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Gas Prices, Part II

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Somehow the topic that wouldn't go away five quarters ago doesn't get much mention these days. Unless you count the conspiracy about why the problem isn't such a problem now.

Of course, I mean the price of gasoline. When I last addressed the issue, we saw nonstop media coverage of the issue, plenty of “man on the street” interviews, and grandstanding by attention-hungry politicians in Washington. And we had even more noise being generated and propagated online, with self-styled activists and others who cannot be bothered with the most basic questions of data writing to their blogs and whipping up sentiment in their chain-letter-style email messages.

The year 2006 was a real adventure for people watching the cost of energy. Even as supply issues that affected us severely in late 2005 were resolved, demand managed to shift in this country, with car buyers looking seriously at fuel efficiency in a way that they had not in quite some time. Consequently, Ford and General Motors found that their ability to benefit from relatively strong demand for cars was severely limited: people were instead flocking to the gas-sipping offerings of Toyota and others. Thus, it looks like Toyota will overtake GM as the top auto producer this year.

A Grand Conspiracy

In October of last year, I heard a great complaint. It wasn't that gas prices were too high, but that they were coming down just ahead of the elections, to keep voters placated, lulled into a state of contentment on energy prices that would keep them from listening to the warnings being offered by minority parties who wanted to make energy policy a matter of national priority. No, it wasn't that the summer “driving season” (and consequently, demand) had gone down. It wasn't a question about whether it happens in years when elections aren't held. It wasn't a question of how it would be possible to coordinate such movement so broadly. It's that Evil Bush, conspiring through his henchman Dick Cheney and all of their good friends in Big Oil, they agreed to lower the prices to keep the Republicans in office!

There were three basic ways that the government could affect prices, I pointed out. The first would be simply to apply pressure to the companies involved in the processes of acquiring oil and bringing it to retail filling stations. That pressure would need to result in the companies deciding to charge customers less than they could otherwise, take a reduced profit. Profits weren't off, however. In terms of profit's portion of each dollar in revenue, the oil industry is solidly in the middle of what is made by other industries, as shown in the chart nearby.

The second way would be for reduction, suspension, or elimination of taxes associated with gasoline. For 2006, taxes made up roughly eighteen percent of the cost of gasoline paid at the pump by retail customers. That, as it turns out, didn't happen. The “gub-ment” continued to collect its take.

The third way would be for the government to play with the supply of crude oil. This would be accomplished by (the president) ordering a drawdown of the Strategic Petroleum Reserve (SPR). That didn't happen, either. The last sale was after Hurricane Katrina in 2005. So no monkeying with supply by way of the SPR. Even my friends who advanced the conspiracy theory about the Republicans playing with prices to support themselves opted not to venture into the realm of absurdity that would be required to believe that the present administration would be able to get any favors from big oil-producing countries in the middle east, Russia, or Venezuela.

Even if the conspiracy were true, it didn't do much good, since the Republicans got spanked by the electorate. The next problem is that since the dropping-price trend has continued well past election day in the U.S., as shown in the chart nearby.

So much for the conspiracy theory.

Consumer Behavior

The really interesting question is going to be whether this shift away from gas-guzzling SUVs and toward more fuel-efficient automobiles is a long-term trend of just a blip. If fuel prices continue to slide, will consumers continue to use fuel more efficiently or will they figure that the “crisis” is over and that they can go back to having a tank for each member of the household over the age of sixteen, each driving independently and insisting on use of the vehicle for traversing any distance over twelve feet?

While U.S. automakers are trying to showcase their fuel-efficient offerings for this model year, what people actually do with prices sliding, or at least stabilizing, remains to be seen. My guess is that we're nowhere near the kind of pain that would lead to any meaningful change in consumer behavior.

Plenty of people are ready to politicize the issue and to make broad statements about what people “should” do, but these always seem to be in the abstract. (“I'm here to participate in the protest; where's the most convenient place to park?”) I am thoroughly unimpressed by people who seek to advance their causes by controlling the actions of others through legislation or litigation. Leadership requires an example worthy of imitation.

I should hasten to add that I'm equally unimpressed by people who operate solely (or even primarily) on responses to short-term pain and pleasure. It's that kind of operation that got the U.S. auto industry into trouble when fuel prices shot up in the 1970s and again burned GM in 2006. The actions we take today will determine our position for the beginning of tomorrow. If we choose our path based not on the avoidance of resistance but a workable route that gets us where we want to be in the future. This isn't true only on the large and grandiose scale where the world or society weighs in the balance: it applies in each of our own households. The decisions we make about where we live relative to where we work and where we do everything else will have a dramatic impact on our household economy and our ability to live the lives that we want.

Created by cmcurtin
Last modified 2007-01-22 12:04 AM

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