Straight Talk about Gasoline Prices and Transportation Policy

Well, gasoline in Richmond has has hit $3.00 a gallon, or just shy of it, and I spent $48 filling up the gas tank of my Jeep — the most I’ve ever paid for in my life. I’m not happy about it, but I don’t see high gas prices as a reason to start foaming at the mouth and chewing on the carpet. Others feel less constrained.

The hysteria over rising gas prices has reached a fever pitch. The economic ignorance of the sound bites and commentary I’ve seen on national television knows no bounds. Demagogues are calling for self-destructive taxes on oil company profits, oblivious to the reality that, in a capitalist society, profits are a critical signal that guide the flow of capital. (1) If you confiscate Exxon Mobil’s profits, you reduce the capital available to the world’s largest oil company to invest in more exploratory drilling, new oil wells, new pipelines, new refineries, etc. (2) If you tax oil industry profits, you also reduce the incentive for owners of outside capital to invest in new capacity. Why bother if the profits will be taxed away?

Here in Virginia, a semblance of sanity still reigns. Gov. Timothy M. Kaine has not yet proposed anything as breath-takingly stupid as the proposals emanating from Washington, D.C. The Governor has said he will investigate reports of “price gouging,” which, given the fact that the the concept of “price gouging” is meaningless and impossible to define, means he will, for all practical purposes, do nothing…. Which is exactly what he should do. Nothing. Virginians and Americans will adapt to higher gas prices if government does not interfere.

(The Governor also is considering applying for a waiver of federal regulations requiring cleaner gasoline be sold in Virginia’s major metro areas, but has not yet made a determination. See the Times-Dispatch report. Unfortunately, he’s sticking to his guns on trying to raise $1 billion for transportation projects without raising gasoline taxes — a topic for another post.)

As I have been hammering away relentlessly on this blog (See “A World with One Billion Cars“), the world economy is moving from a 20-year era of cheap petroleum to a plateau of more expensive petroleum. This shift is driven by the combination of (a) escalating world consumption of petroleum, especially in rapidly developing economies like China and India, and (b) the peaking of global oil production capacity, the increasing expense of exploiting the remote and isolated oil reserves that remain, and terrorist/political instability in oil-producing countries. This is not the oil companies’ fault. This is not Dick Cheney’s fault. This is not the auto industries’ fault. It is not the environmentalists’ fault. It’s the reality of geology and geopolitics.

The American public can adapt to the new global realities by changing their energy-intensive lifestyles, and politicians can help them by speaking honestly and forthrightly about why the price of gasoline is increasing, instead of demagoguing the issue for short-term political gain.

Here in Virginia, the General Assembly has been examining what Virginia can do to increase energy production. That is OK, as far as it goes. But there is nothing that Virginia can do to increase the global supply of oil, and probably little it can do to increase the petroleum refining capacity needed to convert oil to gasoline. What the political and business leadership of Virginia has so far failed utterly to do is admit that Virginia is acutely vulnerable to oil price shocks. Virginians consume more gasoline per capita than the national average, in part because our transportation policy is geared toward matching every increase in automobile travel with an increase in transportation capacity with no thought of modulating travel demand.

But reality is a stubborn thing. With each increase in the price of gasoline, the bankruptcy of the old order becomes increasingly evident. Let us hope that Gov. Kaine, who prides himself on straight talk, begins leveling with the people of Virginia.


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Comments

17 responses to “Straight Talk about Gasoline Prices and Transportation Policy”

  1. kingfish Avatar

    Jim- You are right on the money about how capitalism works, so why not try to make capitalism really work for Virginia. The future in transportation belongs to the nation, company or person who develops the alternative to gasoline powered automobiles. Why not do everything we can to assure that future arises from Virginia? Rather than drilling for oil and gas off the Atlantic Coast, we should be offering enormous incentives for comapnies and individuals who want to work on alternative fuel solutions to locate their business here.

  2. James Atticus Bowden Avatar
    James Atticus Bowden

    You can encourage R&D on alternative fuels with grants and tax breaks. AND, you can work to increase supply. The one and only oil refinery in the Commonwealth is nearby in Yorktown. They could double their capacity without leaving the premises.

    Why hasn’t the company applied to do builf new facilities on site?

    By all means explore for oil and gas in the Atlantic.

  3. Jim:

    Speaking seriously here, many families (including my own) have already cut back in every way possible. What then?

    My office, home and children’s schools are all within a 6-10 mile radius. Vacations are already a thing of the past. We’ve cut back on groceries. I’d trade the car on a hybrid, but it’s paid for and who can afford a car payment what with mortgage rates being what they are and three kids … one still in diapers.

    So, I ask seriously, what are average hard-working families to do?

  4. James Atticus Bowden Avatar
    James Atticus Bowden

    Andrea: How about a couple of hundred dollars? If the GA repealed the unnecessary sales tax from last year, then the average citizen would pick up some cash. Or, the GA could actually cut the sales tax and you would keep some more of your money.

    Check out how much the Republican Senators want you to pay in other, new taxes too – to register your car, etc.

  5. E M Risse Avatar
    E M Risse

    Jim:

    I like the graphic, it takes two arms and two legs to fill up our tank.

    The only answer to cutting the cost of mobility and access is settlement patterns that require less vehicle travel and support more effecient shared-vehicles when one must resort to any vehicle.

    That is what an understanding of Jane Jacobs suggested 40 years ago (not just in “Life and Death… but also “The Economy of ‘Cities’.”

    Let us, honor Ms. Jacobs’s memory with an understanding of the need for Fundamental Change.

    EMR

  6. kingfish Avatar

    JAB- Gotta love it. Yup, a couple of hundred dollars is going to save the day!

  7. Ray Hyde Avatar

    Jane Jacobs knew the difference between a community and a construction plan.

    Wasn’t one of her main arguments that you cannot plan everything, and you should allow communities to be what they are and what they become? Didn’t she fight Robert Moses because he thought he had too much control over other peoples’ lives?

    Somehow I doubt she would have gotten on board with fundamental change if it involved massive central and regional planning.

  8. Jim Bacon Avatar
    Jim Bacon

    Andrea, One option may be telecommuting a couple of days a week. Other than that, here’s the hard truth: There’s not much that average, hard-working families can do in the short run to cope with higher gas prices except hope that their paychecks keep pace with inflation. What you should NOT do is support demagogic political ploys that make problems worse, not better.

    In the longer run, you can support more pedestrian friendly, transit-friendly development patterns that give you and your family more transportation options. You should support development patterns that allow compatible uses (houses, small office buildings, small retail shops) to be located close to each rather than scattered all over.

    How much money could you save if you could get by with only one car instead of two? What would it mean if you lived in a place where your children could walk to school? Think outside the box.

  9. Jim Bacon Avatar
    Jim Bacon

    Kingfish, I’m all in favor of alternate fuels. Converting biomass to ethanol seems to be one that is self-sustaining economically without massive incentives. I’d favor government-sponsored research to devise technologies that would make ethanol more competitive, but I don’t like the idea of subsidizing specific business enterprises. Once you give them a subsidy, they never let go, no matter how much the world changes around them. Witness the mohair subsidies put into place during World War II.

  10. Toomanytaxes Avatar
    Toomanytaxes

    I tend to agree with Jim that markets function best, so long as no one has a finger on the scale. Many believe that zone pricing, which is generally used by oil companies, is inconsistent with our antitrust laws (Section 13 of the Robinson-Patman Act). Others disagree. Does zone pricing constitute a finger on the scale? If so, should the GA outlaw zone pricing?

  11. Anonymous Avatar
    Anonymous

    Toomanytaxes: Zone pricing is the mechanism the oil companies use to make sure that we pay the same price as people in states with higher gas taxes. Only, we pay the extra few cents per gallon to them rather than into our state transportation accounts. Considering the wide variety in local and state fuel taxes the near uniformity of the pump price across state lines is…curious.

    I was recently on the webpage for the Energy Information Agency and their cost of fuel adjusted for inflation chart demonstates that we have been at $3 per gallon measured in 2005 dollars before. It is about the historic peak in real prices, but it is hardly unprecedented, and not worth quite the hype or hysteria it is generating. It is hard to imagine a company or a family that cannot improve its efficiency and reduce consumption, and that is not a bad outcome at all. Like you, Jim, I see the bright silver lining.

  12. Ray Hyde Avatar

    I seem to be getting more questions whenever I pull up in my hybrid.

    One data point.

  13. Toomanytaxes Avatar
    Toomanytaxes

    2:53 Why are gas prices often significantly different for the same brand between Prince William and Fairfax Counties and even at different locations within the same county? Zone pricing is trying to do much more than reflect different tax rates. Take a look at the following link: http://www.gasbuddy.com/gb_gastemperaturemap.aspx

    Assuming the general accuracy of the data underlying the map, differences in do not explain zone pricing. Look at Arizona, for example. There are much higher transportation costs in and around the Grand Canyon and much more competition in the Phoenix market. Yet, Phoenix prices tend to be signficantly higher.

    Ditto for taxes. From what I quickly found on the Internet, total fuel taxes for the following four states are VA (37.7 cents); Utah (42.5 cents); NC (45.6 cents) and Montana (46.2 cents). However, both Montana and Utah have average prices that are significantly lower than either VA or NC. There’s probably less relationship to costs and zone pricing than the oil companies want the public to believe.

  14. Larry Gross Avatar
    Larry Gross

    I had a conversation with a friend the other day who owns an SUV and he isn’t worried about the price of gas because he travels less than 10 miles a day.. yes.. it’ll cost more… so he’ll have to cut back on his gourmet coffee… two cups rather than three. ๐Ÿ™‚

    seriously – it’s about how far folks choose to drive and how folks define phrases like “I must and have no choice”.

    It takes a hard knock for folks to take a hard look at things they always assumed could not change.

    I predict… lots of folks will be taking harder looks at whether or not choices are choices or no choice” is truly no choice.

    I know it happened during the gas crisis… and as bad as it is now – this is not as bad as then – though if $3 a gallon is in the rear view mirror and $4 a gallon on the horizon and coming fast… we might think so…
    .. but I would bet that folks would choose (there’s that word again) $4 or even $5 a gallon rather than waiting in line for 3 hours only to find out the guy in front of you got the last tankful.

    America’s love affair with the automobile is about to be revisted though I doubt seriously a divorce is anywhere near… ๐Ÿ™‚

    sorry.. my attitude is grin and bear it… it’s sort of like coffee doubling in price… my property accessment going up 300% (which it did)…

    … and today.. I paid $68 bucks to fill up my 89 Ford Van.

    I gotta talk to Ray Hyde about that Hybrid….he’s got.. he said if he had to choose.. he’d keep his truck… ๐Ÿ™‚

  15. Ray Hyde Avatar

    Did I really say that?

    That would be a tough “choice”. With the truck I’d have some chance of making money, but I’d hate to have to drive it if it wasn’t working.

    If you have to drive, the hybrid is a joy. Dead silent, dirt cheap, reliable, little bit of capital cost detriment, sufficient power. 48 mpg if you drive at 75+ like a maniac. I remember people sniffing at it, saying they wouldn’t do it because the payback on capital wasn’t there. I drone on about costs and benefits, but a) thats not everything, and b) sometimes circumstances change.

    I’m going to have to send a letter to the guv’nor. I have a bunch of vehicles and only use the appropriate one for the task at hand. I need a portable license plate and insurance, otherwise the current “tax” plan is going to kill me.

    I sure hope that those of you who think saving open space and farms will chip in and help out on this: send a letter. I don’t mind paying what it costs to drive or paying what I owe, but this is going to be whacked.

    I suspect that overhead costs might have something to do with fuel prices. That gas station in Fairfax is sitting on expensive land and paying high taxes. Businesses are “tax positive” dontcha know.

  16. Ray Hyde Avatar

    If people really do start making different choices, it’s going to be fun to watch real estate prices.

    BTW 13% more new home sales last year, in spite of higher rates, but prices were down 5k.

    Time to demand another reassessment.

  17. Toomanytaxes Avatar
    Toomanytaxes

    Ray Hyde: Taxes are indeed business overhead that affect retail prices. But I still suggest that zone pricing has more to do with computer software and data-mining than actual costs.

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