Tuesday, August 23, 2005

Why all the fuss about gas prices, Mr. WIll?

Ah, everyone's favorite columnist, George Will, cannot comprehend what all the fuss is about gas prices of nearly $3 a gallon. He was on TV this past Sunday and wrote his column in Newsweek in this week's issue about how the economy is doing so beautifully and everyone should be happy with the current situation. And, gas prices are not a problem when looked at historically. Perhaps he neglected one piece of information (besides the fact that he is wealthy and wouldn't notice any differences if gas cost $10 or more per gallon). Since Bush took office the cost of crude oil has gone from the mid $20 per barrel to the mid $60 per barrel, or an increase of about 250%, causing gas prices at the pump to increase substantially by ~50% or more. From late 2000 to 2003, for instance, the median U.S. household income decreased over 3%. He also forgets to point out that prices of other necessities, such as groceries, has also been steadily increasing, in part because of higher transportation and distribution costs because of gas prices. Needless to say, when average, middle-class folk are earning less and paying more, we don't really care about other numbers economists and politicians and pundits throw at us to try and convince us we should be smiling and bowing to them for dong a great job. The most important number that matters in real, everyday life is what the balance is in the checkbook. Perhaps that is why the vast majority of people I know are not celebrating Mr. Will's or Mr. Bush's gleeful testimony about the state of the economy. This is a prime, concrete example of wealthy elites being out of touch with us ordinary folk.

2 comments:

mark said...

Gas prices are up ! Bush is an oil guy ! And a evil Republican ! Conspiracy !! ;o)

No.

Oil industry experts and economists saw this crunch coming back in the 90's when gas was relatively cheap. We'd be having it if Kerry was in office instead of Bush and all likelihood prices at the pump would be higher because Democratic economic and energy policies favor higher gas taxes.

The only country that has market " flex" ( i.e. does not pump at maximum capacity as a matter of course) is Saudi Arabia. KSA acts as the stabilizer for the oil market which was once subject to very violent swings, even by the standards of commodities markets. Once KSA pumps at max volume that's it.

Essentially, global refinery capacity has been neglected for the last 15-20 years due to slack demand. If we doubled glonbal oil production we'd have nowhere to go with it. As for oil extraction/exploration, three major oil producers have had their fields degraded for decades - Iraq and Libya by sanctions and Russia by incompentence and outright theft of infrastructure.

Meanwhile Indian and Chinese demands for oil in the last five years or so have skyrocketed by several orders of magnitude, eating up the slack experienced during the 1980's & 1990's.High prices are a simple market mechanism of having a limited supply and increased demand.

The short term solution is investing in greater refinery capacity and new oil fields plus conservation and increased engine efficiency.. Long-term solutions lie in alternative fuel technology.

Mark Vondracek said...

James,

Not necessarily complaining about prices myself, just trying to point out that a lot of real people are being hit by prices directly as well as indirectly. Prices for just about everything have increased in part because of higher gas prices, so there are a number of levels to this. Even the increase in the CTA fairs earlier this year are now insufficient to cover increased gas costs, and they are discussing another increase. So even those who are trying to make use of public transportation could be hit again (and many of them are those who cannot afford it). In my case, along with many millions of my closest friends around the country who have longer commutes to work, this will be an additional $800+ just for gas this year, and I certainly do not have a gas guzzling SUV type vehicle. It does take a bite out of the pocket (I can think of better uses with two young kids), and these prices are rising much faster than increases in most paychecks. It is just the reality of the situation.

I had a feeling I'd hear from you, Mark! :-)

I know there are legitimate reasons why prices are up, and they are well documented (as are record profits for big oil, for that matter). I think it has caught some by surprise about how quickly prices have gone up, and I did even hear that for the first time sales of SUVs have slightly declined, and that is a good thing. You know I think we should have been investing MUCH more into alternative fuel and energy R&D years ago, even under Clinton, but the political realities have not allowed that to happen even though it is in our national interests to do so. I just get irked when the rich and famous tell my friends in the city, who do not have much money and are being hit hard, that things are all rosy and that their bank balances aren't anything to worry about.

If Kerry was in office, I doubt the gas tax would ever have been increased with a Republican Congress. On the other hand, a national energy bill would not have had over $100 billion (I believe that is right) in gifts going to big oil, either. And I am confident there would have been a significant push from a Kerry White House to get higher mileage efficiencies and standards.