for US Congress
NJ 6th Congressional District
"Constitutional Republicans protecting the Liberty Platform"
Why is gas so expensive?
As I've been campaigning, this question has been asked to me hundreds of times. The truth is, I don't know that there is one single reason for the inflated prices, but I suspect that the prices have much to do with many factors, most of them stemming from acts passed by the federal government, and the rest stemming from the actions of career politicians. I'm just a computer guy, but I'll toss out my opinion on why and what I think can be done to address the problem.
The "pass-through" effect
It's not just gas for your car, or oil for heating your house, that is more expensive; anything that you purchase that had to be shipped from here to there is more expensive because some shipping line, trucking company, rail road or airline has passed their increased costs on to you. When you buy food, it is more expensive because some farmer needed to spend more on fuel for his tractor, then had to spend more to have it shipped to market. Rising fuel costs are one of the many factors that are contributing to the weak economy, and the cycle only repeats because as you pay for for food and gas, you have less to spend which means you buy less which means some farmer is having to charge more to be able to afford their own bills.
The CAFE Standard
The Corporate Average Fuel Economy, passed in 1975 are supposed to improve the average fuel economy of cars and trucks. The first, most obvious form of wasteful spending this regulation causes is that National Highway Traffic Safety Administration (NHTSA) regulates CAFE standards, but the EPA is responsible for measuring the vehicle fuel efficiency. Two agencies, one regulation, I can almost see the profits rising or costs dropping just by eliminating the expense of having two federal departments try to communicate with one another over a "standard".
The CAFE standards require auto manufacturers to produce ever more efficient cars each year. This is where the second level of wasted money is obvious. You and I, the consumers, are forced to pay for new R&D costs every year. The car manufactures can never devote resources to anything other than fuel efficiency, for example, they can never devote their engineering staff to designing a replacement to the Internal Combustion Engine (ICE), a 100 plus year old design, since every year the car companies continue to spend more money on fuel efficiency, the cost of cars goes higher and higher, ie, they will never be able to spent a billion dollars on a design they can stick with for 20 years and get their billion dollars back over 20 years, instead, they spend as little as possible to do as little as possible to barely make the standards because they know they'll never make the money back on any real research.
Stay focused, we're still talking about gas prices
So the next set of problems are that you and I, who purchased a car this year for $20,000, get 24mpg, should probably consider ditching this car in 5 years for the new model that gets 35 mpg. Our current car has dropped significantly in value and due to increased costs from the CAFE standard, the same car, just a new model, might cost $30,000. Since it's hard to rationalize $10,000 more for the same car, many people opt to keep their old clunkers a little longer, using old technology and getting worse gas mileage than possible in order to save the $10,000 up front cost of a new model. You're not cutting back usage, in fact, as your car ages, you're probably using more fuel due to maintenance issues. Without the CAFE standard, the car company could in theory lower the cost of cars as time goes on because the research and design costs will be closer to paid off as years pass.
Secondly, suppose you don't own a car this year, you ride the train to work every day, but "thanks to the CAFE standard", and its new 417 mpg requirements (just kidding, it's not that bad, yet), you do some basic math. You can pay $36 round trip for a train ticket from Long Branch, NJ to New York City, NY and "help save the environment". At $36/day, 5 days a week, 52 weeks a year you have spent $9360 on your commute. In 5 years, a fair lifetime for a car, you would have spent $46,800 on your commute. Now let us suppose that you buy one of these super compact 50mpg cars that we have the CAFE standard to "thank" for. You're driving about 50 miles each day for that Long Branch to NYC commute, meaning you use about 2 gallons of gas each day, and lets say gas is even $4/gallon, then your cost in gas for the year becomes 4 * 2 (round trip) * 5 * 52 or just $2080/year instead of almost $10,000 in a year. You take your $8000 "profit" over 4 years and buy one of these super compacts for $20,000 and you've still made out well. Now consider that 100,000 other train riders do the same thing as you and as most people start to buy these "super compacts" and drive to work, the cost of the train ticket goes up because the train still uses the same amount of fuel and the train operator still needs to make money, so as the train service prices rise, more people find it more affordable to drive. Of course, now so many people are driving instead of taking the train that any benefits that a single super compact car has over the current SUV tank is offset by the increase in the volume of cars, not to mention the increased demand for roadways and road services. This is why it is so import to give people a reason to live close to train stations and ensure that mass transit/public transportation is always the most affordable/best option for commuters and consumers in general.
The gas prices already!
So since you can imagine that more super compacts, based on volume, means more demand for gas, gas prices go up because demand is higher, despite increased efficiency and the CAFE standard simply encourages more people to drive because it is cheaper than mass transit, which means more sole occupancy vehicles burning gas and the problem becomes more and more clear.
It's still gets worse if you want to hear about it
In New Jersey, mostly in the 6th district but also effecting the 12th and maybe the 4th, or even the 7th, but I care most about the 6th at the moment) the dream of many commuters has been to have the "MOM Line". the Monmouth, Ocean, Middlesex line which would be a NJTransit rail extension from the Lakehurst area (in 12) up to Red Bank (in 6), or Matawan (in 6), or Princeton (in 12). Most commuters want this line, they have wanted this line since the mid 1970s when it was first proposed. NJ Trans already owns the land needed for these lines as rail service used to run on them many years ago, and in fact, a freight line operates on the route to Red Bank. Over the past nearly 40 years, many federal, as well as state and local, tax dollars have been spent "researching" these routes. There have been numerous "environmental impact studies" paid for at our expense and many lawsuits filed by politicians on both sides of the debate. People who live near or close to proposed train stations and tracks argue that their property values will drop (which is contrary to the truth which is demand will increase as commuters will want to live near a train station, or should) or they argue "quality of life". This small minority thus blatantly ignores that the "quality of life" of the hundreds of thousands of commuters who are forced to spend 2+ hours on busses each day, and make up the silent majority. To make matters worse, these people then file one lawsuit after the other against either NJTransit, the state DOT, or EPA, or anyone else they can find claiming anything they can think of. Frivolous or not, these agencies are forced to defend themselves in courts meaning lawyer fees, judge costs, discovery costs, etc and the only way for these agencies to afford to defend themselves is to raise taxes or raise the rates for train services. If taxes are raised, we the silent majority complain, if train costs are raised, we the silent majority complain, and then the smart ones redo the math above, determine it is cheaper to drive rather than take the train, and so the cycle continues as outlined above with more drivers using fuel, which raises the demand for fuel, and on and on and on.
It's still worse in case you're still with me
So everything to this point has just outlined an increased demand for fuel and I've blamed the CAFE standards, I think rather accurately, BUT, even without the CAFE standards, oil would STILL be more expensive. Maybe not as bad, but still not the $0.87/gallon (for premium, I own a v8 sports car) it was 10 years ago when I started driving. Why?
The value of the American dollar continues to plummet due to wasteful spending by people like Frank Pallone that have been wasting our money for the past 20 years. Oil is still just oil, sure global demand (I'll get to that in a moment) is higher, but to that worker in the Middle East who is pumping oil, let us suppose that he needs 4 goats and a chicken in order to feed his family. In order for him to buy those, he needs 6000 pebbles. In 1990, a single US dollar might have bought him 6000 pebbles, in 2008, that same dollar might convert to 2000 pebbles. Mr. Hard Worker now needs at least 3 times as many US dollars for the same goods so that he can afford to live as if it was 1990 again. Account for his 3% salary increase and his cost of living and clearly you need to supply him with even more USDs for the same goods.
Now granted, this sounds good and accurate, but it really isn't as accurate as one might think. BigOil posts BILLIONS of dollars in profits every year. Saudi Kinds are multi-billionaires, there sure is a lot of profit going on at the expense of the US tax payer and consumer. We haven't had a new oil refinery built in this country in years so it's no surprise that these companies are posting huge profits because, like I said about the car companies at the top, they spent money 20-30-50 years ago to build some refineries, have not been forced to improve their efficiency and the huge profits they are posting are because their initial costs to build refineries and such are long paid for, but rather than lower the cost of products, they continue to charge us consumers as if they have huge loans and debt to pay from constructing the refineries.
So if you don't believe in the federal government intervening in private business, what do we do?
How am I supposed to know, I'm just a computer guy, have an idea? One thought would be eliminate the taxes paid by the consumer at the gas pump You could then provide tax credits or refunds to corporations or individuals who spend private money building new refineries or building alternative energy infrastructure. For example, if BigOil wants to spend their money to purchase some farm land and create a wind and solar farm, we can certainly allow some tax credit for this and if you as a consumer want to invest in some solar panels for your roof or even just a solar power watched instead of that big ol' Rolex that uses D-batteries, we can certainly provide a tax credit for that as well.
There is no easy and obvious answer to any problem, gas prices are one of those complicated problems and the best way to solve the problem is to stop letting the federal government get involved in micromanaging every aspect of every industry. One step in the right direction is voting career politicians like Frank Pallone, who have been wasting our money for 20 years, out of office and voting in people, like me, who have had to live with the results of their actions, and inactions. Does millionaire Frank care that gas costs $3.00 a gallon as much as DirtPoor Joe? Probably not, and I bet DirtPoor Joe will make an honest effort to do *something* (anything!) about the gas prices because unlike career politician and millionaire Pallone, DirtPoor Joe will always be just working to afford what he needs and lower gas prices are in Joe's best interests, as well as the interests of the public in general. Pallone has had 20 years to make the dollar worth something, and over the course of his 20 year career in office, he was watched and aided in the declining value of the dollar. If Frank would have worked to ensure that the dollar was valuable, gas prices would be lower just because foreign countries that we import oil from would need less of our money. Frank is bad for the economy, bad for gas prices and bad for New Jersey.
Update - 4/9/08 - Crude oil for May delivery rose $3.33, or 3.1 percent, to $111.83
According to today's news "Crude oil for May delivery rose $3.33, or 3.1 percent, to $111.83 a barrel at 1:11 p.m. on the New York Mercantile Exchange, but I'll add my own $.02 and suggest that oil today really doesn't cost oil companies any more than it did yesterday, or the day before, or 10 years ago. Let us be honest, this is price gouging at it's finest and the laws and legislation we have in place allows it to happen. Consider this scenario, with the numbers completely made up: Oil exists in the ground, BigOilCorp pays some folks $10/hr to pump a barrel of oil out of the ground, it costs BigOilCorp $10 per barrel to transport that oil here to the US and they add in $10 more per barrel to cover costs and such of workers here, it costs BigOilCorp $30/barrel. If oil trades at $111/barrel, BigOilCorp is profiting $70/barrel! Who is buying the oil for $111/barrel? I have no idea to be honest, I'm asking seriously, and regardless, if Joe Investor is indeed buying a barrel of oil for $111, what is he doing with it and what does that have to do with the oil that BigOilCorp is selling to me at the gas pump? The "problem" here is that it doesn't cost BigOilCorp $111 to get a barrel of oil out of the ground, "investors" drive that price up - so oil companies profit something ridiculous - but it really isn't costing them any more money today than it did yesterday to get the oil. My solution? We the tax payers and consumer could probably revolt and eliminate the "investors" from the equation - if BigOilCorp wasn't looking to make MegaBucks by selling the oil on the exchange, they would have to sell it to us at the pump and I'd to think we consumers won't compete with one another to drive the prices us, right? Maybe the federal government steps in and pumps oil from the ground only for sale directly to US tax payers - not to investors or BigOilCorp - again, the cost to get the oil out of the ground isn't $111/barrel, that "price" is the price some investor pays on the exchange. I'm not sure if/how the SEC or any federal agency regulates the commodity exchange like someone regulates the stock exchange, but my assumption is that there is some agency that does so and that agency owes it to us tax payers and consumers to step in and fix the "problem" of investors artificially inflating the price of oil, which is killing us tax payers and consumers and killing our economy. If the "problem" is overseas investors taking advantage of the weak US dollar to invest in oil, then I have no problem with federal legislation that makes the sale of oil by a US company to a non-US party illegal and if BigOilCorp wants to move their operations out of the US, then beat it and take your product with you - we'll gladly find another BigOilCorp who wants American money, theives. Do something Frank, get creative, because for the past 20 years you've watched those prices inflate higher and higher and you've done nothing for us, the people of NJ. I might not have the best solutions, but I promise you, the tax payers and consumers, that I'll propose and push for something that helps us out of this mess that Pallone and other career politicians have put us into.
Update: Apr 18, 2008
Doing some reading after a new record high today - it seems others have come to the same conclusion as me that overseas commodity trading is the "problem" here and it looks like others have been taking action, just not our elected representatives like Mr. Pallone.
As I've been campaigning, this question has been asked to me hundreds of times. The truth is, I don't know that there is one single reason for the inflated prices, but I suspect that the prices have much to do with many factors, most of them stemming from acts passed by the federal government, and the rest stemming from the actions of career politicians. I'm just a computer guy, but I'll toss out my opinion on why and what I think can be done to address the problem.
The "pass-through" effect
It's not just gas for your car, or oil for heating your house, that is more expensive; anything that you purchase that had to be shipped from here to there is more expensive because some shipping line, trucking company, rail road or airline has passed their increased costs on to you. When you buy food, it is more expensive because some farmer needed to spend more on fuel for his tractor, then had to spend more to have it shipped to market. Rising fuel costs are one of the many factors that are contributing to the weak economy, and the cycle only repeats because as you pay for for food and gas, you have less to spend which means you buy less which means some farmer is having to charge more to be able to afford their own bills.
The CAFE Standard
The Corporate Average Fuel Economy, passed in 1975 are supposed to improve the average fuel economy of cars and trucks. The first, most obvious form of wasteful spending this regulation causes is that National Highway Traffic Safety Administration (NHTSA) regulates CAFE standards, but the EPA is responsible for measuring the vehicle fuel efficiency. Two agencies, one regulation, I can almost see the profits rising or costs dropping just by eliminating the expense of having two federal departments try to communicate with one another over a "standard".
The CAFE standards require auto manufacturers to produce ever more efficient cars each year. This is where the second level of wasted money is obvious. You and I, the consumers, are forced to pay for new R&D costs every year. The car manufactures can never devote resources to anything other than fuel efficiency, for example, they can never devote their engineering staff to designing a replacement to the Internal Combustion Engine (ICE), a 100 plus year old design, since every year the car companies continue to spend more money on fuel efficiency, the cost of cars goes higher and higher, ie, they will never be able to spent a billion dollars on a design they can stick with for 20 years and get their billion dollars back over 20 years, instead, they spend as little as possible to do as little as possible to barely make the standards because they know they'll never make the money back on any real research.
Stay focused, we're still talking about gas prices
So the next set of problems are that you and I, who purchased a car this year for $20,000, get 24mpg, should probably consider ditching this car in 5 years for the new model that gets 35 mpg. Our current car has dropped significantly in value and due to increased costs from the CAFE standard, the same car, just a new model, might cost $30,000. Since it's hard to rationalize $10,000 more for the same car, many people opt to keep their old clunkers a little longer, using old technology and getting worse gas mileage than possible in order to save the $10,000 up front cost of a new model. You're not cutting back usage, in fact, as your car ages, you're probably using more fuel due to maintenance issues. Without the CAFE standard, the car company could in theory lower the cost of cars as time goes on because the research and design costs will be closer to paid off as years pass.
Secondly, suppose you don't own a car this year, you ride the train to work every day, but "thanks to the CAFE standard", and its new 417 mpg requirements (just kidding, it's not that bad, yet), you do some basic math. You can pay $36 round trip for a train ticket from Long Branch, NJ to New York City, NY and "help save the environment". At $36/day, 5 days a week, 52 weeks a year you have spent $9360 on your commute. In 5 years, a fair lifetime for a car, you would have spent $46,800 on your commute. Now let us suppose that you buy one of these super compact 50mpg cars that we have the CAFE standard to "thank" for. You're driving about 50 miles each day for that Long Branch to NYC commute, meaning you use about 2 gallons of gas each day, and lets say gas is even $4/gallon, then your cost in gas for the year becomes 4 * 2 (round trip) * 5 * 52 or just $2080/year instead of almost $10,000 in a year. You take your $8000 "profit" over 4 years and buy one of these super compacts for $20,000 and you've still made out well. Now consider that 100,000 other train riders do the same thing as you and as most people start to buy these "super compacts" and drive to work, the cost of the train ticket goes up because the train still uses the same amount of fuel and the train operator still needs to make money, so as the train service prices rise, more people find it more affordable to drive. Of course, now so many people are driving instead of taking the train that any benefits that a single super compact car has over the current SUV tank is offset by the increase in the volume of cars, not to mention the increased demand for roadways and road services. This is why it is so import to give people a reason to live close to train stations and ensure that mass transit/public transportation is always the most affordable/best option for commuters and consumers in general.
The gas prices already!
So since you can imagine that more super compacts, based on volume, means more demand for gas, gas prices go up because demand is higher, despite increased efficiency and the CAFE standard simply encourages more people to drive because it is cheaper than mass transit, which means more sole occupancy vehicles burning gas and the problem becomes more and more clear.
It's still gets worse if you want to hear about it
In New Jersey, mostly in the 6th district but also effecting the 12th and maybe the 4th, or even the 7th, but I care most about the 6th at the moment) the dream of many commuters has been to have the "MOM Line". the Monmouth, Ocean, Middlesex line which would be a NJTransit rail extension from the Lakehurst area (in 12) up to Red Bank (in 6), or Matawan (in 6), or Princeton (in 12). Most commuters want this line, they have wanted this line since the mid 1970s when it was first proposed. NJ Trans already owns the land needed for these lines as rail service used to run on them many years ago, and in fact, a freight line operates on the route to Red Bank. Over the past nearly 40 years, many federal, as well as state and local, tax dollars have been spent "researching" these routes. There have been numerous "environmental impact studies" paid for at our expense and many lawsuits filed by politicians on both sides of the debate. People who live near or close to proposed train stations and tracks argue that their property values will drop (which is contrary to the truth which is demand will increase as commuters will want to live near a train station, or should) or they argue "quality of life". This small minority thus blatantly ignores that the "quality of life" of the hundreds of thousands of commuters who are forced to spend 2+ hours on busses each day, and make up the silent majority. To make matters worse, these people then file one lawsuit after the other against either NJTransit, the state DOT, or EPA, or anyone else they can find claiming anything they can think of. Frivolous or not, these agencies are forced to defend themselves in courts meaning lawyer fees, judge costs, discovery costs, etc and the only way for these agencies to afford to defend themselves is to raise taxes or raise the rates for train services. If taxes are raised, we the silent majority complain, if train costs are raised, we the silent majority complain, and then the smart ones redo the math above, determine it is cheaper to drive rather than take the train, and so the cycle continues as outlined above with more drivers using fuel, which raises the demand for fuel, and on and on and on.
It's still worse in case you're still with me
So everything to this point has just outlined an increased demand for fuel and I've blamed the CAFE standards, I think rather accurately, BUT, even without the CAFE standards, oil would STILL be more expensive. Maybe not as bad, but still not the $0.87/gallon (for premium, I own a v8 sports car) it was 10 years ago when I started driving. Why?
The value of the American dollar continues to plummet due to wasteful spending by people like Frank Pallone that have been wasting our money for the past 20 years. Oil is still just oil, sure global demand (I'll get to that in a moment) is higher, but to that worker in the Middle East who is pumping oil, let us suppose that he needs 4 goats and a chicken in order to feed his family. In order for him to buy those, he needs 6000 pebbles. In 1990, a single US dollar might have bought him 6000 pebbles, in 2008, that same dollar might convert to 2000 pebbles. Mr. Hard Worker now needs at least 3 times as many US dollars for the same goods so that he can afford to live as if it was 1990 again. Account for his 3% salary increase and his cost of living and clearly you need to supply him with even more USDs for the same goods.
Now granted, this sounds good and accurate, but it really isn't as accurate as one might think. BigOil posts BILLIONS of dollars in profits every year. Saudi Kinds are multi-billionaires, there sure is a lot of profit going on at the expense of the US tax payer and consumer. We haven't had a new oil refinery built in this country in years so it's no surprise that these companies are posting huge profits because, like I said about the car companies at the top, they spent money 20-30-50 years ago to build some refineries, have not been forced to improve their efficiency and the huge profits they are posting are because their initial costs to build refineries and such are long paid for, but rather than lower the cost of products, they continue to charge us consumers as if they have huge loans and debt to pay from constructing the refineries.
So if you don't believe in the federal government intervening in private business, what do we do?
How am I supposed to know, I'm just a computer guy, have an idea? One thought would be eliminate the taxes paid by the consumer at the gas pump You could then provide tax credits or refunds to corporations or individuals who spend private money building new refineries or building alternative energy infrastructure. For example, if BigOil wants to spend their money to purchase some farm land and create a wind and solar farm, we can certainly allow some tax credit for this and if you as a consumer want to invest in some solar panels for your roof or even just a solar power watched instead of that big ol' Rolex that uses D-batteries, we can certainly provide a tax credit for that as well.
There is no easy and obvious answer to any problem, gas prices are one of those complicated problems and the best way to solve the problem is to stop letting the federal government get involved in micromanaging every aspect of every industry. One step in the right direction is voting career politicians like Frank Pallone, who have been wasting our money for 20 years, out of office and voting in people, like me, who have had to live with the results of their actions, and inactions. Does millionaire Frank care that gas costs $3.00 a gallon as much as DirtPoor Joe? Probably not, and I bet DirtPoor Joe will make an honest effort to do *something* (anything!) about the gas prices because unlike career politician and millionaire Pallone, DirtPoor Joe will always be just working to afford what he needs and lower gas prices are in Joe's best interests, as well as the interests of the public in general. Pallone has had 20 years to make the dollar worth something, and over the course of his 20 year career in office, he was watched and aided in the declining value of the dollar. If Frank would have worked to ensure that the dollar was valuable, gas prices would be lower just because foreign countries that we import oil from would need less of our money. Frank is bad for the economy, bad for gas prices and bad for New Jersey.
Update - 4/9/08 - Crude oil for May delivery rose $3.33, or 3.1 percent, to $111.83
According to today's news "Crude oil for May delivery rose $3.33, or 3.1 percent, to $111.83 a barrel at 1:11 p.m. on the New York Mercantile Exchange, but I'll add my own $.02 and suggest that oil today really doesn't cost oil companies any more than it did yesterday, or the day before, or 10 years ago. Let us be honest, this is price gouging at it's finest and the laws and legislation we have in place allows it to happen. Consider this scenario, with the numbers completely made up: Oil exists in the ground, BigOilCorp pays some folks $10/hr to pump a barrel of oil out of the ground, it costs BigOilCorp $10 per barrel to transport that oil here to the US and they add in $10 more per barrel to cover costs and such of workers here, it costs BigOilCorp $30/barrel. If oil trades at $111/barrel, BigOilCorp is profiting $70/barrel! Who is buying the oil for $111/barrel? I have no idea to be honest, I'm asking seriously, and regardless, if Joe Investor is indeed buying a barrel of oil for $111, what is he doing with it and what does that have to do with the oil that BigOilCorp is selling to me at the gas pump? The "problem" here is that it doesn't cost BigOilCorp $111 to get a barrel of oil out of the ground, "investors" drive that price up - so oil companies profit something ridiculous - but it really isn't costing them any more money today than it did yesterday to get the oil. My solution? We the tax payers and consumer could probably revolt and eliminate the "investors" from the equation - if BigOilCorp wasn't looking to make MegaBucks by selling the oil on the exchange, they would have to sell it to us at the pump and I'd to think we consumers won't compete with one another to drive the prices us, right? Maybe the federal government steps in and pumps oil from the ground only for sale directly to US tax payers - not to investors or BigOilCorp - again, the cost to get the oil out of the ground isn't $111/barrel, that "price" is the price some investor pays on the exchange. I'm not sure if/how the SEC or any federal agency regulates the commodity exchange like someone regulates the stock exchange, but my assumption is that there is some agency that does so and that agency owes it to us tax payers and consumers to step in and fix the "problem" of investors artificially inflating the price of oil, which is killing us tax payers and consumers and killing our economy. If the "problem" is overseas investors taking advantage of the weak US dollar to invest in oil, then I have no problem with federal legislation that makes the sale of oil by a US company to a non-US party illegal and if BigOilCorp wants to move their operations out of the US, then beat it and take your product with you - we'll gladly find another BigOilCorp who wants American money, theives. Do something Frank, get creative, because for the past 20 years you've watched those prices inflate higher and higher and you've done nothing for us, the people of NJ. I might not have the best solutions, but I promise you, the tax payers and consumers, that I'll propose and push for something that helps us out of this mess that Pallone and other career politicians have put us into.
Update: Apr 18, 2008
Doing some reading after a new record high today - it seems others have come to the same conclusion as me that overseas commodity trading is the "problem" here and it looks like others have been taking action, just not our elected representatives like Mr. Pallone.