Oh No! Gas Prices Are Falling!
Every time the price of oil drops, the demand for that same product increases and the demand for alternate fuels, decreases. Why are gas prices falling?
China Daily reported that “oil dropped more than 6 percent to below $88.00 a barrel on Monday as a global market rout churned concerns that faltering fuel demand could slow further.”
In other words, we aren’t buying enough, so it’s time to lower the price. But can anyone other than the people vested in that market honestly say that we don’t use enough oil?
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In his new book “Hot, Flat, and Crowded”, Thomas L. Friedman writes “When I asked Rick Wagoner, the chairman and CEO of General Motors, why his company didn’t make more fuel-efficient cars, he gave me the standard answer: that GM has never succeeded in telling Americans what cars they should buy.” Thomas goes on to say , “But what the Detroit executives never tell you is that one big reason the public wanted SUVs and Hummers all those years was that Detroit and the oil industry constantly lobbied Congress against raising gasoline taxes, which would have shaped public demand for something different.”
European countries have been imposing high gasoline taxes for years, and when I was serving in Germany in the early 90’s, a gallon of gas was $6.84 a gallon, and that was 20 years ago! The result is that European countries have demanded smaller and smaller cars.
As of this writing, Gasoline in Denmark is about $9.00 a gallon, compared to $3.65 in the United States. (Up from $2.50 a year ago and down from $4.50 two months ago.) It seems like $9.00 a gallon gas in Denmark would decimate it’s economy right? Since 1981, there economy has grown 70 percent while energy consumption has been flat. In 1973, Denmark got 99 percent of it’s energy from the Middle East. Today, it gets zero.
We’ve become spoiled in the United States. We have grown up thinking that the oil that runs everything from our cars to our industrial complex, is cheap, inexhaustible and politically neutral. But we have come to an age where we realize that oil is in short supply, expensive, environmentally damaging and a political nightmare.
So with these realizations, instead of following the success of countries like Denmark, Brazil and Germany, we continue to lower the price, to fuel the demand, to use more of what we are running out of.
The Republican saying “Drill more, use less” doesn’t work. If we want more of the same Environmental devastation, financial crisis, repeated bailouts, and political situations like wars, terrorism and starvation, then all we have to do is…nothing.
I say it’s time to raise the price of Gasoline in this country. It’s time to drive this economy toward a sustainable energy program that will benefit our economy, our lives and our environment.
Photo courtesy of WiseOwl via Creative Commons License
Thank you, Colin. Just the thought I had when reading this article.
One other factor: an article that compares continental European driving habits with those in the US that does not also discuss the substantially different geographies of those places is less than convincing.
“shaped public demand” Just who are these all enlightened masters of the universe who are so wise and knowing they can infallibly “shape public demand” and run my life?
Oil is a commodity with a finite supply. The price of oil reflects the relative supply of that product. Therefore, if the supply of oil “is in short supply” then the market price would reflect this fact.
The truth of the matter, even at $145/barrel the price of oil is still low compared to the artificial prices charges in Europe. THis is because even at this historically high price, the supply of oil is not even close to being short.
What is revealed is that authors like this, and their political fellow travelers, have made social decisions about other people’s lifestyles. Because these lifestyles do not conform to the their own personal choices they seek to restrict those choices. The author further confirms this attitude by discussing other people’s Wal-Mart choices, “wasting money by filling their carts with Soda, Captain Crunch, 9.00 dvd’s, and 5 gallon, buy one get one free, jars of pickles.”
The personal preferences of other people should be none of our business as long as those preferences are freely made. One person’s $9.00 DVD may be another person’s “film”.
Of course, not everyone can match the prestigious life choices of one Adam Shake, and the real question should be why should people like him pass judgement on other’s choices.
Gasoline is not at an artificially low price in the US. It is at an artificially high price in Europe & elsewhere. The lifting cost for Middle Eastern oil is about $2/barrel. It’s about $5/barrel in the US. The break-even point for coal liquification is $35/barrel, and the US has enough domestic coal to meet it’s motor fuel needs for an estimated 200 years. At $35/barrel oil, gasoline would be under $2/gallon.
Most oil in foriegn lands is government controlled. Our own government suppresses domestic oil production offshore and on land, suppresses expansion of refining capacity, suppresses coal liquification. In other words, the price of gasoline everyplace is artificially high. Without government interference, oil prices would be pretty much capped at $35/barrel. In a truly free market, we’d be running $1.85/gallon or so gas pretty much forever.
The last thing in the world we need is more government intervention in the name of social engineering, trying to force us into cars (or public transit) that we don’t want.
Considering GM has a higher corporate fuel economy than Toyota, I’d say Tom Friedman, like most pundits when they talk about cars, doesn’t know squat.
“In 1973, Denmark got 99 percent of it’s energy from the Middle East. Today, it gets zero.”
Denmark gets much of it’s oil from offshore drilling in Danish waters in the North Sea, which was developed after 1973. Because they now have their own domestic supplies, they don’t have to import.
As for Brazil, with its huge sugar industry, Brazil is one of the few places where ethanol actually makes sense and it’s the shift to ethanol that has reduced Brazil’s oil imports.
Also, at a time of economic crisis, when people’s assets are shrinking by fractions, is taking more money out of people’s pockets via taxes prudent?
BTW, elitists have been negatively comparing the US to Europe since colonial days.
“Gasoline in Denmark is about $9.00 a gallon, compared to $3.65 in the United States”
OK, but you can drive across Denmark on probably not much more than a gallon of gas. Try driving across Texas where I live. We have more territory to cover than the Danes–or than other Europeans.
Hi Adam,
You sound like you’re discussing this in good faith so I will ask a question. How can you describe a lack of further taxes on gasoline, as artificially low? We already pay a significant tax on gasoline. As I see it, the high prices in Europe are artificially high due to the taxes, not the other way around. Personally I’d like to see us move away from gas/oil ASAP, and I appreciate the way high gas prices are driving that move. However, I don’t need any extra burden on my wallet right now (I have oil heat and live in the Northeast – ‘nuff said). Again, as I see it, if gas/oil prices are left to follow the natural market curve the transition should follow actual production rates. That’s not to say it will be perfect, or easy, but I don’t think someone in Washington setting gas prices at five, or six, or 9 dollars per gallon, arbitrarily, is the way to go. How do they know what the tipping point is?
Kind regards,
Steve
Tax law is also at fault. Depreciation is structured so that companies get an enormous depreciation bonus if vehicles are over 6000 lbs. This means there is a significant discount to companies for buying large not so fuel efficient vehicles.
That wasn’t just a simple “note on terminology”
,that was a much needed correction as to how you change people’s habits.Not with “higher taxes’but innovation and a free market.