Gasoline - The Blue Light Special

Gasoline, the Blue Light Special

        Lots of chatter this past week regarding vacillations and levels of gasoline pricing. Of course, this has engendered a bit of the usual “gummint manipulation” conspiracy theories. I have dealt with this fallacy several times, individually, but this will be the Blog Post which ends my attempts to speak rationally on the topic.  

       Historically, people like Michele Bachmann and Newt Gingrich, both of whom should have  known better, either didn’t (option 1) or (option 2) were simply lying, bloviating political empty shirts (or blouses). 

       Bachmann was the worst, when, she alluded to the fiction that “If I’m elected President (cringe!) gas will cost way under two dollars a gallon.” She didn’t even know what she didn’t know. The first revelatory statistic is that gas prices historically drop in a recession, not in stronger markets. The prices of gas dropped precipitously in the last Bush 43 years precisely because the economy, via the housing bubble collapse, had spasmodically soiled its linen. Only a fool would believe that a President would facilitate a recession (he can’t really do that either) just to lower fuel prices!

        By the same token, Gingrich proclaimed that if Obama was elected gas prices would “soar to $9 or $10 per gallon”, and American oil production would decrease. Of course, gas prices didn’t go up as predicted, and during the Obama administration, US Oil Production increased across the board, an “inconvenient truth” which Donald Trump would later attempt to hijack to his own credit. In fact, previous large jumps in domestic gasoline pricing occurred between 1980-1984 (Reagan) and 2000-2009 (Bush 43). As attractive as some may find it to claim it, neither was responsible for “manipulating” gasoline prices. As the Great Recession wound down, starting around 2012, while domestic production increased markedly, process decreased and by 2014, prices were down to pre-crash levels.

        In 1776, Adam Smith, published his seminal work on Economics, The Wealth of Nations. In it, he described the effects on markets of supply and demand. It’s not rocket science, rather common sense.  So, what actually does affect gasoline prices? Supply issues generally. A refinery down or something similar. The federal government has less to do with gasoline prices than the states do, and the federal gas tax has been the same since the Clinton administration. The United States federal excise tax on gasoline is 18.4 cents per gallon and was last raised in 1993. The federal fuel tax is not even indexed to inflation, which increased by a total of 73 percent from 1993 until 2018!

         It's simply a market economy. Can a producer reduce supply to increase price? Sure, but that's not the government in any way, shape, or form. I remember when Bachmann said that if she were President, gas would be a dollar per gallon. She should probably have checked with Exxon, Shell, or BP or any other oil producer before even considering such a ludicrous statement.

        Now for a real dose of reality (can you handle the truth?). For all the complaining we see and hear about gas prices there's a really interesting statistical fact: Gasoline in 1950 was about 45 cents per gallon. Simply adjusting for the cost of living increase over the period from 1950 to 2019, a gallon of gas, to cost in real dollars the same as in 1950, should retail at $4.79 per gallon! In other words, gasoline today actually costs less, adjusted for inflation, than it did in 1950! Gasoline cost is a smaller percentage of the family income than in 1950, and many, if not most, vehicles get better mileage.

        So, why are we complaining? Mainly because we love a conspiracy theory, no matter how ridiculous. Here’s how far we, or some of us, have our heads up our asses on this issue: The 68 year old consumer will accept without a whimper, or even a second thought, that the 1965 Mustang (just as an example) he  filled with fuel when he was 20 cost $2734 (MSRP), while the  2013 he’s filling up today cost $31,545. For the math challenged, that’s 11.54 times as much. Meanwhile, the gas he pumped, at 34 cents per gallon now costs $2.25 per gallon, only 6.5 times as much, and yet he whines about it.  Are we really that dense? Apparently in some cases, yeah, we are.     

       The "average" gas station sells (around) 3000 gallons per day and has (about) 24,000 gallons of storage. This means that if the price goes up at the refinery for whatever reason there's a long supply chain between that and the pump. What you pump today may have been wholesaled at last week's price and will sell at that price. If the merchant refills storage tanks today at 10 cents per gallon more, you’re probably going to see that reflected immediately, since the retailer usually takes advantage of the new delivery price to make a little extra on the cheaper last week's gas. Additionally, crude oil is a world market, some aspects of which are beyond our control. All in all, gasoline is a better bargain, even at $4.50 per gallon, than it was 69 years ago! At today's $2.25, it's a steal in the US. In Norway and the Netherlands, it's about $6.50USD per gallon!