October 24, 2005

LETTING DEMAND DRIVE:

Gas retailers slow to drop prices, reap big returns (Brad Foss, October 24, 2005, ASSOCIATED PRESS)

When pump prices skyrocketed after Hurricane Katrina, gasoline retailers were caught in an uncomfortable paradox -- they were accused of gouging at the same time their profits were being squeezed by runaway costs at the wholesale level.

Now the reverse is true. The outrage from consumers and Congress has died down just as gas stations across the country are reaping some of their best returns at the pump in years by passing along huge savings at the wholesale level as slowly as possible.

"We just had a two-week period there with our best margins in two years," said Bill Douglass, who sells Exxon- and Mobil-branded gasoline at 14 locations around Dallas and distributes fuel to 165 others.

Mr. Douglass and other retailers are benefiting from the spread between wholesale and retail prices, which now is nearly twice its normal size. Since the beginning of September, wholesale prices have fallen more than 40 percent, while retail prices have come down 11 percent, U.S. Department of Energy statistics show.

It's foolish for us not to be taking that margin and more ourselves in the form of taxes.

MORE (via Gene Brown):
Gas Taxes: Lesser Evil, Greater Good (NY Times, 10/24/05)

There's no serious disagreement that two major crises of our time are terrorism and global warming. And there's no disputing that America's oil consumption fosters both. Oil profits that flow to Saudi Arabia and other Middle Eastern countries finance both terrorist acts and the spread of dangerously fanatical forms of Islam. The burning of fossil fuels creates greenhouse emissions that provoke climate change. All the while, oil dependency increases the likelihood of further military entanglements, and threatens the economy with inflation, high interest rates and risky foreign indebtedness. Until now, the government has failed to connect our crises and our consumption in a coherent way. That dereliction of duty has led to policies that are counterproductive, such as tax incentives to buy gas guzzlers and an overemphasis on increasing domestic oil supply, although even all-out drilling would not be enough to slake our oil thirst and would require a reversal of longstanding environmental protections.

Now, however, the energy risks so apparent in the aftermath of Hurricane Katrina have created both the urgency and the political opportunity for the nation's leaders to respond appropriately. The government must capitalize on the end of the era of perpetually cheap gas, and it must do so in a way that makes America less vulnerable to all manner of threats - terrorist, environmental and economic.

The best solution is to increase the federal gasoline tax, in order to keep the price of gas near its post-Katrina highs of $3-plus a gallon. That would put a dent in gas-guzzling behavior, as has already been seen in the dramatic drop in the sale of sport-utility vehicles. And it would help cure oil dependency in the long run, as automakers and other manufacturers responded to consumer demand for fuel-efficient products.

Posted by Orrin Judd at October 24, 2005 9:30 AM
Comments

This is a common argument at this site. While I agree in theory that gas taxes should be raised to lower consumption, I am against higher gas taxes because the funds will go to building bridges to nowhere, set up shrimp farming in the Arizona dessert, and so forth.

Posted by: AWW at October 24, 2005 9:47 AM

I just paid $2.70 for primo at Costco.

Unleaded was $2.53.

Posted by: Sandy P at October 24, 2005 10:05 AM

$2.48 in Wisconsin this morning.

Posted by: AllenS at October 24, 2005 11:22 AM

[sarcasm on]

Gee, lets' raise gas taxes and finish off what is left off the american automotive industry because we are good leftists and we don't like big vehicles or the fact that people choose to buy and drive them. We leftists always know what is better for people than the people do and if it turns out we are wrong (like always) we will just call it an unintended consequence and move on looking for the next big screw up.

[sarcasm off]

Posted by: Perry at October 24, 2005 11:41 AM

"gouging"

One local gas station didn't lower their prices in lock step with all the other (recently) and do you know what I did? (Hint: it didn't involve calling a leftist or a government worker and asking what I should do.)

I went to the next nearest gas station that had a competitive price. I guess I am a genius.

Posted by: Perry at October 24, 2005 11:45 AM

Following the NYT's would have one result for sure. A Democrat House after 2006 (maybe even the Senate).

Posted by: Bob at October 24, 2005 12:14 PM

Headlines in our local paper, Gas Prices Slump.

Posted by: tefta at October 24, 2005 12:17 PM

Torch it?

Posted by: oj at October 24, 2005 12:22 PM

Developed economies don't assemble parts.

Posted by: oj at October 24, 2005 12:26 PM

Developed economies have reached a permanent high plateau of productivity where diverse economic activities are no longer required. We have a new paradigm of economic activity where heavy industry and manufacturing can be safely regulated and taxed out of existence. As oj obviously understands, developed economies have done their jobs, they can stop developing. Nirvana has been attained.

Posted by: Tom C., Stamford,Ct. at October 24, 2005 1:03 PM

Perry - similar story. A local station closed about a month ago for renovation. It reopened last week with a new name, look, and prices 25-50 cents below everyone else in town. The lines were around the corner for about 1-2 days until the other local stations all dropped prices to match.

Posted by: AWW at October 24, 2005 1:09 PM

1.95 per gallon yesterday in Okla City.

Posted by: jefferson park at October 24, 2005 1:22 PM

"Developed economies don't assemble parts."

Excuse me but this line of reasoning is asinine and very dangerous. Raising gas taxes would catch the US automotive industry with exactly the wrong product mix which is currently skewed heavily towards trucks and SUV's and high horsepower engines. It is impossible to think they could react fast enough to a new (arbitrary) set of market conditions before they lost huge market share to foreign competitors. There is no slack in the system. Every point of lost market share is cut out of our industry like a pound of flesh. Look at recent Delphi automotive events if you don't understand how.

Furthermore, if you think by raising gas taxes all we would lose as an economy is the parts assembly function of making cars think again. The process supply chain of car building involves many different functianl disciples in and outside of plain old manufacturing. We would lose design engineers, software programmers and archtects, industrial engineers, manufacturing engineers, technical support people, tool and die designers and builders, machinists, machine builders, product planning and marketing, sales personel and many management positions, logistic supply chain specialist and on and on.

For you to suggest part assembly is all we would lose ignores the fact all these moving peices are interconnected into a very comples cross functional system. It all goes away.

Now surely you understand a little bettor how we lose more than just parts assembly if you silly gas tax happens

Posted by: Perry at October 24, 2005 2:15 PM

Oh yea, we would even lose lawyers if our auto industry shrinks but that is definitly a good thing.

Posted by: Perry at October 24, 2005 2:23 PM

Oj,

You are confused by the difference between back room assembly gigs vs. engineered systems manufacturing

Posted by: Perry at October 24, 2005 2:26 PM

Tom:

Machines and assembly lines made it so anyone can work in manufacturing--liberated women, killed unions, developed the Third World. But the money isn't in assembly, it's in design.

Posted by: oj at October 24, 2005 2:39 PM

Perry:

We're the engineers. Anyone can assemble once we do the designing.

Posted by: oj at October 24, 2005 2:43 PM

Here's a list of U.S. and Canadian gasoline prices for the Utah-based Flying J truck stops, which are partially owned by ConocoPhillips. It's usually a pretty good gauge of what the other area prices are. Oklahoma and South Texas seem to have the best prices right now, while Ellensburg, Wash., is where you don't want to go to fuel up.

Posted by: John at October 24, 2005 3:36 PM

Actually, the US manufactures just as much stuff as we did in the 80s'; we just do it with half the people.

Posted by: Mike Earl at October 24, 2005 3:47 PM

There's no serious disagreement that two major crises of our time are terrorism and global warming.

Say what ?

Maybe no one at the NYTimes understands the disagreement over purported global warming, but their intellectual shortcomings don't add up to "no disagreement".

Posted by: Michael Herdegen [TypeKey Profile Page] at October 24, 2005 4:27 PM

Oj,

You are arguing two different points, one that assembly can be done overseas as one part of a long process (with which I agree) and two that if increased gas taxes result in automotive assembly going overseas, it is ok because we shouldn't be doing that kind of work anyway.

I am suggesting higher gas taxes will not only send "assembly" as you put it overseas, but the whole design chain as well and more to the point it won't be owned by us but by the competition to US automotive industry.

Posted by: Perry at October 24, 2005 5:37 PM

Perry:

They can't design. The engines that replace the carbon-based ones won't be invented by the Chinese.

Posted by: oj at October 24, 2005 5:40 PM

OJ: They won't be developed by GM either.

Posted by: Robert Schwartz at October 24, 2005 10:05 PM

"They can't design. The engines that replace the carbon-based ones won't be invented by the Chinese."

Japan does the design and uses China for the manufacturing. I've been there, I've implemented design chain software solutions for Japanese companies doing business in China, it is a reality.

And if you think China is not moving up the design food chain you are wrong again, they are and will be selling engineered systems soon enough.

Posted by: Perry at October 25, 2005 9:23 AM

"Machines and assembly lines made it so anyone can work in manufacturing--liberated women, killed unions, developed the Third World. But the money isn't in assembly, it's in design.
Posted by: oj at October 24, 2005 02:39 PM"

This is actually funny, and who do you think designs and builds the automation making it possible for people to do assembly, toothfaires?

Posted by: Perry at October 25, 2005 9:25 AM

The Japanese add gewgaws and tweak stuff that we invent. They're not creators.

Posted by: oj at October 25, 2005 9:28 AM

Perry:

White collar American males.

Posted by: oj at October 25, 2005 9:31 AM

White collar American males.
Posted by: oj at October 25, 2005 09:31 AM

Who would lose their jobs with a gasoline tax increase, now you've got it.

Posted by: Perry at October 25, 2005 2:49 PM

No, they wouldn't. They're the ones who'll design the next generation of autos, which gas taxes would force.

Posted by: oj at October 25, 2005 4:57 PM
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