Texas Rainmaker » More Pain in the Gas

More Pain in the Gas
April 25th, 2006 9:47 am

*7 Updates to this post - see below*

Can someone please remind President Bush, Speaker Hastert and Majority Leader Frist that we Americans elected a Republican majority so that we wouldn’t have to live in a Democrat America. It’s beginning to look more and more like we only have one policital party in Washington… and it’s not one I really care for.

Bush, Hastert, Frist and more are acting like Democrats today calling for probes into possible oil company price gouging.

So much for the American dream when we’re hauling business leaders into Congress to justify making profits. If the 8.2% profit margin of oil companies is “gouging”, then why are other industries not being called before Congress to justify their “gouging”?

Banks - 18%
Household & Personal Products - 11.4%
Software - 9.9%
Telecommunications - 9.1%

And there are renewed calls for more regulations or (not suprisingly) more taxes on oil companies.

“If the greedy oil companies won’t invest their billions in profit in delivering affordable (gas), then maybe America needs to take some of those windfall profits and put them to better use,” [Democrat Senate Minority Leader, Harry Reid] said.”

Here’s the breakdown of that “greed”:

I explained the breakdown in greater detail last Fall.

Notice refining costs and profits comprise no more than 18% of the cost we pay. It costs about $2 a gallon for U.S. refiners to turn crude oil into gasoline before transportation and distribution costs are added, said John Felmy, an API economist.

That leaves 20.6 cents - $1.106 per gallon for transportation, distribution and profit.

“When you take all those costs out you’re not finding unreasonable profits for everything we have to do to get (gasoline) to consumers,” Felmy said.

But Democrats never fail to seize an opportunity to raise taxes. Now let me ask you this, if Congress implemented a 50% windfall profit tax on the oil companies, who do you think would end up paying that? Do you think the oil company executives would feel so guilty that they’ve been making 8 cents on the dollar and smile when that’s cut in half? Or would they simply build the tax into the supply chain and end up passing it along to shareholders and consumers?

Of course, Reid’s proposal smacks of the the typical Democrat mantra of “we know better then you how to spend your money.”

The Democrats threaten to take oil company profits and invest them into “rebates” for consumers to make the public think they’re playing Robin Hood - taking greedy profits from evil big oil and giving it to the poor, average American so they can afford gas - completely ignoring the fact that the “rebates” will be offset by the oil companies passing such cost along to those very consumers.

But let’s look at two things higher gas prices bring us:

1. Conservation - people generally don’t buy what they can’t afford
2. Incentive to oil companies to explore - higher gas prices encourage gas exploration into areas previously restricted by cost, or exploration into alternative fuel sources altogether

But if government is taking away the profits and giving them to consumers as “rebates” then consumers have no reason to conserve, and oil companies have no incentive to explore. How do I know this? Because that very scenario played out in the 1970s and early 1980s.

History serves as a helpful teacher on this question. As part of a general effort to combat high inflation in the early 1970s, President Nixon placed price controls on the oil industry and many other sectors of the American economy. Eventually the controls were lifted from other industries, but they remained in place for U.S.-produced oil as the government tried to partially protect consumers from the jump in world oil prices caused by the oil embargo of 1973-74. A so-called windfall profits tax was imposed on the industry in 1980, when again world oil prices rose dramatically as a result of supply disruptions stemming from conflicts in Iran and Iraq. The government began phasing out the tax in 1981.

Although various price and profit control programs did limit income to oil companies, it’s questionable whether they benefited consumers in the long run. Between 1974 and 1980, imported oil prices averaged about 50 percent more than the price for oil produced in America. As a consequence, U.S. oil companies were discouraged from exploring for and finding supplies of oil and natural gas at home. Meanwhile, industrial and individual consumers were shielded from higher prices that might have encouraged greater energy conservation.

Then, of course, the Democrats will be the first ones to come out and complain that Republicans aren’t doing enough about energy conservation or exploration into alternative sources of fuel… maybe it’s this no-win situation for Republicans that has them acting more like Democrats all the time.

Update: Consumers shrugged off higher gasoline prices in April and sent a widely watched barometer of consumer confidence to its highest level in almost four years, a private research group said Tuesday. - The Democrat position on gas isn’t a winner… someone please tell Republicans to stop trying to adopt it as well.

Update 2: Michelle Malkin highlights Neil Cavuto taking Chuck Schumer to task on the gas price issue:

I see Chuck Schumer wants to investigate the oil companies for price gouging. Why doesn’t he ask his fellow politicians to do the same about tax gouging?
After all, oil companies’ profit works out to nine cents a gallon. Taxes total more like 40 cents a gallon.

But you don’t hear Schumer whining about the taxes. After all, that’s an easy source of revenue for a monotonous list of social programs whose failures are legendary. Better to keep funding them through taxes that are killing us, than demanding accountability due all of us.

Senator, if you want to bring gas prices down, start offering solutions and stop playing games…

Update 3: Captain Ed and I are on the same wavelength.

So let’s have an investigation, but let’s not confine it to ExxonMobil’s profit margin. Let’s expand the probe into the bankruptcy of our energy policy for the past thirty years and the handcuffs we put on ourselves that force us to rely on unstable sources of crude oil and gasoline to meet our energy needs. Let’s start getting realistic about those needs and start proposing rational methods of meeting them. Take the shackles off the US energy industry and allow us to shrug off the mullahs that control the world market.

Update 4: Anchoress and I exchanged some emails on the topic. She doesn’t like the Bush-blaming. - Though I’m not blaming or bashing Bush for the gas prices, just that he’s acting like a Democrat in responding to them… instead of just explaining the concept of market forces in simple terms… like I have.

Update 5: Anchoress highlights an article by Henry Payne that clears up some of the blame:

Congress first mandated the production of 4 billion gallons of ethanol this year (increasing to 7.5 billion in 2012). This arbitrary number is to help wean America from its “oil addiction,” as President Bush puts it. In reality, it is a sop to the powerful farm lobby that makes corn-based ethanol.

Second, the energy bill required that ethanol replace MTBE as an additive in gasoline to meet smog rules in urban areas. Because smog is heaviest in summer, oil companies are refining their “summer blends” now. Already struggling to meet the initial 4 billion gallon mandate, the ethanol industry cannot keep up with the additional demand from the MTBE mandate, resulting in shortages and price spikes.
…
Foreign-made ethanol might help supplies, but Congress has protected farmers and gouged consumers by slapping a 54-cent-per-gallon tariff on imports.

This situation “will all clear up by June,” says Mark Griffin, president of the Michigan Petroleum Association, as the summer blend deadline passes and the refineries still off-line from Hurricane Katrina begin producing again.

But now that the GOP and Democrats have recommitted government to intervening in fuel markets, price hikes will become more likely. Republicans have strayed from free-market principles and created a mother of all fuel mandates that is draining their popularity and credibility.

In short, if you’re upset over high gas prices, don’t look at Big Oil — look at Big Government.

Update 6: Proof President Bush reads TexasRainmaker.com!

President Bush on Tuesday ordered a temporary suspension of environmental rules for gasoline, making it easier for refiners to meet demand and possibly dampen prices at the pump. He also halted for the summer the purchase of crude oil for the government’s emergency reserve.

It’s a good first step in the right direction! Less government is the answer…

Update 7: What?!?!?! Democrats are now going to pretend to be Republicans? (hat tip: Anchoress)

Democrats are set to introduce a measure that would create a “federal gas tax holiday” by eliminating the federal tax on gas and diesel for sixty days, RAW STORY has learned.

The measure, proposed by Sen. Bob Menendez (D-NJ), would reduce the cost of gas by $0.184 per gallon and the cost of diesel by $0.244 per gallon. The move, aides say, will provide $100 million dollars per day in relief.

It must be an election year.
___________________________

Others:
Wizbang has more.
Confederate Yankee poses an oil-for-illegals policy.

21 Comments »

[…] Jason at Texas Rainmaker has a post - including graphs - which helps explain the dynamics of rising gas prices. You’ll want to read it: The Democrats threaten to take oil company profits and invest them into “rebates” for consumers to make the public think they’re playing Robin Hood - taking greedy profits from evil big oil and giving it to the poor, average American so they can afford gas - completely ignoring the fact that the “rebates” will be offset by the oil companies passing such cost along to those very consumers. […]

Pingback by The Anchoress » Fill the tank? — 11:47 am
I can’t help but agree on this issue. You would think a senator would want to work on long term solutions to problems like this, on behalf of all americans, instead of knee jerking like a political puppet.

I want to recommend to our elected officials that they work on a national comprehensive energy policy instead of attacking the energy supply industry. You would think they would understand that focusing on things like reducing demand, conservation and energy efficiency would result in new businesses and technology…..which would result in new american jobs and more tax revenue. Of course, the benefits of such policies would come after they have left office, maybe that is why our eleceted officials refuse to address this issue with honesty!

Comment by Ken Gross — 12:01 pm
Great post, Jason. (Of course, I would expect nothing less.)

These left-wing GOPers are driving me nuts. Who told them it was okay to function like Democrats. If we had wanted Democrats in office, we would have voted for them. We voted for conservative minded politicians who are supposed to be fiscally responsible with our money (taxes). Calling a 9 % profit industry before congress to explain profits but letting an 18 % industry pass is a typical liberal maneuver. These politicians better wake up and remember why they were elected in the first place. (And some have aspirations of the Oval Office… I think not!)

Comment by Old Soldier — 12:04 pm
The Politics of Gasoline

If I were advising the president, I would recommend he come out strong for building newer, cleaner and more efficient refineries.

Trackback by Environmental Republican — 2:09 pm
Gas Price Politics

Republicans are reacting to public outrage over high gasoline prices by dusting off the Carter-era “windfall profits” idea:
President Bush, faced with rising public discontent over high fuel prices, today directed his administration to help…

Trackback by Outside The Beltway | OTB — 2:51 pm
The President’s call for investigation into possible oil price gouging

Here’s the story, via AP:
WASHINGTON - President Bush, under pressure to do something about gasoline prices that are expected to stay high through the summer, has ordered an investigation into possible cheating in the markets.
During the last fe…

Trackback by Sister Toldjah — 3:25 pm
[…] Texas Rainmaker has a very detailed breakdown on what's wrong with all the wailing and gnashing of teeth coming out of Washington over high gas prices. […]

Pingback by Blue Crab Boulevard » Blog Archive » Gas Pains — 6:21 pm
Howard Kunstler’s predictions on how America and its “Leaders” would react at the beginning stages of the “Long Emergency” are coming true.

First Stage: Denial. You saw that by the baffoon Bush today and yesterday in his statements about oil, But its not just Bush, its the entire country, no one wants to let go of our our oil-dependent, SUV Driving, 45 mile commuting, $1.00 Mc.Burger transported 1,000 Mile, buying cheap crap from China, living in Suburban Mc.Mansion life-style.

For more on “The Long Emergency”, and Howard Kunstlers book, you can can read a review of it that I wrote here:

http://goofyblog.net/book-review-the-long-emergency-by-james-howard-kunstler/

The more people that read this, the sooner we, as a nation, might realize just how F’d we are, and can possibly… MAYBE… Start do something about it besides the wastefull half-measures, and propaganda BS coming from our leadership today.

- Patamon

Comment by Patamon — 7:29 pm
Our friends, the government

Heh, heh. Not to put the entire gasoline problem on the Chinese. We’ve got our own problems at home, and as usual, it starts with politicians. Henry Payne:
Congress first mandated the production of 4 billion gallons of ethanol this year (incre…

Trackback by The Fat Guy — 9:31 pm
How in the hell can someone read all this? Ever heard of summarizing?

Comment by John Cobarruvias — 9:43 pm
I really don’t care WHY gas prices are so high, I just want to know who is going to do what to fix it!

W has had years to address this, but hasn’t done a thing. Is it his fault? No, just like nothing else is his fault. Iraq. Plame. Deficit. Debt. Katrina response.

Nothing like ushering in the “Era of Responsibility” or is it the Error in Responsibility?

Comment by John Cobarruvias — 9:46 pm
Pain in the Gas

Temporary solutions are not solutions but pandering…Look, the solutions for the American energy problem aren’t all that complex though they will, all told, take time to implement if we, as a nation have the willpower to take on not only the governm…

Trackback by A Blog For All — 10:45 pm
[…] Via Texas Rainmaker. He also notes, “It’s beginning to look more and more like we only have one policital party in Washington… and it’s not one I really care for.” […]

Pingback by The Everyday Economist » Blog Archive » Oil Profit Margins vs. Other Industries — 8:57 am
Dems Pimp at the Pump

US oil companies make approximately a 9 cent per gallon profit. Federal and state taxes equal anywhere from 26.4 to 53.5 cents per gallon. (the national average is in the mid 40 cent per gallon range) Since Democrats have never met a tax hike …

Trackback by Amy Proctor — 11:12 am
It Isn’t Price Gouging

More here….

Trackback by Say Anything — 11:27 am
Great job on coming up with these numbers. Now why can’t Fox News do this? I’ve been watching for weeks and hearing opinions from one side or the other but never getting the facts.

Comment by jc — 11:50 am
Humpday across the Blog-O-Sphere

What is being discussed on some of my favorites blogs….

Trackback by Center for Sanity — 2:55 pm
Why doesn’t anyone state that Americans have used 9.1 million more gallons this year in this current period than last year? Hmmmmmmmmmmmm, more sales, more money, sounds like kindergarten math to me. Now, ask this question, is it truly “Americans” buying all this gas? Does the word immigrant, legal and illegal, fit into this picture? And the monies collected in taxes off each and every gallon, an astounding number, does it really cost all that much to run a town, state, or nation? Stop worrying about the price of a gallon of gas, or who is profiting from it. Start worrying about where the tax dollars are going and why illegals are getting the perks from these tax dollars. Please, someone, tell me how we are all going to stop spending by governments on all levels? Governments need to be reigned in, stop the frivolous spending. The illegal immigrant problem is a much bigger issue at the moment, the nation can no longer afford to pay for these people, the toleration must stop.

Comment by Drew — 12:13 pm
Meanwhile our so-called Leaders in Washington run around like chickens with their heads cut-off, unable to deal with the reality that we’re in the era of Peak Oil:

http://goofyblog.net/clueless-president-and-congress-attempt-to-pass-clueless-legislation-to-deal-with-gas-prices/

Comment by Patamon — 1:40 pm
Qatar to Politicians: Shut Up

..the Qatari Energy Minister sees this and suggests that if the politicians would quit with the rhetoric which is driving the prices up, if they would stop, he thinks prices would drop at least $15 a barrel.

Trackback by Center for Sanity — 12:38 am
Ending high gas prices

We all agree that gas prices are way too high but when it comes to the solution, there is a significant difference of opinion. The interesting thing is no exclusively republican or democrat solution has emerged; it is every man for himself as Congress…

Trackback by William Stewart — 9:06 pm

RSS feed for comments on this post. TrackBack URI