Posted by 
I was having a discussion recently with my father who lives in SoCal and he was explaining to me how nice it was that the price of gasoline had fallen a little bit, something like 20 cents per gallon. I started laughing fairly hard and he made a comment that was funny to me: “Yeah, big deal right?” The thing is his sarcastic statement is very telling of a larger problem/potential scheme whose potential existance and the lack of people picking up on it is rather alarming to me.
Not long ago the national gasoline price average hovered around 2 bucks/gallon. Back then people were constantly complaining about the price and I was regailed with stories of the good ol’ days when gas was under a buck and money fell out of the sky so you could just pluck it out of the air to get yourself a few gallons of gas. Not sure why people didn’t pluck more money out of the sky back then, but hey, maybe they thought there was an endless supply. The price of gasoline now hovers around 4 bucks a gallon – twice the national average of about 2 years ago. TWICE.
Upon pondering this I had an epiphany - there was a pattern that could be plucked here that most of us either haven’t figured out yet or just flat out ignored all together. The price of gas would spike sharply over a few weeks – let us pretend a climb of 30-40 cents per gallon. We would all get steaming mad at dirt, complain, people would swear off cars forever and other nonsense, but then the price of gas would drop between 10-20 cents per gallon and then we’d sing a different tune. “See that the price of gasoline came down!??! Isn’t that EFFIN GREAT?!?!” Thing is 40 cents minus 20 cents still means the price of gasoline is 20 cents more than you paid just 90 days prior.
Sadly we don’t care or seem to notice. All we saw was that the price of gasoline just went down, not the net amount of change over a period of time. Not until people bring it up on CNN – relating the issue to loads of other problems we have encounter every day, do we even realize just how screwed we have really been – prison style folks. Think Shawshank. Bottom line is someone figured out the way to play the game with us and we are all just letting it happen.
Consider the following: On Thursday, July 31st, 2008 Exxon Announced that they broke their own all time profit record! In a time where we are having a massive resource problem, primarily in the gasoline industry, how does a company report record profits? PROFITS, not revenue, PROFITS!!! The link there shows the profit increase over time.
Do you remember Ross Perot, back in the 90s, running against Clinton and Bush? He made a statement back then that he was destroyed for, “Perot is crazy!” etc, that went something like “Now let me tell you something. The price of Gasoline will hit 5 dollars per gallon soon.” Who is crazy now?
Now consider this: If you drop a frog into a boiling pot of water he will jump out. If you place him gently into cool water, and then slowly heat it to a boiling point you can have frog soup. So I ask you the reader: How does the broth feel against your skin? Ribbit.
The sad part about Exxon profits – they didn’t even meet Wall Street expectations! Their stock actually went DOWN. That’s where were at now. We are at the point that we are expected to get gouged.
Think about the following micro economic principles for your answer to high cost of gas:
1. Inelastic demand for the commodity
2. Inability of supply to grow at any price
3. Result is price increases until real “value” of gasoline to the consumer is exceeded; i.e., the real “value” of any comodity is the price it will demand in the market place.
Gasoline is sufficiently important to us (as individuals) and to our economy, that we continue to purchase about the same amount as before despite a doubling in price. How many other commodities can boast such importance in our “market baskets?” We complain bitterly, but we buy, and will continue to do so until we either change our life styles dramatically or find a successful alternative product.
If you want to examine a real ecomomic mystery, examine the price of “gourmet” coffee. What does a latte cost at a place like Starbucks – - about $3.50 for 16 oz??? That makes the per gallon price roughly 8 times that amount or $28.00. The per barrel equivalent cost of designer coffees then is about 42 (there are roughly 42 gallons of crude in one “barrell”) time that or $1276.00. Any people willing to pay that price for for coffee has no right to complain about crude oil at $150 per barrell or gasoline at $4.00 per gallon.
Pretend gasoline is a latte for your car that has the side benefit of getting you to work or where ever you need to be to do business. In fact give up your one latte a day habit and use the savings to buy 4 or 5 gallons of gasoline!
Bill – Great points, seriously, all of them. My primary point really was more about how Exxon can report the highests profits ever when they are reportedly having serious problems themselves with many of the points you refered to.
Please continue to feel free to comment to our antics. You seem intelligent and those kind of people are always welcome. Sidenote: I am one of the Starbucks guzzling douchebags to which you refer!