I just ran across this article yesterday at CNNMoney.com. The original article can be found here:
Who’s to blame for high gas prices?
There are a number of statements that the article makes that touch on some important issues. Specifically, the article highlights the irresponsibility of some politicians when it comes to energy issues. It is an election year, and instead of discussing ideas that could actually help us deal with the difficult energy issues in front of us, we get a bunch of finger-pointing and posturing. Below I will quote various portions of the article, and comment:
Last week, Wisconsin Democratic Sen. Herb Kohl and Pennsylvania Republican Sen. Arlen Specter proposed legislation that would increase regulatory scrutiny of Big Oil, which Kohl says “has unquestionably enriched itself during this period of high prices.”
The last time I checked, it was not against the law to make money. Of course Big Oil has made money during this “period of high prices”. High prices are exactly why they made money, but they didn’t raise prices simply to make more money. It’s called supply and demand. The supply is becoming limited, yet the demand has not yet been stemmed. Prices are raised to stem demand and bring supply back in line. That means Big Oil makes money. I explained this in an earlier essay A Primer on Gasoline Pricing .
Taking on Big Oil six months before November’s election is a can’t miss proposition for politicians, of course. Besides calling on the federal government to make OPEC liable under U.S. anti-trust laws, Kohl’s Oil and Gas Industry Antitrust Act of 2006 would mandate the creation of a joint state-federal task force to investigate whether producers, refiners and marketers are sharing information in a bid to keep prices high.
Right. Can’t be supply and demand. It must be collusion, even though the FTC has investigated these charges again and again and found nothing. They really should force these legislators to take Economics 101 before allowing them to make laws.
There’s no harm in having the government keep a closer watch on the energy industry, and Kohl’s sympathy for consumers is commendable, but blaming Big Oil for high gas prices is a little like blaming McDonald’s for obesity. (Yes, I know that also makes for effective politics.)
Exactly. Where is the personal responsibility here? People make choices that determine how much they contribute to Big Oil’s coffers. But people don’t want to be held accountable for their choices. They want government to do something about Big Oil so they can continue to use energy at the current wasteful rates. It is time people woke up to the fact that the National Bank of Petroleum is starting to notice that their assets are being withdrawn at an alarming rate, and changes are inevitable. The government is not going to help matters by trying to keep prices low. That will only increase the rate at which we use up our remaining fossil fuels.
The idea that prices are set by Big Oil, not the traders at the NYMEX and other global bourses, is a misconception that seems to come into vogue whenever energy prices start making new highs.
Yet it’s an idea that seems to be held by >90% of the population. Oil is a global commodity. If China wants to expand their use of oil, it’s going to mean that we pay more due to tight supplies. As one little old lady said to me once after a presentation I made “It’s not fair that I have to pay more for gasoline because of China”. I just had to shake my head at the self-centered nature of her comment. I asked her if she would rather go to war with China to ensure that she could pay $1.50 for gasoline for a little while longer. Or maybe we could convince China that they must continue to ride bicycles, so we can continue to drive gas hogs.
Kohl’s bill, alas, won’t do much to lower gas prices. The real problem here is the reluctance of Washington to make more than modest improvements in fuel-efficiency standards for cars and trucks. At the same time, politicians and other leaders seem unwilling to at least jawbone more Americans into giving up their SUVs and Hummers in favor of more fuel-efficient cars. Suing OPEC under U.S. anti-trust laws may be smart politics, but what about actually telling voters that they, too, have to take some responsibility for the problem?
There is the crux of the issue. Too many politicians are gutless. They pander, but they don’t have the courage to propose real solutions to the problem. Passing windfall profits legislation may show the public that they will “stand up to Big Oil”, but it does absolutely nothing to address the real issues. Do they think windfall profits taxes are going to cause Big Oil to lower gas prices? Who are they kidding? Gas prices are escalating to stem demand. This ensures that gas is available. Lowering prices in this tight market would have the effect of ensuring that there would be gasoline shortages.
Last month, I spent a day on Capitol Hill watching Kohl, Specter and other members of Congress grill the CEOs of Exxon, Chevron, Conoco, and several other giants. It made for great theater but I was amazed that the Senators, including liberal Democrats, barely mentioned fuel efficiency and conservation in their public remarks.
That last line is the real money quote. Aren’t liberal Democrats supposed to care about the environment? Do they think lowering gas prices is going to help out there? Do they not understand that increased fuel efficiency and conservation are our best options at the present for extending our fuel supplies and sparing the environment?
Perhaps haranguing CEOs makes for better soundbites back home. But when oil CEOs like Chevron’s Dave O’Reilly spend more time talking about conservation than our elected officials, you know we’ve got a real problem on our hands – one that will last well beyond the summer driving season.
I love our democratic system, but pandering politicians may be our downfall. We do have a real problem on our hands. For the sake of all of us, we need more politicians to have the guts to propose some real solutions. These solutions will not be painless, and that’s why politicians avoid them. But if they don’t step up to the plate, we are going to pay a terrible price in the not too distant future.
Welcome to the blogosphere. It’s always good to see new people with new specialities. I don’t think that any of the more scientific minded bloggers have a background in biofuels. I’ll throw you a link on my blog.
One other point to add: I sometimes see big oil accussed of not investing to increase supply. Why would they? This would cause prices to drop and hurt future profits. Until they’re losing market share to a competing source of energy, they have an interest in limited supply and higher prices. This is especially true if increasing supply isn’t a matter of simply pumping faster.
As long as big oil isn’t using its profits to unfairly block alternate sources of energy, it all sounds like a working market system to me.
Last week, Wisconsin Democratic Sen. Herb Kohl and Pennsylvania Republican Sen. Arlen Specter proposed legislation that would increase regulatory scrutiny of Big Oil, which Kohl says “has unquestionably enriched itself during this period of high prices.”
Sounds suspiciously like an old-style command economy. Weren’t there several economies in Eastern Europe that tried that and found it didn’t work very well?
The only way to stem high prices is to reduce demand. Neither of the senators discussed that.
Two ways I can quickly think of to slow demand:
1. Conservation
2. Taxes on motor fuels to artificially raise the price to the point where fewer people want to buy it. (Of course taxes are odious, and artificially raise the price at the pump, which is self-defeating.)
The true answer is conservation and using less. I wish the senators had talked about that course of action.
I’ve been pushing the idea of taxing fuel more and rebating the full amount of the tax as a discount on personal taxes, which would have the effect of making the less oil-intensive options cheaper and more attractive without changing average standard of living much.
I’ve been gratified to see this idea get traction in the wider world, as even the USA realizes that they aren’t going to use less crude if it’s cheap at the pump. We’re going to see higher prices no matter what, but we can change where the money goes: OPEC to pay for terrorism, or our own government.
Gary,
Taxes on gasoline and diesel should at least be high enough to pay for the cost of building and maintaining the infrastructure (i.e. highways and roads) that cars and SUVs require. In the States they aren’t.
Taxes on gasoline and diesel should at least be high enough to pay for the cost of building and maintaining the infrastructure (i.e. highways and roads) that cars and SUVs require.
Robert,
I agree completely. Sorry if you perceived otherwise. Those that use the roads should pay most of the cost of developing that infrastructure and motor fuel taxes are an equitable way of doing that.
In the interest of fairness, perhaps motor fuel taxes should even be proportional. The driver of a 5,000 lb SUV certainly puts more wear and tear on the road system than the driver of a 2,000 lb hybrid or microcompact, and perhaps their taxes should be correspondingly higher.
Best,
Gary Dikkers
“I sometimes see big oil accussed of not investing to increase supply. Why would they? This would cause prices to drop and hurt future profits. Until they’re losing market share to a competing source of energy, they have an interest in limited supply and higher prices.”
This is the definition of a monopoly (or oligopoly: few enough companies to be similar to a monopoly). By law the federal government is supposed to prevent monopolies and promote competition.
Monopoly is most definitely NOT a “working market system”.
Interesting article. You show your colors and where you paycheck comes from. Yes businesses are allowed to make money. Creating your own pricing structure borders on unethical practices. Of course the traders on CBT and NYMEX bid up prices. But you fail to allow that over 82% of traders on the boards work for Oil companies. DUH! The arabs are another good scapegoat and in the past have deserved their blame. But when Exxon pays $22 per barrel and is reselling at $70. Not very ethical. Put into the mix that oil that belongs to the citizens of the USA is being sold to Japan, Guatamala and other countries. Citgo is owned by a foreign country who sells it’s oil to China. You are right politicians are a complete waste. But let’s be honest when we make the claims. Most industries in the US are selling out their country. Oil is just doing it faster and more in the public eye.
Interesting article. You show your colors and where you paycheck comes from.
I have a bit of hard time taking a post seriously that begins with an ad hominem, especially one from an anonymous poster.
Creating your own pricing structure borders on unethical practices. Of course the traders on CBT and NYMEX bid up prices. But you fail to allow that over 82% of traders on the boards work for Oil companies.
75% of all statistics are made up on the spot. Please reference your claim. Regardless, traders are bidding against one another. Most oil companies have to buy crude to run in their refineries. They want to pay as low a price as possible. Prices are bid up because that’s what the market bears. It is no different than you selling something on eBay to the highest bidder.
Other than that, you didn’t address the majority of my essay. You threw in an unwarranted ad hom, and then proceeded to make a series of unsupported claims.
RR
Is Our Government To Blame For High Gas Prices?
Front and center in every form of media is the rising cost of oil and gas. It affects the lifestyles of every American and the costs of all goods and services we use. Many of us are shaking our fists and looking for somebody to blame. Before we start pointing the finger elsewhere maybe we should point it at ourselves.
To our Governments credit, they realized the problem and have done something about it. They passed federal tax incentives that pay each and every American to make their home and business more energy efficient. Our government passes laws that benefit us financially when they want or need us to take action. Have you made your home more energy efficient and done your part to reduce our dependence on foreign countries?
I’ll wager you that the percentage of Americans who have made their property more energy efficient and taken advantage of this tax break is very small. If most Americans took this simple inexpensive step (Almost paid in full by our government) we could dramatically reduce our oil consumption.
There are inexpensive revolutionary new products now available to the public that can slash your prices of both gasoline and your electric bill. Almost all new homes being built now have these energy saving products. Doing their part, our Government continues to raise the energy efficiency requirements for appliances and other items via building codes.
One of the best ways to slash your electric bill by 20% or more is to install radiant barrier in your attic. It reflects 95% of the heat before it enters your house. It can reduce the temperature in your home by almost 20 degrees. The average cost for a 1200 square foot home would be under $1,000.00. The government tax break allows a $500.00 tax credit. You could see a $400.00 monthly electric bill drop to around $300.00. It could pay for itself within a year and the government pays most of the bill. If every American took advantage of this, it would reduce our consumption and dependence of other nations by millions of barrels of oil. In turn, you would also save energy on fist wagging and the price of gas.
In America almost 400 Senior Citizens die a year because of heat trauma. If every elder had radiant barrier installed in his or her home and it reduced the temperature by almost 20 degrees inside – I wonder how many lives it would save? I recommend you use the radiant barrier provided by Hy-Tech Thermal Solutions. The only incentive I receive by endorsing this product is the satisfaction of knowing that I provided you with a safe product that works.
There is a new product called Enviro-Max Plus that is a fuel additive that actually works. When added to your gas tank it will increase your gas mileage by 30%. They claim that for every dollar you spend on their product you will save three dollars in gas. A friend used the additive on his way to Florida and he used two-½ tanks of fuel. On his way home he did not use it and it took 4 tanks of diesel to return home. It almost cut his diesel fuel consumption by half. A simple web search will inform you where to buy it and how to be a reseller to make extra money while helping our nation. I have noticed other copycat companies providing similar products and I would use caution.
We now have a paint additive available that will reflect 95% of the heat away from your home. It is the same technology used on the space shuttle and jet engines on our airplanes. This ceramic technology has been around since the 1950’s but only recently available to the public thanks to the testing by NASA and Hy-Tech Thermal Solutions. It is the cheapest non-traditional insulation you can buy for your home with the average extra cost of only $120.00.
By visiting the Department of Energy online you can learn many inexpensive ways to save energy in your home and cut your electric bill by 25%. They also provide testing results of Radiant Barrier from 1991. They should update these test results because radiant barrier products have improved.
Other ways we can all do our part to protect our nation and environment is by recycling everything, install a solar backup energy supply, only buy from or invest in companies who are environmentally friendly and invest in innovative alternative energy, only install white reflective shingles on our roofs, buy energy star products and appliances, or by giving unwanted items away versus throwing them in the dump.
We can also blame our media for our lack of knowledge of this new technology. Americans are suspicious of new untraditional products and it takes time for us to accept them. Several salesmen could tell us about them but we won’t adopt them until the mass media informs us. The media should be more problem-solution oriented. They will print information about the new tax laws, but don’t offer information about the new products it covers. When they talk about the high price of gas they should offer us ways to battle this problem with these new products. The media seems more interested in propaganda and the latest new widget versus their responsibility to inform and lead our nation in the right direction.
We live in the greatest nation on earth. It is a free country that we had the luxury of being born in. For that reason we have the right to remain inactive, wave our fists at and blame our government or corporations all we want. I maintain that the status of our nation and the world requires action from each and every American to do our part to conserve our natural resources. If we don’t – it could very well lead to our demise. America can be defeated by its own citizens, as the Romans.
Problem with your theory is that Kohl isn’t up for re-election and has publically speculated about wether he would even want to run again in 2010.
No one is questioning Big Oil’s right to make a profit. They are questioning if they made that profit honestly. Let’s remember our history. Oil companies went through a lot of consolidation in the late 90’s and early 00’s. They shutdown something like 5 refineries in that time and low and behold starting 2004 they had capacity restraints.
If you don’t think companies like Exxon and BP can’t manipulate the market by their sheer size and market share, you really need to get out more.
There is nothing that stops oil companies from trading on the nymex. Who’s to say they aren’t manipulating the market by buying and selling their own futures contracts to “manage” prices?
Oil industry has a history of corruption going back to Carnegie and Standard Oil and every few years something turns up to re-enforce that distrust and reputation. It is almost like they embraced it and nuture it. The latest nonsense with BP dumping sludge in lake Michigan comes to mind. All the while they spend millions touting themselves as a “green” business.
Margins are the key determinate here and anti-trust knows that. The problem isn’t that they are generating more revenue and more net. The issue is their margins have increased outside the ratio one would expect and not just marginally due to technical advance. In some cases, the ratio have tripled. That really raises a red flag with regulators.
They are questioning if they made that profit honestly.
Well, the numerous investigations over the past decade have all come up empty handed. But they keep investigating, in the hope that they can find someone breaking some laws.
They shutdown something like 5 refineries in that time and low and behold starting 2004 they had capacity restraints.
I have gone through the exercise before of refineries that were shut down. It wasn’t Exxon and BP shutting them down. It was a bunch of marginal producers you never heard of. So, it isn’t like it was a collective industry decision.
If you don’t think companies like Exxon and BP can’t manipulate the market by their sheer size and market share, you really need to get out more.
The market for oil and gas is global. Exxon controls 3% of the world’s oil. How, exactly, are they going to manipulate the price?
The issue is their margins have increased outside the ratio one would expect and not just marginally due to technical advance.
That’s because demand growth has outstripped supply growth. There is no fat in the system. When that happens, and demand remains strong, prices skyrocket. This has certainly benefited the oil companies, but does not imply wrong-doing on their part. Perhaps failure to accurately forecast demand, but their crystal ball isn’t much better than yours.
ever hear of the enron loophole?????
Too many politicians continue to advocate higher prices and less energy production. Unfortunately, their policies have suceeded, and we’re all paying the bill. These politicians support a policy of no oil and gas exploration, no offshore drilling, no oil from Anwar, no coal, and no new nuclear power plants.