What about the 1920's-1970's when it DID work? Conveniently forgotten, it seems.
Easy to conveniently forget something that didn’t exist - as free a market as we have today. Just exactly what industry wide regulations are you referencing? The first major regulation of the oil industry occurred under Nixon starting in 1973 with his price controls. When Reagan repealed price controls in 1981 crude was selling at $40 a barrel ($90 in today’s prices) and the street price of gasoline was over $3 in today’s market. And the unnatural, disruptive shortages. Up until 1976 you could only buy gasoline on even or odd numbered days depending upon your license plate. For example:
When the U.S. government set maximum prices for gasoline in 1973 and 1979, dealers sold gas on a first-come-first-served basis, and drivers got a little taste of what life was like for people in the Soviet Union: they had to wait in long lines to buy gas. The true price of gas, which included both the cash paid and the time spent waiting in line, was often higher than if prices were not controlled at all. At one time in 1979, for example, the U.S. government fixed the price of gasoline at about $1.00 per gallon. If the market price would have been $1.20, a driver who bought ten gallons apparently saved $.20 per gallon, or $2.00. But if the driver had to line up for thirty minutes to buy gas, and if her time was worth $8.00 per hour, the real cost to her was $10.00 for the gas and $4.00 for the time, an overall cost of $1.40 per gallon. Some gas, of course, was held for friends, long-time customers, the politically well-connected, or those who were willing to pay a little cash on the side. http://www.econlib.org/library/Enc/PriceControls.htmlBut what did happen in 1970? Hmm… It marked the dramatic increase in our reliance on foreign oil and our decline as an oil producing nation. That has only increased. We have 2 percent of the worlds oil reserves but we consume roughly a quarter of world production. Others are increasing their share of consumption. Production is just at pace with demand and will soon lag.
You sound like a poster child for the oil companies.
Yawn. Bring some facts to the table. The marketing and retail segment of the petroleum industry I cover as a journalist (and have for seven years) is hardly a huge friend of “Big Oil” or even refining. It would be easy to blame big oil for the ills of the world, very easy even for “small oil” to blame big oil, but it’s hard to find a real fault in their business operations compared to other industries. I spent about 80 solid hours last month and spoke to 20 primary sources trying. Consumer advocates (that testified before Congress), attorneys general, oil company reps (that testified before Congress), nationally recognized economists of all varieties (EIA, Cameron Hannover, Cato Institute), association leaders (API to NPRA to the marketer associations that also testified before Congress), but the inescapable reality is it’s not 1950 anymore, and never will be again. Tough **** if you like your Hummers, but that’s life.
A hurricane damage some refineries? Well boo-hoo. If they built more in the first place and maintained useful excess capacity it wouldn't be a problem...but they don't want to build more because excess capacity isn't "good economic sense". Refineries running at less than peak capacity generates less than maximum potential revenue. Also, artificially bottlenecked supply allows the companies to sell their product for several times what the market would otherwise pay for it.
Useful excess capacity? Perhaps we should pay higher taxes to subsidize and support those excess refineries. Maybe even an extra gas tax? Until a few years ago you couldn’t make money in refining. The majors were in a hurry to drop refineries off to independents. 5 percent returns. There is no consensus that the “good times” in refining are here to stay since a recession, a return to sensible vehicles or a downturn in the Chinese economy could lead to the industry killing low prices of the 1990s.
Your line of laissez-faire thinking would return us to the bad old days of the 1890's with corporations doing whatever they wanted. The shareholders made out, and tough luck for everyone else. Unfortunately that's the direction this country is gradually headed, at least until the pendulum once again swings back in the other direction.
You hardly have enough information on my positions to make such a statement. I agree with this in general, though my focus would be more on mergers and antitrust issues, and international treaties that don’t demand an equal playing field where employee salaries and the environment are concerned. Similarly, proper oversight among the appropriate bodies to make sure there are no illegal practices at work. However, I feel that knee-jerk market control practices are counter productive and only lead to lower efficiencies, waste and higher higher prices.
I view industries vital to national well-being (telephone, electric, fuel, etc) as being more important than the pocketbooks of shareholders. Sevice and accessibility should NOT be sacrificed in the name of higher profits (witness blackout problems thanks to electric utility cost-cutting in the name of profitability since deregulation). If the oil companies operated in such a manner as to focus on maximum output while maintaining some level of profitability--development of oil shale resources, etc--our fuel prices would never reach half of what they peaked at recently. The companies won't do that on their own though since it would lower overall earnings per share. Note that they'd still remain profitable, just not so profitable as they currently are. But that isn't good enough in a purely greed-driven economy.
Crude prices are set on the Nymex (blame the traders) and are projected to stay at $40 or above according to EIA and Goldman Sachs, T Boon Pickens and others . Peter Butel dropped the bombshell that we will see gas prices at $1.50 soon, but that would be due to a major US recession. Your crystal ball is as good as mine. The reality is that we are at peak world production, no readily apparent hidden reserves (though they may exist) and increasing world demand. That’s a reality, and no longer an “artificial” bottleneck -- unfortunately. Shale and oil sands, etc. are good options, but only at current oil prices. Like it or not “half current prices” are a thing of the past. The best thing we can do is focus on conservation and give up the SUV and 200hp “economy car” for the 30+mpg economy car -- that simple.
"Without those prices there would have been dry tanks. $3.00 gas for a week or no gas frequently or 3 hour waits in line -- you make the call."
Again, shortages are a short-term problem which demonstrate that supply is lower than demand. The solutions are to either increase production to meet demand, or increase prices until demand falls. Increasing production involves expenses which will result in lower overall earnings per share than simply raising prices. Oil companies therefore like shortages, which are otherwise bad for the country. It's an obvious conflict of interest.
The peak prices were due to having 30 percent of all crude shut out, 10 percent of refined gasoline removed from the market, widespread allocation (which means rationing at the wholesale level) due to two major hurricanes that flooded a city, killed 2000 people and devastated a land area the size of Great Britain. At one point at 20 refineries off line as well as the major pipelines serving the East Coast and Midwest. Unless you can piss gasoline “increasing production” is not an option in a national disaster that hits the heart of petroleum production and refining at peak demand season.
We run with very low overhead. A deregulated market provides drivers with a lower overall price of gasoline averaged out over 12 months. There will be issues with any disruption. The cost to fill a tank, even at these peak periods is easier than the standard cost to fill a tank in 1981. The difference is that by 1981 few Americans were driving the road hogs popular before 1973. That has changed. Give me my road hog and my free gas…
Charon
