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About Those Gas Prices

Read Charles Krauthammer's latest exposition on this issue.

· Demand is up. China has come from nowhere to pass Japan as the number No. 2 oil consumer in the world. China and India -- between them home to eight times the U.S. population -- are industrializing and gobbling huge amounts of energy.


American demand is up because we've lived in a fool's paradise since the mid-1980s. Until then, beginning with the oil shocks in 1973, Americans had changed appliances and cars and habits and achieved astonishing energy conservation. Energy use per dollar of gross domestic product was cut by 30 percent in little over a decade. Oil prices collapsed to about $10 a barrel.

[snip]

· Supply is down. Start with supply disruptions in Nigeria, decreased production in Iraq, and the continuing loss of 5 percent of our national refining capacity because of damage from hurricanes Katrina and Rita. Add to that the mischief of idiotic new regulations. Last year's energy bill mandates arbitrary increases in blended ethanol use that so exceed current ethanol production that it is causing gasoline shortages and therefore huge price spikes.

The concept of supply and demand was taught in Econ 101 when I was a freshman in college, but American universities appear to have changed a whole lot in 20 years.


Comments (16)

When colleges offer degrees... (Below threshold)
Steve L.:

When colleges offer degrees in things like Cross-Gender Studies or some other nonsense, I doubt those students really worry about learning anything useful. Besides, why learn all that boring stuff when you are busy getting ready for your next protest? You can just tune in to one of the networks or CNN or MSNBC and they will give you the straight facts.

Now if Krauthammer could fo... (Below threshold)

Now if Krauthammer could forcibly implant a clue in Congress, maybe they'd stop blathering about how it's all a conspiracy by the oil companies to maintain their 9% profits and saying they'll get gas prices down by passing a law.

Sheesh. Give someone a hammer, and everything looks like a nail.

But you know, it's kind of odd how the credit card industry, at 33% profit, never seems to get mentioned as far as price gouging goes...

JLawson:That's one... (Below threshold)
Peter F.:

JLawson:

That's one helluva a good point! Nobody every whines and moans about credit card companies and their profits. Or Big Computer industry profits. Or Big Car Company profits. Or Big Milk Industry profits. No, no. When it's Big Oil then it must be sinister and evil and there must be a conpsiracy! Talk about arbitrary indignation.

Krauthammer is right. We've heard this same "we're investigating it" crap for years. Same piper, slightly older pipe.

Oh, and I'm sure the government's just completely crushed and crying endless tears over the "windfall" in tax revenue they're seeing from these oil companies. The 39% tax bracket is a bitch. Ask any BIG company exec.

Economics 101 is seldom tau... (Below threshold)
smitty:

Economics 101 is seldom taught on American campuses (when it is, it's taught by Marxists).

So I expect economic ignorance and populist imbecility from the the MSM and the Democrats but not the Republicans or the White House.

It's sad to see this particularly moronic history endlessly repeating itself every time there's a spike in oil prices.

Hmmm.It's rather a... (Below threshold)
ed:

Hmmm.

It's rather amusing in a way that the high cost of fuel is due to the massive outsourcing by America to China and India. Supposedly this outsourcing was supposed to vastly improve America's economy, and in some ways it has.

But has the improvements to the economy matched the rapidly increasing costs associated with outsourcing? Is the fact that I can buy some useless plastic trinket for $3 less than if it were built in America make up for the fact that I've got to pay $15 more a week for gas? $45 more a month for natural gas?

I can't vouch for the repor... (Below threshold)

I can't vouch for the report's accuracy, but I heard amongst all the screeching over Exxon/Mobil that their profit represented something like a 10% margin. That's not exactly "windfall" profits in most businesses. Other oil companies were hovering around the 6% mark.

At the same time the government is taking a relatively high percentage of the price at the pump, as well as hitting the oil companies with some pretty high taxes, as well....no doubt profiting much more than the oil companies from the sale of gasoline, without any risk.

Now, does anyone think that a "windfall tax" placed on the oil companies will keep costs low? When corporations incur losses (through taxes or lawsuits) they typically pass those losses along in the form of....higher prices.

At the same time, by caving to environmental interest groups' fearmongering in areas of drilling, refinery construction, and exploration, the government has pretty much guaranteed an eventual shortage of fossil fuels, and by restricting development of other fuel alternatives (particularly nuclear), they have ensured that shortage will create a nationwide energy crisis.

So it continues to be my belief that yes, the government can fix the current "energy crisis" but it'll have to do it by backing out, not by taking more action.

Now I had heard the the law... (Below threshold)
Joe:

Now I had heard the the law of supply and demand is: "When the supply is low and demand is high; charge whatever the market will bear. When the supply is high and the demand is low; raise prices to maintain profit margin." What has THAT got to do with anything? NOTHING.

I read in the paper about how outrageous the profits made by Exxonmobil are. So would someone tell me what a FAIR profit is? EM's profit is less than %10 of investment. No wonder they are getting beat up in Wall street. That's TERRIBLE.

Here we go again,l... (Below threshold)
Tincan Sailor:


Here we go again,lets blame India and China!
Hell why not?It couldn't be the oil companys
naw there our friends right??Well??Lets look
back in time,yes friends at one time there 15
oil companys yes 15,Now we have 5...Let see
when there were 15 and one wanted more MONEY
they would cut and sell more than the rest and
the rest would drop their prices,Folks that
is called COMPITION,what we have now is NONE
and it smacks of anti trust...and what are we
doing now???still sucking the a-rabs hind tit..

Lets time travel again 1973
arab oil boycot!!!that friends was 33 years
ago and weve done what,nada,zip nothing,well
Brazil with a population of 180 million plus
went into action to phase out gasoline as fuel
and guess what kids next year 2007 they will do
just that,its called ETHANOL and made from sugar
cane,We make ours from corn silage and theirs
has 9 times more energy than ours so we have
placed a .54 cent a gallon tarrif on importing
theirs"nice"By the way most cars by Ford and GM
are flex/fuel.. 5years folks we could cut off
all arab oil imports...And for India and China
with all the rice they grow they could do the
same...And will this happen,only when pigs fly
Enron,damn I ment Chevron sells oil and they
will till they pump the last drop...Good
for me as I have 300 shares of Chevron....
It comes down to do you want $80-90 a barrel
oil when you can have 15-20 a barrel Ethanol
Its your choice you hold Goverments feet to
the fire it will if not ,well

Yes and what was the govern... (Below threshold)
Joe:

Yes and what was the governments profits? thats right 100% with no cash outlay or taxes owed on their take. i think we all know where the fatted calf must be cut, but will they get the message or be drowned out by the $$ signs? methinks the latter will rule the day.

'Fair' is whatever someone ... (Below threshold)

'Fair' is whatever someone who's demogoging against you thinks is fair, which will probably be less than half what you're currently making, and about 25% less than you need to make to stay in business...

I was a science major. A lo... (Below threshold)
Dave Eaton:

I was a science major. A lot of science people lean left for some reason, at least in my experience. I guess I once did, too. I, by complete accident, took the Macro/Micro econ sequence in college just to fulfill university requirements, and had pretty hardcore free marketers teach both. My life is completely different than it would have been as a result.

Trying to understand the world of production, supply and demand without econ would be like trying to understand the scientific world through alchemy. Yet, but for a random encounter with econ, I would no doubt be doing so right now, full of self-righteous anger at price gouging. Instead, I'm hoping that a) they use the profits to improve processes and efficiency b)the demand pressure means we'll get a new refinery or two in the US c)alternatives will be worth pursuing and d)more supply will come online.

As for there only being 5 oil companies, look for the market forces or stupid laws that encourage consolidation before assuming the oil business is a satanic cult. Which it might well be, but still subject to market forces all the same...

Back when the EXX... (Below threshold)
Tincan Sailor:


Back when the EXXON Valdez shot its load in
Alaska there was a T-Shirt with WE ARE EXXON
AND WE DON'T GIVE A DAMN!!! Thats as true
to day as back then ...What the American public
needs to do is get off their dead ass,go look in
the mirror and wash the D. S. for dumb shit off
their colective foreheads and get involved,yes
thats what our citizens are supposed to do,but
all the dip shits that won't vote give the rest of
us the slime we call our Goverment...Remember
we are the Goverment they work for us and they
had better start doing just that or as Trump
would say "YOUR FIRED" We have a fantistic
chance to put it to the Oil Companys but you
can't wish it to happen...They will do everything
in their power to stop it ,the question is will we
let them,if we do then shame on us...

Mr Eaton, ... (Below threshold)
Tincan Sailor:


Mr Eaton,
I think the point Im trying to make is if
we get off our dead ass in five hard years
the cord can be cut,do you think they are
going to let that happen...Next is a 3rd.
world country (Brazil)that much smarter than
we are? Or were they Just tired of being tied
to the Oil Compnys, By the way 5 companies
from 15 smacks of anti trust, be on the look
out for the goverment to do the same as they
did to Ma Bell...We have a choice, the deal
is, are we willing to stop whining and get the
Job done and let the Arabs choke on their oil.
Remember the folks in Brazil drive the same
type of cars as we do and holding back on
production to drive the price up is against the
law just ask the folks at Enron...

...soooo, Tincan.H... (Below threshold)
leelu:

...soooo, Tincan.

How do we transofrm the whole infrastructure from petrol to ethanol, and who pays for it??

Why, the magical Ethanol Fa... (Below threshold)
James Cloninger:

Why, the magical Ethanol Fairy, of course!

Hmmm.What's frankl... (Below threshold)
ed:

Hmmm.

What's frankly amazing to me is that the real-life exposition of Econ 101 is .... Monopoly.

It's almost unimaginable that these people have never played Monopoly.

Though it's not unimaginable that these people have never won at that game.




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