Interestingly, this post was ported over, but only a few selected replies. I noticed that my reply was not posted over, but several replies to my original reply were. I'm sure some readers are a little confused about some of these relies and are wondering what they are talking about. So I will try to put in the gist of my original reply here.
The price of gas is determined by supply and demand. It always has and always will. Adam Smith detailed this in his book "Wealth of Nations" over 200 years ago. He has never been proven wrong. When people accuse someone or a group of someone's of manipulating or controlling prices, it is not the prices they control or manipulate, its either the supply or the demand, or both.
The oil companies have been able to partly control the supply because the government allow so many mergers in the 90's. Both parties had a hand in this. After Katrina, the equations for supply changed dramatically. There were fewer refineries after. Before the hurricane, the cost of shutting down the excess (in the oil companies view) were higher than keeping them open, but after, there was no incentive to reopen all of them.
The oil companies do not directly control demand, we did that to ourselves. From the 70"s to 1996, the CAFE (corporate average fuel economy) dropped every year. The result was a steady decrease in the price of gas. Starting in 1997, the CAFE slowly started up and picked up speed after 2001. The price of gas started up after 1999. After Katrina, it really skyrocketed. The price of oil on the world market contributed to this as well. A small decrease in OPEC's output did this.
Now to my point. Oil companies a raking in a windfall because their costs have not gone up as much as the market price of gas. Some of their costs for the higher price of oil is off set by efficiencies of production at fewer refineries. An increase in the gas tax at this time would not significantly change the cost at the pump. it would come at the expense of oil company profits.
Everyday, the oil companies calculate the cost of producing a gallon of gas for each production level. The things that go into this calculation include all the costs of operating the refineries, storing the product at various stages of production, salaries, transporting and handling, etc. If they produce less gas, it costs more per gallon.
They also estimate how much gas will be sold per day at each price point. The higher the price, the less gas they will sell. These two calculations are plotted on a graph and the difference between the cost and price is the profit or loss. Somewhere on the difference curve is the highest profit for the day., and that is where the production levels and price is set. Each oil company has to do this independently and hope their competition draws the same conclusions. And they usually do.
Adding more tax does effect the equation, but it is not a direct addition to the price. The price could stay the same, or go up by less that the tax, same as the tax or more than the tax. In times of high profit, it is most likely to not go up significantly. The highest profit price for that day usually will not move significantly, unless the tax increase really cuts into the profits to the point of almost wiping them out.
To pick an arbitrary tax increase could have negative effects on the economy, but if the government did the same thing the oil companies did, adding a curve for various tax rates, the government could maximize their tax revenues, without putting the oil companies out of business. The could also control the price at the pump somewhat and encourage people to move to more to more efficient vehicles without massive disruption of the economy. The excess revenues could go to improvements in the infrastructure so gas is not wasted in traffic jams.
To further encourage the move to more efficient vehicles, the states could start basing their annual registration fees on the fuel requirements of the vehicle instead of the residual value of the vehicle. Starting with new vehicles, the fee would be graduated with the most fuel efficient vehicles paying the smallest fee and the fee going up for the excess fuel it uses. This would be paid annually for a fixed number of years, then dropped to the minimum when the vehicle has little life left and is probably owned by a low income person of family.
BTW, contrary to popular belief, providing money to cover operating costs of the government is not the primary intent of most taxes, it is the secondary intent. The primary intent of taxes is to control peoples behaviors. Only the income tax is primarily for raising money for the government, and some of the exemptions allowed are for controlling behaviors, i.e. charity giving.
"They also estimate how much gas will be sold per day at each price point. The higher the price, the less gas they will sell. These two calculations are plotted on a graph and the difference between the cost and price is the profit or loss. Somewhere on the difference curve is the highest profit for the day., and that is where the production levels and price is set. Each oil company has to do this independently and hope their competition draws the same conclusions. And they usually do."
Not true...ALL of our domestic oil companies are operating at 100% production at all levels. To fill the demand, they must buy both crude oil and refined products from sources they do not control. The prices for these products are set by a cartel, not the free market. Domestic oil companies set their prices based on these arbitrary numbers, not their own production costs which tend to be MUCH lower. Hence, the "obsene profits" the oil companies enjoy today.
As good Capitalists, we have been taught to let price control demand. But in the case of oil and other resources with limited supplies, this means that eventually only the rich will be able to enjoy the benefits these resources provide even though the raw product belongs to all of us..
Our oil companies are not operating at 100% capacity all the time. The cartels do control supply of the raw material, oil. Oil is in limited supply and its the limited supply that causes the price of crude to rise. The price is set by buyers bidding for the limited available oil.
The price of the crude goes into the daily equation for calculating the price of oil. Sometimes the oil companies miss the mark, last weekend was an example. The oil companies choked the supply before the labor day weekend, the price rose dramatically in the week before the holiday. They ended up with so much gas that the price of gas actually dropped during the weekend and quite a bit since.
Our oil companies are not operating at 100 percent production, because several refineries are shut down. They are still rebuilding from Katrina, there were fires at several refineries the past year, and environmental protection agencies have shut some down until they install pollution-reducing equipment. This is a large part of the reason why prices are high this year.
The Us imports 13% of its gasoline, because of a refining constraint. US refineries are old, and many cannot handle the heavy crudes now coming on the market. So, yes they are not operating at full capacity because the can't. There is also a seasonality factor. Summer driving takes the most gas, so refineries run full out in the sring and summer.
As good Capitalists, we have been taught to let price control demand. But in the case of oil and other resources with limited supplies, this means that eventually only the rich will be able to enjoy the benefits these resources provide -- Caddyman
A high price doesn't mean that only the rich will be able to enjoy it, it means that only those who have a use for the resource that is as valuable as the resource itself will consume it. If the price of the resource is artificially low, then the only way to limit the quantity demanded is to ration it. That allocates in such a way that some people with an urgent need (who therefore would have paid a high price) will not get it while others whose need is less urgent (and therefore wouldn't have paid the high price) do get it. Letting price control the quantity consumed is the only way to distribute it so that people use gasoline instead of some alternative only when the cost/benefit of using the gasoline is more advantageous than the cost/benefit of the alternatives.
even though the raw product belongs to all of us..
No, it doesn't. It belongs to the particular people who own it. We have legal processes that determine who owns mineral rights, they are not owned in common.
Nor would common ownership be a good idea. Things that are owned in common tend to be either hoarded or squandered because the people who control it (who are generally not the common people) don't realize any personal gain or loss from using these things wisely or unwisely. Things that are privately owned are more likely to be used prudently.
As oil becomes more scarce, a government's response will be to use public money and power to subsidize its use, but a private owner will be more likely to want to hoard it, saving oil for later generations. Consider, for example, the political response to high gas prices after Katrina, when supply was cut by a few percent and it took a huge increase in price to convince consumers to cut back their use. The political response was not to attack the consumers, whose wasteful habits were driving up the price, but to attack the oil companies, for not providing gasoline cheaply enough that consumers wouldn't face any consequences for their failure to conserve.
We here in the United States still have the least expensive gasoline in the world. If you travel outside the US, you will experience prices equal to $2.00 or $3.00 per liter, that would be roughly $8.00 to $12.00 per gallon. Most of this difference is tax. What this forces is smaller more fuel efficient autos and in the case of Brazil the availablity of ethonal as an auto fuel. The taxes collected are use to finance mass transportation and/or finance the government.
I am not in favor of any tax that is imposed without a clear purpose. If any tax were to be imposed on gasoline, it should be used for two projects and only two projects:
1. Alternative fuels and the manufacture of thise fuels. Corn based ethonal is not a long term solution. Ethonal is still a good fuel, but there are other parts of the corn stalk that can be processed into fuel other than the kernel.
2. Mass transportation. We must improve our grown based mass transit systems. I see that rail has served this country well in the past and can be called upon to serve us again. Many rail right of ways still exist, so the activity to re-establish the bed, lay track and establish convienent schedules can be done. This would also create jobs in many sectors of the economy, from manufacturing to service.
Every environment "brain" says "Mass transit is the answer!" But they don't think, they just blab.
Here are the reasons mass transit never covers more than 15 percent of the traffic in all but the top 10 cities:
- The transit doesn't run near where the person happens to be.
- The transit doesn't run near where the person needs to go.
- The transit trip takes too long for the needs of the person.
- The transit does not run when the person needs to make the trip.
- The fares are based on what it costs to run the system, but do not take in to account how much people are willing to pay for the service rendered.
- Some people need their vehicles at both ends of the run.
- Some people have to carry goods with them.
- Riding mass transit vehicles is a security risk.
- Some people can't ride transit vehicles because they are allergic to gases given off by perfumes, cosmetics, or chewing gum used by other riders, or to pollen or fragrances from flowers planted by the transit company next to the bus shelters.
- Some people are unable to wait in inclement weather due to health problems.
- The transit system is unreliable.
- Some people do not want to waste their time waiting an hour for the transit vehicle to arrive.
They also don't seem to see that the same problems also apply to shipping by rail. In addition, the labor costs for loading and unloading are triple, if the shipper and receiver have to use trucks to get the freight to and from the station.
[yawn] Nice tripe, your disingenuous pandering I'm sure will please the fundies and neocons (it's where you got your list), then again, considering you don't live in reality there's no teaching you dumb humans new tricks.
We don't need a per gallon tax, we need a tax based on engine displacement. High prices for gas seem to have no effect on the tendency for the macho idiots who have to have a V-8 engined truck to just drive to work. If that huge engine cost them a large fee every time they bought their plates you would soon see more small diesels and small engined cars being purchased. The 0-60 under 10 second crowd needs to slow down. Who needs to accelerate into the next traffic jam anyway? Most four cylinder cars can top 100 MPH. That's over any safe speed limit I know of.
The proposal panelizes rural folks in a system that already makes too many transfer payments to urban centers. My parents have been paying for the NYC mass transit system for years, but my mom has not taken any rides on it since the early 1950s. It is no wonder that rural America is dead.
Adding more tax to gas only sends more money to Wash DC where they waste it and it hurts the less-advatanged.
The only real solution is for individuals to take responsibility for what they use, since the cost comes out of their pocket. We've been on notice since the 1970s gas shortage yet people think they have a god-given right to $1/gal gas just because it comes otu of the ground (yet we'll spend $4-5 on a cup of coffee and think nothing of it...save that money for gas if it's the cpst of gas is that big a deal). The price of gas will only go up. People need to put themselves in a position, as much as possible, to be able to weather rising costs. That probably means plannming and consolidating trips, not buying gas guzzlers just because the monthly payment seems cheap, and doing what you can to conserve (car pooling, etc...all the stuff we hate). We really don't have much else as a lever to control our own personal costs except what we can directly control, our own use. If we quit buying gas guzzlers, Detroit and now Japan would quit making them. Honda Civics, back in the 70s I think, used to get 52 mpg now they brag in their commercials about their new hybrid that almost gets that much. Sure they were roller-skates but the issue is, it was doable 30 years ago. Much more progress could have been made if consumers forced the issue by what they decided to buy. And since this is America, they can decide what they want to buy...just don't moan about the high price of gas once you decided to buy that new ride that gets 14 mpg on a good day or expect the morons in Wash DC to fix it for you.
Graduated gasoline taxes? Ray, use that MIT brain for a second....Higher taxes might conserve a little petroleum but the oil company profits will still be through the roof. How about an excess profits tax on Chevron and
Exxon? I agree that sooner or later we will run out of oil if we dont conserve, but I hate the idea that Big Oil will be profiting until the last gallon is pumped. How about the "Jackson Plan"? The Jackson Plan means drivers never buy more than $20 worth of gas at one time. If the oil companies start to notice that no one spends more than $20 at a time, then perhaps they will lower the price of their gas.Drivers especially the owners of Hummers might have to fill up twice a day, but maybe the message will still get thru. The Jackson Plan is my current way to fight back
Love your web site. First time "writer"
The "Jackson Plan" is a joke, you are just wasting your time. At the end of the day, they have sold the same amount of gas and that's all they care about.
With a tax, the money stays here and consumption is suppressed.The oil companies make less money, OPEC makes less money. If we do nothing, OPEC will "tax" us and keep the money for themselves.
NOBODY's going to build a new billion dollar refinery whthout guarantees they will have crude oil to refine. With "Peak Oil" looming if not already here, there is no need (and no money) for new refineries..
Taxing the oil companies more would RAISE the gas prices. Politicians who think the opposite have opened their minds too far, and their brains fell out.
And nobody has built any new refineries because the EPA permits are too hard to get.
07/11/2007 10:11:20 PM
