen to replace just the oil the US currently imports and then still are likely to rely on a non-renewable petroleum base for the foreseeable future. I know people who want to pretend those aren't the facts, but you just can't past them by wishing.

Combine that with the infrastructure problems and there are a lot of good reasons why we won't see hydrogen as a "energy source" for quite a while yet.

9:39 PM  
Blogger Josh said...

Anon 9:26 :

One problem with that 'analysis' -- we're just plain getting better at getting to less easy oil. Thirty years ago, it would have cost twice the market price of oil to get stuff out of some Canadian oil sands. Today, it's only a few dollars per barrel more expensive.

We'll eventually run to the point where the scarcity of oil goes to such a point, but it doesn't look like that'll happen anytime soon.

Hell, we're only about ten dollars a barrel away from having coal-to-oil be viable, despite how unperfected a method is it, and we've got enough spare coal sitting around to last at least three hundred years if no longer.

I firmly expect we'll go to a different fuel source not long after, simply for ease of use. Gasoline isn't a particularly useful fuel (it's hard to ignite, messy, 'ages' quickly, and requires a lot of coaxing to get the best out of), and there are so many more appealing options around that we'll eventually see movement to the other ones.

9:39 PM  
Blogger TM Lutas said...

Refinery overcapacity allows the vagaries of every day screwups to be absorbed by the system. So what if a refinery goes down a few days. Another three or four can up their pace and we're almost at square 1. But lefties and NIMBY types have put the kibosh on new refinery construction for decades and Katrina took out a lot of refinery infrastructure and general infrastructure that refineries depend on. So small errors in execution lead to big price swings because there's precious little excess capacity to absorb any errors.

As for hydrogen, there are three public, eighteen private and seventeen planned hydrogen stations in California alone (38 total). You can get state totals here among other station locator information.

The US government, thankfully, is not fatally distorting the market. This means that they're setting goals and making a bit of seed money available. They're hoping for a sustainable, commercially viable power stack by 2010 and starting to transition to hydrogen over the next decade. We could goose that up a few years but we'd have poorer results over the long haul (as US space efforts have proven since 1973).

I'm looking forward to transition to hydrogen but supercapacitor storage might end up being better. I don't know which and, frankly, neither do you; frankly, neither does the government.

9:40 PM  
Blogger T J Sawyer said...

If you think that oil companies are making so much profit, why don't you buy one? They are all for sale courtesy of your local stockbroker.

With any luck, your 401K plan has already acted on this idea and is making money hand over fist on your behalf.

10:58 PM  
Blogger Joel said...

better yet, why dont you just hedge gasoline so that you lock in a per gallon cost at say 2.50 or 2.80 per gallon?

Farmers and pretty much anyone else that deals with a commodity have been locking in prices to reduce risk for decades.

Nothing will drop the price of gas faster than pit traders seeing a bunch of weak money going long.

11:17 PM  
Anonymous Anonymous said...

Ron Bailey explains why the EPA is to blame for sharp increases in gas prices. His point is that vapor pressure (and more recently ethanol) mandates have caused sharper increases in gas prices during the spring since the late 80s. These mandates force a switch to a more expensive fuel for the summer in a very short time span, about 1 week.

11:53 PM  
Blogger Xiaoding said...

Dude, you can't be for real. Hydrogen? Hydrogen is not a fuel!! Don't tell me your'e falling for that scam! Because that's what it is...a scam!

Once I read that, I stopped reading...dumb, dumb, dumb.

12:14 AM  
Blogger M. Simon said...

The oil companies have been Cheating their investors.

Why didn't they raise prices a year ago?

BTW don't high gas prices cause alternative energy development?

I note we could use some new refinery capacity in America.

12:56 AM  
Blogger RWBlack said...

I have watched the price of oil on the open market for years. Currently, the price is less than it was last year when we were at record gas prices. Analysis, the gas companies are gouging. That is to say, charging what they think they can get away with and not suffer retribution. The only long-term solution is alternative sources or increased competition. I do not see any upstart companies looking to enter the market. Hence, alternative sources seem the only realistic answer.

6:00 AM  
Anonymous Barry said...

>Of course we're being gouged, and the oil industry is laughing all the way to the bank with their record profits.

The Oil Company makes about 13 cents profit on a gallon of gas. The US Government makes about 18.4 cents (a tax) on a gallon of gas. Then your home state adds a tax. Some places, your city or county adds a tax, too.

Who's doing the gouging, again?

6:45 AM  
Blogger rhhardin said...

Consumers set the price of gas, not the gas companies.

Here's what happens : the guy at the local tank farm notices that the inventory is falling, namely the gas is being taken out faster than he can get it in. So he raises the price _to slow the outflow_ to match the inflow. Thus he doesn't run out of gas, and neither do his customers.

When his customers cut back, he stops raising the price, and everything is working.

Now the price of gas is called ``inelastic,'' meaning that the demand for it is pretty insensitive to the price. You need gas, after all, and will pay whatever it costs.

But that's not quite what it means. What it means is that the price has to go up a whole lot before you cut back. So that's what the price does.

You can't burn gasoline that hasn't been produced. Only present gasoline is available, not future gasoline. So cut back you will. The price required for that is pretty large.

As a result, there is screaming and kicking and charges of conspiracy and so forth.

As a side-effect, there are windfall profits for whoever owns gas that's cheap to produce.

The profit isn't a problem, and isn't the cause of the problem. The problem is that production can't be expanded.

If anything the windfall profits are a PR nightmare for the oil companies, and they'd rather have average profits all the time instead of a win followed by loss constantly going on.

Windfall profits do bring out additional gas that's costly to produce, however, and eventually lead to substitutes as well. So they more or less solve the problem, left to their own.

Remember that your enemy is your fellow gas consumer, not the oil company. The fellow consumer is the one bidding against you for the gas you want. The oil company just gives it to the one who bids highest.

7:27 AM  
Blogger rhhardin said...


Incidentally, in the fixed production case I outlined above, doing away with the taxes on gas has no effect at all on the price. It just moves the profit from the government to the oil companies.

The price seen by the consumer is the same whether it goes to the government or to the oil company, because that's the price needed to get him to cut back enough.

Price does affect production, in fact, a little, chiefly by bidding supplies away from other areas of the country, or by bringing up refined imports.

7:31 AM  
Anonymous Anonymous said...

Wonderful little debate you have going here. Gas is high, it seems to me . I am now spending about 350.00 a month on gasoline. It is causing some pain, the higher prices.
However, I think the prices are set by the free market. In the US refining capacity is low and there have been no new refineries built since the late 1970's. China and developing nations are starting to use more gasoline than is available worldwide creating demand ,thus, higher prices. Unfortunately, the market is setting the price not the oil companies. Also the profit margins of the oil companies are not going up. Profit Margins, a little different than gross profit. I'll give an example, borrowed from Neil Boortz:
Let's say that you're selling a widget for $10 and you're making a 10% profit. Your profit is $1.00. Your profit margin is 10%. Now let's say that your costs go up by $9 a widget. So, you double the price at the widget store. Now widgets are selling for $20. Your costs are $18 per widget, so you're making $2.00 on every sale. Your profit has doubled to $2.00 per widget, but your profit margin is still 10%. You're still making the same profit on every dollar that you invest in your business, but your profits have doubled.

I think we should let the market run, and be the final decision maker on how to deal with the gasoline issue. Keep the friggen government out of it, everything they touch they fuck up. I mean everything.

7:56 AM  
Anonymous Hale Adams said...

Hello, Doug,

First off, congratulations on the Instalanche. :)

I was going to write a long comment on your post, but the other commenters have already made most of my points.

But if I can twist the knife one more time....?

I am amused no end by the enviro-wackos and their screaming about the wrong-doing of "corporate America", especially those EEEEVIIIIILLLL oil companies. As another commenter noted, your local stockbroker has the oil companies for sale every day, probably for about $50 a share. So why don't the enviro-wackos start buying shares in the oil companies? Lord knows that they have enough money to do so, either as individuals or collectively through "green" organizations such as the Sierra Club, etc.

By buying shares, they would gain a voice (small at first, but much louder as they accumulate shares) in how the oil companies are run. And thanks to the dividends the oil companies pay to share-holders, these "greenies" would be PAID for the privilege of bossing the "suits" around in the halls of the oil companies.

Why don't they buy shares in oil companies, or in any company at all? Most likely they don't want to dirty their politically-correct little hands with EEEEVIIIIILLLL money (Oh! the horror!) derived from the perfectly lawful and moral ownership of EEEEVIIIILLLLL "corporate America", no matter how beneficial such ownership would be for their movement and the country.

There's another point that gets overlooked by those who wish to "stick it" to the oil companies. Some people are dependent for their livelihoods on the profitability of the oil companies. Obviously, the employees are dependent on their employers' profits-- if the oil companies aren't profitable, they will eventually fail, and their employees' jobs will vanish. Less obviously, there are other people whose prosperity depends on the oil companies, people such as my mother, a little old lady who depends on her quarterly dividend check from ExxonMobil (among other parts of EEEEVIIIILLLL "corporate America") to pay her nursing home bills. No oil company profits mean no money for to pay dividends. No dividends means no dividend check for my mother. No dividend check for my mother means no nursing home care, unless my sister and I cough up the money to keep her in the nursing home.

So, if "We the People" decide to "stick it" to the oil companies by taking away their profits, who is getting screwed? The oil companies? Or you and me?

11:51 AM  
Anonymous Anonymous said...

One more thing - checking the numbers...

Today a family's outlay for gasoline is about 7% of income.

In the late 1970s and very early 1980s it reached 15% of income.

So there it is - you are completely wrong about today hurting more in terms of percentage of income than in the past. Gas was higher then adjusted for inflation, and over twice as high as a percentage of a family's budget.

12:24 AM  
Anonymous Anonymous said...

The best way to offset any company's high profits is to buy their stock and reap the profits with them.

8:41 AM  

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