It Ain't a '70s Revival Without Gas Lines!

Hawaii, that intriguing laboratory for democracy (it was the first and perhaps only state to enact a law giving the finger to the PATRIOT Act, for example), has exhumed one of the hoariest ideas from the bad-government (and by that I mean "Richard Nixon") playbook: price controls on gasoline. Worse, this is encouraging California's idiot Democrats to follow suit:

This week, state Sen. Joe Dunn (D-Santa Ana) will reintroduce legislation that would give the California Public Utilities Commission the power to regulate gasoline prices.

"Hawaii is taking the absolutely correct approach to the gasoline industry," said Dunn, a strident critic of energy companies. "The more states that follow Hawaii's lead, the sooner we'll be able to force this industry to get back to normal market behavior that benefits the consumer but also allows them a reasonable profit."

The sooner we'll be able to force this industry to get back to normal market behavior. That's probably my favorite line.

Comments

[TallDave]

Gah! Just when Republicans claim the crown of "Stupid Party" with the intelligent design debacle, the Dems leap back in and seize the throne from them.

[Unp-acking the Humor Dep't]

I know, it's funny because:

(1) HI and CA's plans will not break up the oil oligopoly; and

(2) oligopolies never exhibit normal market pricing, even with the help of well-intentioned regs.

[Douglas Fletcher]

Ah yes the winter gas lines of my childhood, sweet memories indeed.

The real wonder here is that we haven't heard this kind of talk until now.

[joe]

I know this is off topic, but...

Why is petroleum refined near the end user, rather than at the point of production? Wouldn't a tanker full of deisel or gasoline (or even of partially-refined petroleum) be worth more than a tanker full of raw oil? And wouldn't it be cheaper to build and operate a refinery in, say, Venezuela or Nigeria than in Hawaii?

[drugs and ammo]

we need to fucking take it to em. fuck iraq. lets get those oil producing nations and fuck em up! tell me that we arent gonna stand for their bullshit...
or we could just produce more fuel efficient cars and explore alternate sources of energy.
but i like stuff involving guns and explosions.

[nmg]

For one, storing and transporting refined fuels is far more dangerous and expensive than storing/transporting crude.

Another reason is that in the US, each state has its own regulations about how to refine. So even if it WERE cheaper to refine on site and then transport, our wonderful central planners have made that impossible.

nmg

[Captain Spaulding]

Unmentioned in the LA Times article is why there are only two refineries in Hawaii especially if they're so darned profitable. I suspect there's regulation that the article didn't look into.

[Frank Papa]

Hawaii will do an *excellent* job closing gas stations, I'm sure. I mean, really. Why would gas stations and companies willingly offer at a loss? They won't. So of course, look for the next batch of new gas laws... requiring private oil/gas companies to serve *all* customers (like the phone company, but with an all privately-owned infrastructure). Either they do that or repeal this new law. I wonder how long it'll take before it gets tough for Hawaiians to buy gas?

[Larry A]

My favorite part is but also allows them a reasonable profit.

As opposed to the government, whose gasoline tax profit is an order of magnitude greater.

I wonder if any of the reporters at these press conferences are asking the pols why they don't just increase the supply of oil by allowing someone to drill for the kazillion barrels lying just off the California coast? And oh-by-the-way balancing the CA budget at the same time?

[Windypundit]

I still say that most critics are wrong: There won't be long lines at the gas pumps in Hawaii.

There will be shortages, but because the cap is on the wholesale price rather than the retail price, it will be the gas station operators who will be waiting in line. Not literally, of course, but they'll be having a hard time getting as much gas as they used to.

This means that they can't sell as much gas as motorists demand. But unlike their suppliers, they don't have price caps. So instead of running short and having long lines, they'll simply raise prices until the demand for gas slows to a rate that matches the supply.

That's right. Hawaii has just passed a gasoline price control system that will actually increase the price people at the pump.

This make me think these price controls are somehow the work of lobbyists for Hawaiian gas station owners. If station owners had colluded to increase profits by restricting the supply of gasoline, they could be fined or jailed under the anti-trust laws. But if they lobby the legislature to do it for them, it's perfectly legal.

It won't last, though. Unless the Hawaiian legislature comes to its senses real soon, the public will start to demand retail price controls because of all the high gas prices.

Then there will be long lines at the gas pumps.

[nmg]

The astonishing ignorance and stupidity required to support price controls on gas boggles the mind.

Just when I start thinking the democrats can't be as bad as the republicans have become...

nmg

[Russ D]

Price controls worked so well for electricity.

[joe]

nmg,

Tankers full of CNG cruise around the world all the time. Is gasoline or fuel oil really that much more dangerous?

[Don Mynack]

Windypundit,
You are mostly correct, however, people will still need the gas, and will run to the stations to get the gas before prices rise again. That will create the lines.

Also, on a related note, check out this map of different gasoline "mixes" required by law in the U.S. You'll can match each area with its relevent interest group/additive lobbying group. (scroll down)

http://www.econbrowser.com/archives/2005/08/impact_of_katri.html

[Matt]

Okay, so you guys are the Govs of HI or CA. Your constituents are hurting and you want to offer temporary price relief. Price controls are bad, agreed. What do you do?

[nmg]

"Tankers full of CNG cruise around the world all the time. Is gasoline or fuel oil really that much more dangerous?"

I think CNG (if it's same/similar to LNG) is the only viable method for transporting the natural gas. Gas pipelines, although expensive, are much safer and easier when you can build them. With crude oil, you just don't have the fireball problem you have with refined fuels, and storage is also tougher because contamination is worse when you spill fuel.

I don't know if the cost is that prohibitive but it's more, and I don't know if it would actually be cheaper absent regulation.

As a previous poster mentioned, it's a near certainty that Hawaii's dearth of refineries is due to bad regulation.

nmg

[Matt]

Oh, and by the way, saying Intelligent Design is science is still waaaaay more stupid than offering price controls in the wake of rocketing oil prices. Price controls may be Keynsian, but its still economics, as in, you can argue about them with the language of economics. ID is trojan for biblical; there aint a testable hypothesis in sight; any argument there jumps the rails from science to philosophy in about three sentences.

[thoreau]

Okay, so you guys are the Govs of HI or CA. Your constituents are hurting and you want to offer temporary price relief. Price controls are bad, agreed. What do you do?

Cut the gasoline tax.

[Devin McCullen]

It's because so many Americans are economically ignorant bitches. (Welch should like that one.)

[Paul]

What, these Dems didn't get the memo? Oh, my bad, that was the nineties. Now low gas prices = good.

[RDale]

thoreau is right on this one. If the govs are really interested in providing a break for their constituents, they should cut (or drop entirely) the taxes on gasoline, at least as long as the current state of affairs lasts.

But then, like virtually every other government initiative, the actual goal is to posture around making a lot of noise, but doing pretty much nothing useful. Doing something that would actually have a beneficial effect is hard work, and most government employees (and all elected officials) are ideologically opposed to that kind of hard work.

[joe]

"Okay, so you guys are the Govs of HI or CA. Your constituents are hurting and you want to offer temporary price relief. Price controls are bad, agreed. What do you do?"

Ladies and Gentlemen, the pain you are feeling today is the inevitable result of basing our economy and transportation system on an energy source subject to political manipulation, corporate profiteering, depletion, and the whims of the weather. For as long as we remain dependent on fossil fuels, these periods of crisis will be with us. I urge you to mull these points over as I put on this cardigan sweater and turn down the thermostat.

[sage]

"Why is petroleum refined near the end user, rather than at the point of production?"

I might be wrong about this, but I think that by the time the finished product made it to your local gas station, you would not want to put it in your vehicle. The gas would be stale and full of moisture.

[RDale]

result of basing our economy and transportation system on an energy source subject to political manipulation, corporate profiteering

And zero political will on either side to do anything meaningful to address it.

[sage]

Thoureau,

I'm with you on cutting the gas taxes, but that will only provide a little more of a comfort zone. Here in Washington state the gas tax is 28 cents per gallon (prior to the new tax kicking in, which will bring it to 37.5 cents). Gas is around $2.70/gallon, so cutting the tax would help, but not a lot.

I remember reading an article comparing oil recovery with being in a room full of shelled peanuts. At first, the peanuts are easily recovered and eaten, but eventually they will be harder to find, as the empty shells get in the way of finding new peanuts. So the cost of getting the new ones goes up. In the meantime, we need to eat, so what do we do? Go find something else to eat. You know, that made sense in my head. Forgive me, I'm home sick today.

[thoreau]

I'm not saying it's a panacea. I'm saying it's some sort of relief. Better than nothing.

[MikeP]

ID is trojan for biblical; there aint a testable hypothesis in sight; any argument there jumps the rails from science to philosophy in about three sentences.

ID is pretty much untestable, as you note. The success of price controls in doing what they are supposed to do is fully testable. And price controls fails every test.

Which is it more wacky to believe in? More to the point, which of the two will one's belief in cause other people more pain.

And, to go straight to one of my peeves, why do proponents of ID get implicitly or explicitly ridiculed in the media, but proponents of price controls or protectionism do not?

[M1EK]

"Gah! Just when Republicans claim the crown of "Stupid Party" with the intelligent design debacle, the Dems leap back in and seize the throne from them."

The Governor of Hawaii is the only person who, by themselves, could have stopped this. She is a Republican.

"Unmentioned in the LA Times article is why there are only two refineries in Hawaii especially if they're so darned profitable. I suspect there's regulation that the article didn't look into."

There's not a whole lot of empty waterfront land on Oahu that's available for sale. Have you ever been there?

"Okay, so you guys are the Govs of HI or CA. Your constituents are hurting and you want to offer temporary price relief. Price controls are bad, agreed. What do you do?

Cut the gasoline tax."

Raise the gasoline tax and use the money to cut the bus fares. Honolulu's fares are really REALLY high - there's no (economic) incentive to take the bus unless you have to pay a lot for parking, even with their relatively high gas prices.

[Chuck]

joe--

I'd also venture that part of the reason refineries are built here is because they *can* be. Less risk of rebel attacks, sabotage, nationalization, populist revolts, etc. Many of the big oil-producing places tend not to be very safe places for American capitalism, but the companies really don't have much choice but to go there is they want to pump oil. Then they get it the hell out of there as quickly as possible.

No doubt this is not the only (or even the main) reason, but I wouldn't want to keep my facilities or product hanging around in Venezuela, Nigeria, SA, Iraq, etc., any longer than I had to.

[R C Dean]

Okay, so you guys are the Govs of HI or CA. Your constituents are hurting and you want to offer temporary price relief. Price controls are bad, agreed. What do you do?

After cutting the gas tax, of course, I remind myself that, as Governor of my State, its not my freakin' JOB to go around offering temporary price releif to the peoples.

MY job is to make sure the night watchman functions of the state are carried out as efficiently and effectively as possible.

[TallDave]

Your constituents are hurting and you want to offer temporary price relief.

You tell them reality is harsh, and anything we do is only going to make it worse.

Then you tell them to buy hybrids and build nuke plants.

[Watching The Watchman Dep't]

MY job is to make sure the night watchman functions of the state are carried out as efficiently and effectively as possible.

Okay, Watchman, here are a coupla tougher questions:

(1) Saudi Arabia has just levelled the Twin Towers. What do you do? Remember: lots of our oil comes from Saudi Arabia, so your choices may be a bit limited.

(2) How far you gonna ease off on them nuke safety regs? Is nuke safety even an appropriate issue for a Night Watchman?

[heffer]

M1EK-
>> There's not a whole lot of empty waterfront land on Oahu that's available for sale. Have you ever been there?

Ah, but have you looked at any of the government "sustainable development" maps of Hawaii - especially on the North Shore? There's a reason why the land isn't for sale. There's plenty of land to fit some refineries.

[nobody]

Question:

If you cut the gasoline taxes (let's assume gas is $2.70/gallon, with $0.30 of that coming from taxes), won't that simply act as an indirect subsidy to the gasoline companies? Since the market-clearing price is $2.70, if you eliminate the tax, causing the price to initially drop to $2.40, won't people want to consume more gas than is available, bringing the price back up to, uh, $2.70? Am I missing something?

[jc]

M1EK,

So your idea of helping people is to take more of their money from them.

[crimethink]

ID is pretty much untestable, as you note. The success of price controls in doing what they are supposed to do is fully testable. And price controls fails every test. Which is it more wacky to believe in?

If it's better to be false than unfalsifiable, it's less wacky to believe the earth is flat than to believe in God.

[thoreau]

nobody-

Good question!

The answer is competition. Demand for gasoline may be inelastic, but that doesn't mean that demand for one particular company's gas is inelastic. Everywhere I've lived there have been at least 5 companies operating gas stations, if not more.

Say the market-clearing price, after taxes, is $2.70. If the taxes go down and gas stations keep the price the same they'll all make a lot more profit. However, one of them realizes that they could sacrifice a little profit per gallon and make it up with the increased volume from consumers heading to the cheaper station. So they lower the price. The others follow suit. No, they'll never charge EXACTLY the same (the conveniently located station will charge more than the station that's blocked by a traffic island, forcing half the cars to do a U-turn to reach it). But they'll also lower prices somewhat.

Will the final price cut exactly equal the tax cut? Probably not. But it will be close to the tax cut in a competitive market. And if there are several companies operating gas stations then it's fairly competitive.

This is econ 101.

[Hakluyt]

joe,

Cruising about the world with LNG ain't cheap, but its far cheaper than cruising with gasoline. Each commodity has different issues associated with it.

[Paul]

Okay, so you guys are the Govs of HI or CA. Your constituents are hurting and you want to offer temporary price relief. Price controls are bad, agreed. What do you do?

Uhm, there's a two part answer: 1. If you want to simply please millions of registered voters, you you meddle in free markets, create a short term fix, and let the next administration(s) clean up the mess. 2. If you want to do what's right, you allow the market to seek its own level- as it always rightly does- absent government meddling.

However, if meddling must be done, you might consider lowering-- even temporarily-- some state gas taxes. However, as anti-tax as I am, lowering most gas taxes won't bring a whole lot of relief. Gas taxes are one of the few taxes (strangely) which aren't indexed to price/value- unlike property taxes or income taxes. Which means that if a state has a 3c per gallon gas tax, the price can go through the roof and the state doesn't see an increase of revenue, because the price per gallong is fixed at .3 cents. In fact, they might even see a drop in revenue as people rush to conserve fuel, thus buying fewer gallons.

Remember: When politicians control buying and selling, the first thing to be bought and sold are politicians.

Paul

[Jeff]

"Okay, so you guys are the Govs of HI or CA. Your constituents are hurting and you want to offer temporary price relief. Price controls are bad, agreed. What do you do?"

Explain to the people that their irrational fear of nuclear power has real world costs, and these are some of them. Explain to people that Byzantine regional refining guidelines, and additives requirements that do more harm than good, have real world costs, and these are some of them. Explain that protecting the US automobile (or SUV) industry at the expense of reasonable fuel efficiency standards has real world costs, and these are some of them. Explain that "protecting the environment" by prohibiting oil exploration has real world costs, and these are some of them. Explain that basing an entire economy on a commodity that is largely controlled by the most bat-shit crazy region in the world has real world costs, and these are some of them. And ask them which of the foregoing positions they would like to change in order to avoid some of these costs.

And then plan my post-government retirement, since I would be voted out on my ass.

[Windypundit]

thoreau,

That's a good answer to nobody's question.

One wrinkle I find disturbing is that upward supply price changes arrive at the pumps almost immediately, whereas downward changes seem to take a while.

It may just be that the bidding market is inefficient because the search cost is so high: You save more money by not driving around to check the prices than you would by finding the lowest price.

Nevertheless, I'm still suspicious. My (totally unresearched) theory is that gasoline competition is very local, basically just between nearby stations. This allows for a sort of "gentleman's cartel" to arise because everybody can see the posted price at everybody else's station.

I suppose it could be more blatant, such as owners meeting regularly for lunch to encourage each other to "hold the line at $3.08" or something like that.

[R C Dean]

Okay, Watchman, here are a coupla tougher questions:

(1) Saudi Arabia has just levelled the Twin Towers. What do you do? Remember: lots of our oil comes from Saudi Arabia, so your choices may be a bit limited.

Well, since the charge of the Night Watchman is the safety and security of his citizens, military and diplomatic action are definitely within his purview.

If, as you imply, the Saudi Arabian state has somehow managed to take aggressive action to level the twin towers, well, that is an act of war, and the Night Watchman will respond as necessary to terminate the threat. Most likely, by opening a big old can of whupass on their military and their government. I bet we can figure out a way to keep the oil flowing - the Princes of the House of Saud probably don't contribute much to oil field productivity, after all.

(2) How far you gonna ease off on them nuke safety regs? Is nuke safety even an appropriate issue for a Night Watchman?

The Night Watchman's charge is the safety and security of the citizens, somewhat narrowly defined, against (and this is the important part that keeps the Night Watchman from turning into Big Nanny) force and fraud. Safety regs are not aimed at preventing or punishing force or fraud, so they probably aren't anything the Night Watchman wastes his time on.

[The Wine Commonsewer]

GAS LINES

Been there. Done that. Twice.

Looking forward to being able to buy five gallons of cheap gas every other odd numbered day with my even numbered license plate vehicle.

Thanks Asscelonians.

[Russ D]

One wrinkle I find disturbing is that upward supply price changes arrive at the pumps almost immediately, whereas downward changes seem to take a while.

I think throeau already explained that phenomenon pretty well. When the cost goes up, it's likely that every station will see the cost go up so it's only a matter of a day or two before every station will have to raise the price anyway. When the cost goes down, it becomes a staredown on who's got the nerve to take a slightly lower profit first.

[nobody]

thoreau, Windypundit:

Thanks for your comments. If we were talking about widgets, I can imagine the supply increasing and, in a relatively competitive market, driving the price to near $2.40. However, given the relative inelasticity of the gasoline supply, I'd imagine that prices would have to stay at $2.70. I know some marginal gas producers who wouldn't produce at the current price would come online, and that the increased supply would bring the price down somewhat, but without that increased supply, it seems that the price would still tend towards $2.70 (more closely at least to $2.70 than $2.40).

Does that make sense? I seem to recall reading something along the lines of, "in the long run, surpluses accrue to the holders of resources in fixed supply".

Thanks.

--Nobody

[Isaac Bartram]

How far you gonna ease off on them nuke safety regs?

Hopefully the Night Watchman isn't going to be subsidizing or limiting the liability of the nuclear power industry either.

[nobody]

Russ D, Windypundit:

Quickly rising prices and slowly decreasing prices are part of a well-known phenomenon called "rocket and feather" price movements. Google "rocket and feather prices" and I'll bet you get quite a few hits. IIRC, Prof. Lyne Kiesling (sp?) over at http://www.knowledgeproblem.com wrote quite a bit about this a while back.

[MP]

Hopefully the Night Watchman isn't going to be subsidizing or limiting the liability of the nuclear power industry either.

Ha! A nuke plant goes haywire. Massive catastophe. Who is going to pick up the tab? Insurance? No way would an insurance company even issue a policy that would reasonably cover the liability claims that would result. A catastrophic event would bankrupt ALL parties involved who had some liability. Given that fact, why would anyone touch nuclear power without government liability protection? Unless, of course, they had no intention of covering their liability exposure.

[thoreau]

nobody-

Demand for gasoline overall is inelastic. But that doesn't mean that demand for a particular station's gasoline is inelastic. I'll have a dire need to fill my tank this weekend, but I won't have a dire need to fill it at any particular station. So I'll go to the cheapest place in my neighborhood.

[Russ D]

nobody,

I googled "rocket and feather prices" and got zero hits.

[Windypundit]

Thanks for the "rocket and feather" reference, but I can't understand the scholarly papers.

The popular articles, on the other hand, make no sense. They talk about it taking time for the high-priced gas to work it's way out of the system. That's silly. If you buy an ounce of gold and the price drops, you don't get to sell that ounce at the old higher price because it's "still in the system." Why would gasoline be any different?

[nobody]

Thoreau,

Maybe I'm still not understanding - I realize that competition will tend to force the price downwards, but given that the market clears @ 2.70, where will the extra supply come from at 2.40? Ppl will clearly demand more, but there isn't more, so won't the price tend towards 2.70? If we were talking generally about widgets, the supply would tend to increase, and I'd agree with you, but I don't see that happening in the gasoline market (at least, not nearly to the same extent).

Thanks.

Mike

[db]

Why is petroleum refined near the end user, rather than at the point of production?

joe,

the average density of crude oil is something like 970 kg/cu.m

That of automotive-grade gasoline is about 737 kg/cu.m.

So if you shipped refined gasoline around, you would need a tanker 30% larger than a crude oil tanker. Also, you would need to have extra, different handling systems for the other fractions that you would need to ship on the same ship. That would mean different vapor-recovery systems, different tanks, different pumps, different controls for all the equipment. The added capital cost would be enourmous.

[Sandy]

Demand for gasoline overall is inelastic

If that's true, why did the Washington Post just run an article whining about how local governments are suffering for loss of tax revenue? They're talking about laying people off because they can't meet their budgets, so somebody has cut back somewhere pretty fast. That sounds awfully elastic to me.

[nobody]

Thoreau,

Errr, I meant,

Thanks.

Nobody

[Jennifer]

Looking forward to being able to buy five gallons of cheap gas every other odd numbered day with my even numbered license plate vehicle.

I don't remember gas lines, but holy crap! If I could only buy five gallons every other day I'd have to either (depending on what my boss did) quit my job, switch to part-time, telecommute, or crash at the office three nights a week.

Well, at least my boss is having a shower installed in the upstairs bathroom. The collective stench of our bodies after last months corporate wilderness adventure had one good side effect.

[Windypundit]

If we're looking for a government regulation that might actually help, let me offer a crazy idea:

If I stop at my local gas station, I can walk into the shop and get Coke or Pepsi. I can get three or four different brands of potato chips. I can choose from half a dozen newspapers, and several dozen different types of candy.

But they only sell one brand of gasoline.

It seems to me that offering several brands to choose from at the pump would do a lot to increase competition.

Does anybody know if that's a natural feature of the market? Or is it the result of some legal structure? If so, knocking it down would probably lower prices.

[nobody]

Sandy,

I can't speak for the original author, but "inelastic" doesn't necessarily mean "infinitely inelastic". If it were, gasoline would cost $23490234098234 per gallon. From my understanding, economists generally regard demand for gasoline as largely inelastic, as it takes a large increase in price to effectively reduce the demand.

So, it's entirely consistent to say it's inelastic, and still note that consumption has fallen, reducing tax revenue. If it hadn't fallen, producers would increase the price some more.

--Nobody

[db]

Windypundit,

The brand of gasoline you buy has very little to do with its price, or, in fact, what is in it, or where it is made.

Most gasoline is made at refineries that are shared between multiple oil companies. Each may have a separate blend or some special additive, but the truth is that most gasoline is identical. Knowing that, it's not hard to see why gas prices are very close together--the costs of production are nearly identical because the same labor, equipment, and feedstock are being used to produce the gas sold by most of the major manufacturers.

Oil refineries are extremely expensive capital projects and therefore, usually, one or two regional refineries serve a certain geographic area for all the gasoline wholesalers in that area.

[Russ D]

nobody,

You're confusing the end price with the profitability.

If the price without taxes is 2.40 and with taxes it's 2.70, the total profit for the station owner is the same in either case (so it isn't a subsidy) because he paid 2.20 for the gas in both cases.

[Isaac Bartram]

Given that fact, why would anyone touch nuclear power without government liability protection?

Good question!

[Russ D]

nobody,

To put it another way...

If you and I both own gas stations, and we both pay 2.20 per gallon for our inventory of gas...

And you price your gas at 2.70 and I price mine at 2.45... who do you think is going to sell more gas?

[Russ D]

economists generally regard demand for gasoline as largely inelastic

And apparently politicians generally regard demand for gasoline as even more inelastic than economists.

[MP]

Given that fact, why would anyone touch nuclear power without government liability protection?

Good question!

Comment by: Isaac Bartram at August 30, 2005 05:17 PM

I certainly don't have the answer. I've been surprised by all of the people who have come out of the woodwork saying "Nuclear is the answer to our energy issues". Well, only once they answer the NIMBY waste issues and the liability issues will I start to see nuclear as a reasonable alternative.

[lincoln]

lets get those oil producing nations and fuck em up! tell me that we arent gonna stand for their bullshit...
or we could just produce more fuel efficient cars and explore alternate sources of energy.
but i like stuff involving guns and explosions.

As do I. Is there anyway to mix boobies in with this as well? If so than I'm pretty much on board with passing the buck to any random middle-eastern country. Hhhmmm... How about Kyrgyzstan?

(1) I'd bet only 15% or so of the rest of the world even knows Kyrgyztan is a country in the first place. Who's going to miss them?

(2) Uzbekistan, Tajikistan, Afganistan -- there are too many stans in the world! It's confusing and hard to learn. Picture this: one day little Sally Butterangel comes home crying. What's wrong with Sally? Only a 98% on her geography test because she got the stans mixed up! I'm not saying this has happened but it could happen and in such cases I say the precautionary principle applies. Turning Kryzgizizgastanistan into a glass parking lot for our SUV surplus is for the children!

(3) At least one vowel for every three consonants please. Jesus.

(4) They're poor and brownish tinted. No one cares about poor brown people.

(5) CNN is a lot more fun to watch with a war on.

(6) Come on. Come ooonnnnn. Seriously. Come on.

[jadagul]

Nobody: Not sure if you've gotten here yet, but cutting the gas tax doesn't shift the price on a fixed supply/demand curve; it shifts the supply curve over 30 cents. How much the price changes, and how much the supply changes, are dependent on the relative elasticities of demand and supply-the savings will be split between consumers and producers.

[Eric the .5b]

I urge you to mull these points over as I put on this cardigan sweater and turn down the thermostat.

In Hawaii and California - in late August?

Beware nostalgic reflexes. 😉

[Dynamist]

Why is petroleum refined near the end user, rather than at the point of production?

USA refineries were/are concentrated around points of production (Southern California and the Gulf). As others have posted, it is more difficult to ship refined product.

[thoreau]

If that's true, why did the Washington Post just run an article whining about how local governments are suffering for loss of tax revenue? They're talking about laying people off because they can't meet their budgets, so somebody has cut back somewhere pretty fast. That sounds awfully elastic to me.

Sandy-

The quantity demanded does indeed fall when the price increases. People are buying less gasoline. Not a lot less, but still less. If budgets are already tight (and given the public sector's urge to spend I'd imagine they budget on optimistic predictions), even a small shortfall can have a significant effect. Any time you budget without contingency plans, a shortfall of any amount will cause problems.

nobody-

The market clearing price of $2.70 for the consumer is $2.45 (hypothetically) for the station owner and $2.20 for his supplier. After the tax is (hypothetically) removed, the initial response of sellers will no doubt be to see if they can stay at $2.70. But that isn't stable. I submit that the gasoline market is already pretty competitive: Arco charges less, but they don't take credit cards (grrr....). The place that's harder to reach at the intersection (because the bulk of incoming traffic would have to do a left turn rather than a right or whatever) charges a little less. The place with better snacks usually charges a little more. And so forth. Clear evidence of competitive forces at work.

A long time ago in college I did a term paper on how identical t-shirts cost different amounts at different places along Hollywood Blvd based on their proximity to different tourist traps. I'm tempted to do a map of gas stations in my neighborhood and see how traffic conditions and proximity to major malls and availability of snacks affects price.

[thoreau]

To be clear, the consumer is paying $2.70 but the owner is getting $2.45 after taxes and he's giving $2.20 to the supplier in my example. These numbers are probably not exact, but they illustrate the basic ideas.

It would be nice if states harmonized their requirements. It would open up the possibility of shipping refined stuff across state lines more easily. Yeah, I know, the unrefined stuff is easier to move, but I'm thinking of competition between refineries near state borders. That would surely bring down prices a little bit. OK, not a lot, but when you're paying out the nose as it is, anything helps.

[nobody]

Thoreau,

So far, the majority of the comments have not dealt with my central concern; that is, I recognize that in most markets, competition tends to drive the price down. In this regard, the gasoline markets are no exception. My problem is *not* with the competetive forces, which I recognize are in force. My concern is with the supply end of things. Consider: (numbers totally fictional): if consumers are currently purchasing 100 gallons of gasoline per day @ 2.70 a gallon, and the price drops to 2.40, they want to buy more gasoline. However, *there is no more gasoline*. Producers are pumping at full volume. Given that consumers would like to buy more gasoline than is currently available at the given price, the price has to go up. Go up to where? To the market-clearing price: 2.70. Normally, the fact that producers are receiving a greater percentage of the revenue from gasoline sales would spur them to produce more, lowering prices, but they *can't* produce more.

I keep getting the feeling that most of the ppl responding to my post haven't fully considered the importance of the largely-restriced supply.

Where is the extra supply coming from? Once again, I understand that as the revenue increases, marginal producers will come online, but I question how many of those there are. If there are many, I'm ready to concede that the price will drop.

Thanks again to all who have responded. I really hope I'm not missing something obvious.

--Nobody.

[nobody]

jadagul,

Ahhh, precisely my point! I agree that the savings will be split between consumers and producers. However, given the relatively fixed supply of gasoline, and the relative inelasticity of demand, I'm led to believe that the savings will accrue largely to the gasoline producers - if you go back to my original post towards the top of the page, you'll see that that is my point.

Thanks for your help. I'm really afraid that I'm missing something, but I keep feeling as though most people aren't addressing my point regarding the relatively fixed supply. It seems as though many of us are talking past one another (and I freely concede that it may well be me doing most of the past-talking. :))

--Nobody

[thoreau]

nobody-

So, your concern is that they're pumping at full capacity. So there is no more gasoline to be brought online, and hence if people are willing to pay $2.70 for the current volume then, well, they'll pay $2.70.

If indeed there is no spare capacity, be it in the oil fields or whatever the bottleneck may be (shipping? refining? etc.), then you may have a point. However, you are underestimating the effects of competition: People may very well be willing to pay $2.70/gallon at the current rate of production, but they'd be happier if they could pay less. And if somebody is willing to offer it for less (a possibility if taxes are cut) then consumers will respond.

Also, keep in mind that gasoline is not the only use of oil. If taxes on gasoline are cut then competition would drive down the price of gasoline. Demand for gasoline would go up, and so the price received by the refineries that supply the gas stations would exceed $2.20 or whatever it is in our example. So refineries will be willing to pay more to the companies that supply them with oil. Oil companies will then turn to their other customers (e.g. plastics manufacturers) and say "OK, are you willing to pay more for oil?" The plastics companies will buy less oil at this new price, and so there will be less need to bring new capacity online.

[DB]

. Given that fact, why would anyone touch nuclear power without government liability protection? Unless, of course, they had no intention of covering their liability exposure

Nuke plants don't face serious liability for events that have a measuarable chance of coming to pass -- not unless they are very, very poorly built, and very, very poorly maintained (think Chernobyl). So presumably insurers would insist on regular inspections to make sure the facility wasn't being allowed to degrade, but that should be all that would be necessary.

Think of it this way: you aren't required to carry a fifty million dollars of liability insurance for your car -- even though it is hypothetically possible that you could cause an accident that did that much damage. We don't require it because the odds of it happening are too remote to worry about.

[toddb]

thoreau,
Not a refining or plastics expert, but I believe that the same refineries that supply consumer markets with gasoline, diesel, kerosene, etc., are also supplying the petroleum products to plastics manufacturers. Those products come out of the same refining process...kind of like skimming cream off of milk...the end result being a large number of products for different uses.

[joe]

The elasticity of gasoline demand depends upon the form of the built environment, and the transportation options available.

This is one REASON why recipients of funding from ExxonMobile are always so quick to disparage mass transit projects, and so silent on the zoning and subsidies that produce automobile-dependent suburbia.

[R C Dean]

Given that fact, why would anyone touch nuclear power without government liability protection?

Because they think they can make a profit even in the absence of government backing, perhaps?

Because a well-run nuclear plant is very, very safe, and very, very unlikely to bankrupt anyone?

[Russ D]

nobody,

if consumers are currently purchasing 100 gallons of gasoline per day @ 2.70 a gallon, and the price drops to 2.40, they want to buy more gasoline.

The question is "How much more" do they want to buy? You're assuming that people want to buy $270 worth of gas when more likely they want to drive a certain range of miles. If the price drops to 2.40, they may want to buy $250 worth of gas, but probably not $270. That's the inelasticity of the demand. Of course there may be more people wanting to drive which would increase total demand even if individual demand is relatively constant.

[Dynamist]

one REASON why recipients of funding from ExxonMobile are always so quick to disparage mass transit projects, and so silent on the zoning and subsidies that produce automobile-dependent suburbia

Other reasons might include lifestyle preference and unproven viability and/or unintended consequences of various zoning and transport schemes. The ordering of these reasons depends in large measure on whether or not the prioritizer gets funding from the governments who implement zoning and transit projects.

[Don]

Maybe I'm still not understanding - I realize that competition will tend to force the price downwards, but given that the market clears @ 2.70, where will the extra supply come from at 2.40? Ppl will clearly demand more, but there isn't more, so won't the price tend towards 2.70?

. . . and, as the price trends towards 2.70 people will demand less and some enterprising gas station owner will drop his price.

[Don]

thoreau,
Not a refining or plastics expert, but I believe that the same refineries that supply consumer markets with gasoline, diesel, kerosene, etc., are also supplying the petroleum products to plastics manufacturers. Those products come out of the same refining process...kind of like skimming cream off of milk...the end result being a large number of products for different uses.

Likely true, but thoreau's point remains.

[Douglas Fletcher]

Nuclear cars.