I hate contributing to these Gas out threads, but since I teach Economics
at the undergraduate and graduate level, I guess I do have some insights
that might interest some of you. I would encourage offlist replies to
cyberlaw@earthlink.net to avoid going further afield of our regularly
scheduled programming.
Cartels don't last.
As much as OPEC has tried they have never been able to keep prices anywhere
close to as high as they would like. This new effort to bring OPEC members
back in line won't last either.
The big oil companies know this.
The big oil companies know the reduction in supply won't last. Individual
OPEC members will cheat, then the Saudis will have to dump on them and it
will all breakdown. The oil companies gamble on this. When International
oil prices drop they buy and load up on reserves. When oil prices rise
they stop buying and draw against reserves.
Refinery reserve levels are almost dry.
OPEC has kept it together long enough to deplete the domestic oil companies
reserves. Now we are over an "empty" barrell. Note: I'm talk about
private reserves ready to refine. Not the Gov't National Security reserves
and not domestic oil in the ground.
Oil companies will have to start buying oil again about now.
This is going to drive up the price at the pump significantly. In other
words, it will get worse before it gets better. And we're in
winter/spring. Summer demand in this sort of tight market would really
drive up prices. Let's hope OPEC breaks by the middle of April or things
will get nasty. $2.50?
How do you solve the problem?
Don't laugh now. But an economist would place a tax on oil. Somebody is
going to make alot of money. But in a very real sense it is a set pool of
money. We can let the OPEC Shieks grab it or the US gov't can tax it and
take the pool of money. If Americans will pay $2 a gallon for regular then
it is better to have it be $1.10 on the spot market and .90 in US taxes
than $1.80 on the spot and .20 in US taxes (note: I don't recall what the
current fed taxes are so this is a hypothetical example). This would never
work, not because it doesn't work (IT ABSOLUTELY WILL WORK IN THE LONG
TERM). It won't work because you could never convince the American people
politically. In fact, the American people would be apt to demand a price
subsidy which would have the effect of keeping the price about the same and
shipping even more pictures of dead presidents into the hands on the
Sheiks.
In the early 70's, the President's council of Economic Advisor's told Mr.
Nixon to raise the tax immediately. The oil sheiks had been experimenting
with the price of oil in Europe and were obviously getting ready to pull
the trick on their real target, America. By taxing oil we could pre-empt
their move and take all the profit out of restricting supply.
Nixon understood and agreed, but politically he was dead in Congress.
The council of economic advisors took the information to Carter, and being
the Peanut farmer he was, he declared that all that Economic stuff was
"good in theory but wouldn't work in the real world"... Along came OPEC
making a comeback in the late 70's
Reagan understood (he knew a little economics) and agreed, he was able to
get Congress to agree to a .50 tax hike. When Reagan read the speech off
the teleprompter, he misread it and said .05. People were mad as hell
about .05 cents so the politicos judged it too dangerous to explain to the
American people that he had meant to say .50.
The problems in Iran and Iraq and the increases in Mexican and South
American production have kept OPEC off balance for nearly 20 years. They
haven't been able to flex their muscle. But things have calmed down and
they are coming together again. There seems to be alot of cooperation.
It won't last. But it will be painful while it does.
Remember how tough it is for an OPEC member to cut production. What is
their cost of increasing production? Turning the spigot. Send Akmed out
with a wrench! With prices so high right now, and increasing production so
easy, it is hard for individual OPEC members to watch the money go by and
not try to grab some.
What is really bizarre? We are working with OPEC now in the gulf to police
for the Cartel. Remember the Russian tanker with the IRAQI oil onboard.
Well, I know we don't have any love for Hussein, but we were in the role of
policing for the Cartel, strange. The tanker and the Oil was turned over
to OPEC. Makes me queasy!
What about Gas Outs.
OPEC won't get the message. The local gas stations will get the message
and the local distributors whose delivery schedule gets all screwed up.
How does this effect OPEC again? With gas prices so high, everybody has
become more price sensitive. We spend more time comparing prices, driving
further to a cheaper station. This has the effect of squeezing the profit
margins of the local stations. We take our hostilities out on the
messenger. They are selling slightly less gas now, and at lower margins.
Now you want to spank them?
The domestic gas companies are making money, but not on their gas at the
pump. They make it because they own oil reserves. These reserves are
assets which are now worth much much more than they were before. They buy
reserves when prices are cheap and sell when prices are high. Their
margins on gasoline get squeezed for the same reason the stations get
squeezed, but the money they make on reserves usually far outweighs what
they make on refining and marketing operations.
Sorry I can't support the Gas Out idea. I understand the psychological
need to be proactive, but it hits the wrong group. Instead, figure out
ways to make the OPEC countries nervous. Call your congressman and tell
him you'd understand raising the tax on Gasoline if it helped take money
OUT of OPEC's pockets (do they have pockets in those dress thingies they
wear?). Tell your congressman, you want to put pressure on the Arabs, that
you want to start ending military support. Lean on the Kuwaiti's, they
sort of owe us. Clinton doesn't want to rock the boat over there because
he wants to close the Arab/Israeli peace accords as his lasting acheivement
in office (a better Presidential image than a Macanudo and a Blue dress
from the GAP). OPEC knows this too, for now at least, Akmed's wrench is
safe in the toolbox.
Back to your regularly scheduled Mopar programming...
Steve Ekstrand, Pasadena, CA Driver: '00 Dakota CC SLT+ 4.7L 3.92SG 255's
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