Gas Prices

January 11, 2015

I’ve been watching the gas price drop with interest and some pleasure. Less pleasure than many, I’m sure, but pleasure just the same.

Why less pleasure? The insignificant reason involves our finances. We’re not rich at all, but we haven’t had a non-Prius automobile in our garage since 2007, and at $3.60 or $2.14 1.93 per gallon, the gas price differential difference matters not so much.

The significant reason relates to concerns about how we, collectively, deal with lower prices. Senator Mitch McConnell, newly the Senate Majority Leader, blamed President Obama in 2011 for rising gas prices. (Read McConnell Blames Obama for Rising Gas Prices at Politico to get his exact words.) Now, with much lower prices creating more disposable income, Senator McConnell claims his party’s victory in November accounts for good times, without ever mentioning gas prices. (Read Did Mitch McConnell Just Take Credit for the Economic Recovery? by Vikas Bajaj for the New York Times for details.)

I have a few thoughts. First, the President of the United States does not set gas prices. The market does! Supply and demand determines price. And, by the way, the market is global. The United States is now the world’s largest oil producer, but it’s the world market that still decides how much we pay at the pump. Not POTUS!

Second, lower prices really do matter for many people. The U.S. Energy Information Administration predicts the average American household will spend $550 less on gas in 2015 than it did in 2014. With median household income in the United States just above $50,000, and with many fixed costs like rent and health care, and extra $550 matters for most families.

Third, I’m aware of no product with a price that is so readily evident to all. I drink no milk, and I’ve been a baker/gluten free person (now) for years, so I can’t tell you the price of a gallon of milk or a loaf of bread. But, I know gas in Tucson runs between $1.929 and $2.019, and this information confronts me every day. So what? If the price of gas does matters to many to many people, it matters that they’re aware of the price all day, every day.

Finally, lower prices affect us in ways which are not readily evident. (I’m skipping foreign affairs issues here.) Jeff Sommer wrote Cheaper Oil, Fatter Wallets and a National Opportunity for the New York Times on December 20, 2014. While he focuses on better times because so many price sensitive people have a lot more disposable income, he also notes the fact that if prices keep falling, producers will stop producing. (If productions costs exceed the spot price, you’re losing money when you sell oil.) Less production will result in higher prices. Been there, done that, by the way, and repeatedly!

There is another way. Mr. Sommer mentions Maria van der Hoeven, executive director of the International Energy Agency, who

has called on policy makers around the world to impose taxes on carbon emissions and cut incentives for fossil-fuel energy production. ‘In fact, this is a golden opportunity,’ Ms. van der Hoeven said earlier this month. ‘Policy makers can take actions unthinkable a year ago.’

(For more about carbon tax issues, read Seven Thrilling Facts about Carbon Taxes from the CBO by Brad Plummer for the Washington Post, written in May 2013.)

With gas prices very low, opportunities abound to adopt a sound energy/climate change policy in an environment where we can reduce the adverse, short-term effects. Maybe a carbon tax is involved, or not, but the topic should be part of any discussion. So, can we expect such a discussion? No! The Senate Majority Leader woke up a few days ago claiming credit for the rising of sun, and we have a major battle about an additional pipeline from Canada to a little town in Nebraska, to supplement the one we have that no one seems to know about. Wherever might we find the time to deal with something that really matters?

Leave a Reply