It seems as though Republican critics of the Obama administration in particular are ecstatic, even gleeful at the recent rise in gasoline prices.
Leaving aside their parochial reasons for this, it's worth rebutting some of the spurious claims that are being made in this regard.
First, there is the claim that the administration contributed to this increase by placing a moratorium on deep water drilling after the BP disaster and canceling the Keystone XL pipeline. Second (and this relates to it) is the ongoing narrative that the U.S. doesn't have enough refining capacity and therefore our supplies of gasoline (and other refined products like heating oil and jet fuel) are limited.
Let's begin with the first claim, that administration actions taken to protect the environment are the cause of the present price spike. There are two basic flaws here: 1) they do not acknowlege the reasons for these actions, and 2) these charges are not true at all.
The reasons why the administration made these decisions are quite plain.
If you go back to after the BP disaster in early 2010, businesses all along the Gulf Coast suffered as beaches were closed, tourists stayed away and the fishing industry suffered severe and lasting damage. More than that, however, the inept and bumbling attempts by BP and its contractors to cap the spill in deep water made it plain that the supposedly fail-safe systems failed, and they had no idea what they would actually do if the system did fail. In this context it was only prudent for the administration to put a six month moratorium on deepwater drilling until the reasons for the leak could be determined and methods to contain and cap such a spill developed. Imagine if they had not placed a moratorium and then another well, somewhere else in the gulf had blown out and created twice the disaster. The President is sworn to protect the United States of America and in the face of demonstrated incompetence by the drilling rig's operators he was right to follow the mantra, 'first do no harm.'
In the case of the pipeline, the project was under study and on a schedule to be decided early next year. Because it crosses an aquifer that supplies drinking water to Nebraska, and because of a rupture in a similar pipeline that spilled crude oil into the Yellowstone river in Montana last year, there was a good reason to proceed with caution. Congress however intervened and forced the President to make a decision within sixty days. Again, the President followed the advice, 'do no harm' and said 'no' to the pipeline.
What of the economic impacts? Virtually none. In the case of crude oil production in the gulf, it was down slightly during the six month moratorium (which only affected deepwater rigs, a fraction of the total) but has since recovered. As we can see from the linked chart, crude oil production was affected far more by Hurricane Ike in September 2008 than any of the minor effects of the moratorium. As to the Keystone pipeline, even if approved it would not be built for years or be operating at full capacity until at least a decade from now, so it's a stretch to tie it to anything relating to present gasoline prices. Further, the administration has almost certainly done far more to reduce demand for gasoline over coming decades by increasing fuel efficiency standards for new automobiles than the drop in the bucket that the Keystone pipeline would increase supply, whether it is eventually built (along a less environmentally sensitive route) or not.
OK, what of limited U.S. refining capacity, also said to be responsible for an increase in gasoline prices? Again, that is false. In fact, last year the United States became a net exporter of refined products. Maybe what we need to do is implement a tax on exports so gasoline produced in American refineries would be cheaper to sell in the United States than abroad.
There are both long and short term reasons for the run up in oil prices. Long term, it is simply a fact that there are billions of people in developing countries (especially China and India) who are now beginning to earn enough money to be able to afford motor vehicles and use fuel. So globally the demand for oil is, and will continue to, increase. The price will also continue to rise with it. The only realistic solution for the U.S. is to get entirely off of that treadmill by moving towards electric vehicles and other alternative sources of fuel. Short term, the increasing tension around the strait of Hormuz certainly plays a part. The west (including the U.S.) has been increasing the pressure on Iran even to the point of risking a war in the strait over the Iranian nuclear program. These sorts of foreign policy complications are inevitable given that much of the world's oil supply comes from a small area along the far end of the Persan Gulf. To assume that the diplomatic temperature around the Persian Gulf does not affect the price of oil is foolish. It does, and right now it is causing us to pay more. However, the President is to blame for this only in terms of the fact that he is not backing off from his stated position with the Iranians. So at least let's get the facts right on that.
Showing posts with label gasoline prices. Show all posts
Showing posts with label gasoline prices. Show all posts
Thursday, February 23, 2012
Wednesday, April 30, 2008
Obama takes the right position on 'gas tax holiday,' even though it will cost him votes
Gas is creeping upwards towards $4.00 per gallon (diesel heading towards five) and may get there this summer. Voters want to see gas prices go down. So both John McCain and Hillary Clinton have proposed a Federal 'gas tax holiday' during the summer (peak driving season.) Clinton, to her credit, at least has a plan to offset the loss of revenue-- earmarked for highway funding-- with a windfall profits tax on oil companies. I guess McCain would just as soon sacrifice the quality of American roads to serve his own short term ambition of getting elected President. Of couse he flies everywhere anyway so I guess he never has to worry about a pothole doing thousands of dollars worth of damage to his car.
However the candidate showing real leadership here is Barack Obama. In the face of the demands for a 'tax holiday,' he is making the difficult case that cutting off the gasoline tax won't reduce prices, and whether offset by a Federal windfall tax on oil companies as Clinton proposes or offset by not funding highway repairs as McCain proposes, either way in the long run it will cost more, not less.
For starters, in an economics 101 class you will learn that if you decrease the price on any item, demand increases. But if supply does not, it puts upward pressure on price which in turn leads you back to the same equilibrium point, a price at which demand equals supply. That is as true for gasoline as for any other commodity, which is the point that economists are making, Senator Obama understands and Senators Clinton and McCain either don't understand or choose to wilfully ignore in their reckless search for votes.
WASHINGTON (MarketWatch) -- As summer approaches, Hillary Clinton and John McCain have found a common problem and a common solution. Both want to suspend the federal tax on gasoline, giving drivers a break from high prices at the pump.
At first glance, that sounds like a great idea. But if economists are right, it's their fellow senator Barack Obama who's got the better idea when it comes to the gasoline tax: Do nothing.
Both McCain and Clinton would suspend the 18.4 cents a gallon tax on gasoline. Clinton said Monday that she would also suspend the 24.4 cents a gallon tax on diesel this summer...
It would appear that Obama is risking a chance to win populist points by not standing behind a tax break, particularly when gasoline is at a punishing $3.65 a gallon. But if it's real relief the candidates are looking for, economists say, they should look elsewhere.
"I don't think that a gas-tax cut would result in a really big drop in gasoline prices," said James Hamilton, a professor of economics at the University of California San Diego. It's simple economics: Without a corresponding increase in supply, he added, the price would rise again.
Boosting supply at this stage would be difficult. In the summertime, refineries run at close to full tilt to meet expected demand from vacationing families and other summer drivers.
Since the refiners can't produce much more without building new refineries, the price has to go back up," wrote Len Burman and Eric Toder on TaxVox, the blog of the Tax Policy Center. (Their post is titled "What Were They Thinking???") "Unless the plan's aim is to boost short-term profits for petroleum refineries, the proposal makes no sense...
It might seem axiomatic that cutting taxes on gasoline would make it cheaper. But economists also say a side effect of cheaper gas would be increased demand for fuel as more people drive. That, they point out, would put prices right back where they started.
"They'll bid the price back up," said Andrew Samwick, a professor of economics at Dartmouth College and a former economic adviser to President Bush.
In fact, if the Clinton plan is adopted there is nothing to prevent the oil companies from passing the tax right back to the consumers while if the McCain plan is adopted then sooner or later the highway repairs will still have to be done, which means that some other tax will have to be used for the purpose and likely raised. So what we really see is that there is no such thing as a free lunch, just politicians who promise you one.
Obviously while Obama is right on this one, it is going to cost him votes. But sometimes leadership means doing what's right, even at a price.
The truth is, the reason for the high gas price is because we spent so many decades doing nothing (recall that Jimmy Carter had a plan to make America self-sufficient in energy by 2000 but except for the Alaska pipeline, a small part of it, Ronald Reagan dismantled the whole plan.) Just a couple of months ago, Congress passed the first increase in CAFE standards since 1978. And America is a nation of cars, partly because we lag the rest of the world in investment in mass transit (and then, like in the case of the Phoenix light rail system, we wait to build it until decades after it is proposed, and therefore at dozens of times the cost.)
We will need a comprehensive long term energy policy (which the next administration can and should put together and propose,) not a short term bandaid which will in the end save you nothing.
However the candidate showing real leadership here is Barack Obama. In the face of the demands for a 'tax holiday,' he is making the difficult case that cutting off the gasoline tax won't reduce prices, and whether offset by a Federal windfall tax on oil companies as Clinton proposes or offset by not funding highway repairs as McCain proposes, either way in the long run it will cost more, not less.
For starters, in an economics 101 class you will learn that if you decrease the price on any item, demand increases. But if supply does not, it puts upward pressure on price which in turn leads you back to the same equilibrium point, a price at which demand equals supply. That is as true for gasoline as for any other commodity, which is the point that economists are making, Senator Obama understands and Senators Clinton and McCain either don't understand or choose to wilfully ignore in their reckless search for votes.
WASHINGTON (MarketWatch) -- As summer approaches, Hillary Clinton and John McCain have found a common problem and a common solution. Both want to suspend the federal tax on gasoline, giving drivers a break from high prices at the pump.
At first glance, that sounds like a great idea. But if economists are right, it's their fellow senator Barack Obama who's got the better idea when it comes to the gasoline tax: Do nothing.
Both McCain and Clinton would suspend the 18.4 cents a gallon tax on gasoline. Clinton said Monday that she would also suspend the 24.4 cents a gallon tax on diesel this summer...
It would appear that Obama is risking a chance to win populist points by not standing behind a tax break, particularly when gasoline is at a punishing $3.65 a gallon. But if it's real relief the candidates are looking for, economists say, they should look elsewhere.
"I don't think that a gas-tax cut would result in a really big drop in gasoline prices," said James Hamilton, a professor of economics at the University of California San Diego. It's simple economics: Without a corresponding increase in supply, he added, the price would rise again.
Boosting supply at this stage would be difficult. In the summertime, refineries run at close to full tilt to meet expected demand from vacationing families and other summer drivers.
Since the refiners can't produce much more without building new refineries, the price has to go back up," wrote Len Burman and Eric Toder on TaxVox, the blog of the Tax Policy Center. (Their post is titled "What Were They Thinking???") "Unless the plan's aim is to boost short-term profits for petroleum refineries, the proposal makes no sense...
It might seem axiomatic that cutting taxes on gasoline would make it cheaper. But economists also say a side effect of cheaper gas would be increased demand for fuel as more people drive. That, they point out, would put prices right back where they started.
"They'll bid the price back up," said Andrew Samwick, a professor of economics at Dartmouth College and a former economic adviser to President Bush.
In fact, if the Clinton plan is adopted there is nothing to prevent the oil companies from passing the tax right back to the consumers while if the McCain plan is adopted then sooner or later the highway repairs will still have to be done, which means that some other tax will have to be used for the purpose and likely raised. So what we really see is that there is no such thing as a free lunch, just politicians who promise you one.
Obviously while Obama is right on this one, it is going to cost him votes. But sometimes leadership means doing what's right, even at a price.
The truth is, the reason for the high gas price is because we spent so many decades doing nothing (recall that Jimmy Carter had a plan to make America self-sufficient in energy by 2000 but except for the Alaska pipeline, a small part of it, Ronald Reagan dismantled the whole plan.) Just a couple of months ago, Congress passed the first increase in CAFE standards since 1978. And America is a nation of cars, partly because we lag the rest of the world in investment in mass transit (and then, like in the case of the Phoenix light rail system, we wait to build it until decades after it is proposed, and therefore at dozens of times the cost.)
We will need a comprehensive long term energy policy (which the next administration can and should put together and propose,) not a short term bandaid which will in the end save you nothing.
Monday, May 21, 2007
Gas prices at all time high
It's official. Gas prices are at an all-time high, not only in real dollars but also when adjusted for inflation. And they are likely to go higher during the summer, maybe even approaching (or in some places breaking) four dollars per gallon.
Just keep in mind that on the day that George W. Bush was inaugurated the average gas price was $1.39 nationally (and I remember buying gas in 1998-- less than a decade ago-- for less than a dollar per gallon.)
Also, note that crude oil futures are trading right now is around $65 per barrel, but gasoline costs more than it did a year ago when crude oil was pushing $80 per barrel. So the price of the product is less, but they are selling it to us for much more.
There are many reasons for this, and not all of them have anything to do with George Bush. But there is an underlying theme.
1. The reason one that defenders of Big Oil will tell you is that the problem is not a shortage of crude oil, but a shortage of refined products. They will tell you that there has not been a new refinery built in the United States in thirty years. That is true, in fact. They will then blame environmentalists. That is false. As I pointed out almost two years ago in the post this is what happens when you get government out of the regulatory business,
The answer is found in internal memos from Mobil, Texaco, and Chevron from several years ago which all say essentially the same thing. The thing they propose is, to intentionally limit the number of refineries in order to drive up gas prices and then, when it happens, to blame environmentalists.
And it's all right there in their own memos. Note that the links to pdf copies of the memos themselves are in the original article.
So the oil companies have already been caught red-handed on this one, in which they colluded to prevent the construction of refineries and then blamed environmentalists. And the sad thing is, that you will still hear environmentalists being blamed (and the truth is, the construction of new refineries would probably benefit the environment because they would likely include technology that would help them to be more efficient and cleaner than the old refineries.)
2. The second reason that they will cite is the gas tax. However, Federal gasoline taxes have not gone up in years. So this is a red herring, designed to make people angry with the Federal government and demand another tax cut instead of looking at where the real fault lies.
3. The third reason cited is likely to be increased demand. And it is true that demand has continued to rise with the population. However, it didn't have to be that way. There have been significant advances in fuel technology, including carburators that get fifty miles per gallon or more. These are in routine use in other countries. But when Congress tried to increase CAFE standards, it was opposed by the oil companies and the auto manufacturers as an 'imposition on consumer choice.' Well, aside from the fact that some choices are just bad, how is it an imposition on my choices to not increase fuel efficiency by a few mpg per gallon? I can still choose from among any makes and models they put on the floor. They'll just be better than what they'd have made otherwise (and the irony is, all those SUV's they've been geared up for, is resulting in the 'choices' of laying off tens of thousands of workers as American auto makers lurch towards bankruptcy while foreign auto manufacturers earn record profits.)
Another aspect to this is mass transit. Communities who build or expand mass transit options often see a boom in their local economies coinciding with the opening of these systems. But you'll always see it as a battle over whether to build it in the first place (in metro Phoenix they are now building light rail--- at about 13 times the cost it would have been had they built in 1990 when voters bought into propaganda put out by rabid anti-tax groups and voted it down; So now people are paying far more in taxes to build it today than they would have then.)
They will also suggest that drilling in ANWR or offshore in sensitive regions of the continental shelf will solve the demand problem by increasing the supply. The problem with this analysis is that they will hope that you have forgotten about the refinery argument by now; Remember there has not been a new refinery built in 30 years? If we drill in ANWR, there will be no refinery on the west coast to handle it. So where will it go? Asia, JUST LIKE MOST OF THE OIL FROM THE ORIGINAL ALASKA PIPELINE once they discovered after its construction that west coast refineries couldn't handle the higher sulfur content of Alaskan crude (did they really 'not know' that when they built the pipeline?) Drilling in ANWR or off the coasts won't do a thing about bringing down the price of oil in America, it will only give the oil companies more to sell in foreign markets.
And alternative energy sources? The Carter energy plan provided for research on it with the goal of making America energy independent by the turn of the century. And then Reagan dismantled the plan.
But all of this is beside the biggest reason why oil prices are so high. They won't say it, but it is George Bush's failed conquest of Iraq. Just in case you actually don't think the war was about oil (remember he thought it was essential to invade Iraq over alleged WMD at the same that North Korea came right out and said they had WMD), just remember the day that Baghdad fell-- April 10, 2003. U.S. troops were dispatched to defend one, only one and exactly one government ministry-- the Oil Ministry. Never mind that we let looters burn and loot all the rest of them (including, among other things, documents on any WMD's there may or may not have been, documents on Saddam's organization, information on war crimes and political victims, information on al-Qaeda and other terror groups, information on various middle eastern governments, likely including all that was learned about Saddam's arch-enemy, Iran-- all burnt in what Dick Cheney excused as 'blowing off steam' because we sent the troops to guard the Oil Ministry instead and make darn sure we had all their geological survey maps. And as long as it looked like U.S. Oil companies would have primary access to the world's third largest supply of oil (along with refineries and whatever else they would need) the price of gasoline stayed at a reasonable level. But then Iraq started to go sour and the price of gasoline started rising precipitously. True that we also had Katrina and Rita, which damaged and/or shut down a significant amount of refinery capacity, but that was a temporary spike-- all of those refineries have been repaired or restarted by now. But it is clear that even if U.S. forces get something that will allow the Bush administration to claim their elusive 'victory' in Iraq, it will still not represent the vision that they had before the war-- a vision that included pretty much complete free reign by the American petroleum industry over the exploitation of Iraqi oil assets.
So while the official costs of the war have all been borrowed (so you won't have to worry about paying for it until some future administration), it is not true that you aren't paying the price for it now. You will, next time you fill up at the gas station.
Just keep in mind that on the day that George W. Bush was inaugurated the average gas price was $1.39 nationally (and I remember buying gas in 1998-- less than a decade ago-- for less than a dollar per gallon.)
Also, note that crude oil futures are trading right now is around $65 per barrel, but gasoline costs more than it did a year ago when crude oil was pushing $80 per barrel. So the price of the product is less, but they are selling it to us for much more.
There are many reasons for this, and not all of them have anything to do with George Bush. But there is an underlying theme.
1. The reason one that defenders of Big Oil will tell you is that the problem is not a shortage of crude oil, but a shortage of refined products. They will tell you that there has not been a new refinery built in the United States in thirty years. That is true, in fact. They will then blame environmentalists. That is false. As I pointed out almost two years ago in the post this is what happens when you get government out of the regulatory business,
The answer is found in internal memos from Mobil, Texaco, and Chevron from several years ago which all say essentially the same thing. The thing they propose is, to intentionally limit the number of refineries in order to drive up gas prices and then, when it happens, to blame environmentalists.
And it's all right there in their own memos. Note that the links to pdf copies of the memos themselves are in the original article.
So the oil companies have already been caught red-handed on this one, in which they colluded to prevent the construction of refineries and then blamed environmentalists. And the sad thing is, that you will still hear environmentalists being blamed (and the truth is, the construction of new refineries would probably benefit the environment because they would likely include technology that would help them to be more efficient and cleaner than the old refineries.)
2. The second reason that they will cite is the gas tax. However, Federal gasoline taxes have not gone up in years. So this is a red herring, designed to make people angry with the Federal government and demand another tax cut instead of looking at where the real fault lies.
3. The third reason cited is likely to be increased demand. And it is true that demand has continued to rise with the population. However, it didn't have to be that way. There have been significant advances in fuel technology, including carburators that get fifty miles per gallon or more. These are in routine use in other countries. But when Congress tried to increase CAFE standards, it was opposed by the oil companies and the auto manufacturers as an 'imposition on consumer choice.' Well, aside from the fact that some choices are just bad, how is it an imposition on my choices to not increase fuel efficiency by a few mpg per gallon? I can still choose from among any makes and models they put on the floor. They'll just be better than what they'd have made otherwise (and the irony is, all those SUV's they've been geared up for, is resulting in the 'choices' of laying off tens of thousands of workers as American auto makers lurch towards bankruptcy while foreign auto manufacturers earn record profits.)
Another aspect to this is mass transit. Communities who build or expand mass transit options often see a boom in their local economies coinciding with the opening of these systems. But you'll always see it as a battle over whether to build it in the first place (in metro Phoenix they are now building light rail--- at about 13 times the cost it would have been had they built in 1990 when voters bought into propaganda put out by rabid anti-tax groups and voted it down; So now people are paying far more in taxes to build it today than they would have then.)
They will also suggest that drilling in ANWR or offshore in sensitive regions of the continental shelf will solve the demand problem by increasing the supply. The problem with this analysis is that they will hope that you have forgotten about the refinery argument by now; Remember there has not been a new refinery built in 30 years? If we drill in ANWR, there will be no refinery on the west coast to handle it. So where will it go? Asia, JUST LIKE MOST OF THE OIL FROM THE ORIGINAL ALASKA PIPELINE once they discovered after its construction that west coast refineries couldn't handle the higher sulfur content of Alaskan crude (did they really 'not know' that when they built the pipeline?) Drilling in ANWR or off the coasts won't do a thing about bringing down the price of oil in America, it will only give the oil companies more to sell in foreign markets.
And alternative energy sources? The Carter energy plan provided for research on it with the goal of making America energy independent by the turn of the century. And then Reagan dismantled the plan.
But all of this is beside the biggest reason why oil prices are so high. They won't say it, but it is George Bush's failed conquest of Iraq. Just in case you actually don't think the war was about oil (remember he thought it was essential to invade Iraq over alleged WMD at the same that North Korea came right out and said they had WMD), just remember the day that Baghdad fell-- April 10, 2003. U.S. troops were dispatched to defend one, only one and exactly one government ministry-- the Oil Ministry. Never mind that we let looters burn and loot all the rest of them (including, among other things, documents on any WMD's there may or may not have been, documents on Saddam's organization, information on war crimes and political victims, information on al-Qaeda and other terror groups, information on various middle eastern governments, likely including all that was learned about Saddam's arch-enemy, Iran-- all burnt in what Dick Cheney excused as 'blowing off steam' because we sent the troops to guard the Oil Ministry instead and make darn sure we had all their geological survey maps. And as long as it looked like U.S. Oil companies would have primary access to the world's third largest supply of oil (along with refineries and whatever else they would need) the price of gasoline stayed at a reasonable level. But then Iraq started to go sour and the price of gasoline started rising precipitously. True that we also had Katrina and Rita, which damaged and/or shut down a significant amount of refinery capacity, but that was a temporary spike-- all of those refineries have been repaired or restarted by now. But it is clear that even if U.S. forces get something that will allow the Bush administration to claim their elusive 'victory' in Iraq, it will still not represent the vision that they had before the war-- a vision that included pretty much complete free reign by the American petroleum industry over the exploitation of Iraqi oil assets.
So while the official costs of the war have all been borrowed (so you won't have to worry about paying for it until some future administration), it is not true that you aren't paying the price for it now. You will, next time you fill up at the gas station.
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