There has been a lot of media attention on the "record gas prices" of late. The price of gas must be kept in perspective with all other prices. Everyone around me drones on about how much their house has increased in value and how brilliant of an investor they are. Prices of most goods are increasing rapidly so what do you expect to happen to gas prices? Decrease when everything else is increasing?
Check out the Cato Institute article here for a great breakdown of comparative prices.
And stop with the "record gas price" talk, inflation adjusted prices are not at a record. You can take solace in knowing we have a ways to go before we get there. (see here for a chart on historical gas prices)
Another thing that gets on my nerves is hearing the shouts of rage against the big evil oil companies making record profits at the expense of the little guy. The reality is that the government is making more money than the big bad oil companies. If you are upset about high oil prices then get upset at the government and demand that they lower the gas taxes. While you are at it demand that they lower income taxes and capital gains taxes.
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6 comments:
Can't we be upset at both?
Perhaps but both are never mentioned. All we ever hear about are the "record oil company profits". When was the last time you heard a news story about the record tax revenue from oil? I don't recall ever hearing anyone complain about paying too much tax on gas. People only fixate on the oil companies. As the article points out their earnings are cyclical. Also, they reinvest their profits into finding new, more expensive, reserves to ensure that the supply of oil is maintained. Without high profits in some years it may not be possible to find new sources of energy.
It's been suspect that the oil companies are sitting on their reserves because they know they have the supply/demand market cornered. They could open more refineries, but it would affect their bottom line. The question I have, as a taxpayer, is whether or not I think it's good for society for oil companies to sit on reserves just because it makes them money. The fact they inflate the price artificially due to collusive control of the market makes it more communism than free market capitalism. Now consider this: every single product in the free market has an inflated price to the retailer because oil is sitting on their hands.
You are putting the wagon before the horse. You say that oil reflects normal inflationary prices. Incorrect. Inflationary prices reflect the high price of oil, as it is necessary for 90% of transported goods.
raphael...
"The fact they inflate the price artificially due to collusive control"
You sound more like a conspiracy theorist than an intelligent person. There have been multiple reviews of the government over the years to investigate the charge of collusion by the oil companies. There has never been any evidence of such actions. Unless you have some actual facts on the matter then don't spout such speculation it weakens your argument.
"Inflationary prices reflect the high price of oil"
First, oil is not at a "high price" right now. In relative terms to historical prices oil is inline with where one would expect it to be.
How does the price oil impact housing prices? Existing homes don't require oil yet their prices are highly inflated.
The "horse" is a strong economy fueled by productivity and strong global demand. The "cart" is all goods (including oil) having their prices increase as a result.
biebs,
"There has never been any evidence of such actions. Unless you have some actual facts on the matter then don't spout such speculation it weakens your argument."
It's not a matter of a conspiracy theorem. It's a simple fact that banks and oil have collusive control of their respective markets.
The New York Times reports that the biofuel scare has impelled the oil companies to cease plans to open refineries to meet demand in the U.S. Where biofuel was supposed to inject competition into a monopoly, it has instead caused oil companies to seize up and retain high prices.
The inflationary prices of homes are a different matter than the economy. Homes are expensive mainly because construction has been driven by burgeoning urban markets and infusion of foreign money. Neither municipal, provincial, or federal governments have done much in the way of affordable housing, thus the supply of housing drives the cost up. The housing market is based on a limited supply of units, and those which are built in suburban areas are usually snatched up by white middle class buyers who raise the property values because of competition. Urban building is mostly condos, which feeds middle to upper class buyers.
I think you're right that the market will crash as the older generation sells off to gain the equity for their retirement and old age. I know my family has done so. But in places like the GVA, or GTA, or Calgary, constant immigration from both other provinces and abroad will continue to push prices to affordable regions for the average middle class buyer.
The reason that people are unhappy with higher oil prices is that for many people it remains a necessary evil, with public transport and bicycles being an unrealistic option. Forced as they are to purchase gasoline at often falsely inflated prices, it causes resentment.
raphael...
I must push back on your statement: "It's a simple fact that banks and oil have collusive control of their respective markets"
It may be simple but is definitely not fact that oil has collusive control on their market. Provide some factual data to back this statement up. It bothers me when I hear statements like that thrown around as fact when they are nothing more than conjecture and wild speculation.
Supply and demand rule the oil market. There is an increasing global demand for a shrinking supply. The result is increased prices, this should not shock nor surprise anyone.
As far as refineries are concerned, there is no economic incentive to justify the massive investment required to build a new refinery. If you believe otherwise then may I suggest you gather a group of investors and build a refinery. If you are correct then you will be an instant billionaire. I think you will be shocked to realize that it truly isn't a wise investment.
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