Error: I'm afraid this is the first I've heard of a "comments" flavoured Blosxom. Try dropping the "/+comments" bit from the end of the URL.
Economic News, June 2018
When you look back on things, it's hard to believe how quickly the time flies. The days when you could gas up your car for only four dollars a gallon seem like just yesterday, but in fact, that price hasn't been seen for most of the last ten years.
It was back in 2008 that gasoline prices in this country first crossed the four dollar per gallon threshold. Nobody realized at the time that what seemed like an exorbitant but temporary price spike turned out to be instead a new baseline, which, despite a few brief dips in 2008 - 2009, was firmly set in place. Of course, we look back at it a decade later, and wonder what all the fuss was about. Yes, oil prices had roughly doubled in a twelve month period leading up to that, but if people had only known what was in store in the next decade, they would have been much more sanguine about their circumstances back then.
Of course, the price of gas in 2008 was an important issue in the presidential election that year. Senators Obama and McCain both made the usual comforting platitudes about how this country needed to "achieve real energy independence." But like every president since Richard Nixon (and every presidential candidate as well), President Obama's plan turned out to be more spirit than substance, even with a Democratic majority in Congress working hand-in-glove with him to pass all the bills he proposed. A classic example was the CAFE Act of 2010, which mandated an increase in overall average fuel economy for cars sold in this country from 26 to 35 miles per gallon: the fault in the bill lay in it's deadline for the auto companies to act (made at the behest of both the manufacturers and the unions); the 35 mpg standard would not come into force until 2025. For the most part, though, President Obama did not focus much on cars and the price of gas, working instead on broader environmental issues like the ratification of the Berne Compact, the successor to the never-ratified Kyoto Protocol.
Agreeing to curb greenhouse gas emissions turned out to be the high point of the Obama presidency. It was his Administration's surprising and Marie Antoinette-like indifference to the hardships of "average Americans" as the retail price of gasoline continued its climb past five dollars per gallon and towards six that most analysts agree doomed President Obama's reelection campaign. Even his "October Surprise" in the fall of 2012, a huge windfall profits tax on the major oil companies rushed through Congress early that month, backfired horribly as the oil companies responded with a series of merger and acquisition agreements, with the net result that none of the U.S. "majors" existed any longer except as the names of wholly-owned subsidiaries on the organization charts of non-U.S.-owned oil companies like BP, Shell, Lukoil, and Citgo.
So voter hostility helped President Obama join with Presidents Ford, Carter, and G.H.W. Bush as incumbents who failed to be re-elected, and President Mike Huckabee succeeded him in 2012. Huckabee realized full well that anger over ever-rising gasoline prices propelled him into office, and he took a carrot-and-stick approach to the problem from the earliest days of his presidency. Shortly after taking office, and despite a visceral aversion to them by Republicans in general, President Huckabee recalled Nixon and Ford in imposing price controls on gasoline, even convincing the Congress with its still slim Democratic majority that six dollar a gallon gas constituted "a national emergency of unprecedented proportions." The controls survived several legal challenges, one even reaching the Supreme Court before being decided in favor of the administration. "We cede the President the necessary discretion and widest possible latitude to take those steps he deems necessary to regulate interstate commerce in the national interest," Chief Justice Roberts wrote in Royal Dutch Shell v. Huckabee in 2014.
Unfortunately, as popular as the controls were with the public, in the end they turned out to be impractical and ultimately unenforceable. As their profit margins steadily eroded under the controls, the oil companies responded by simply throttling back supplies, until the so-called "Dark Days of 2015", when the majority of gas stations nationwide were closed more than two thirds of the time due to a lack of gasoline. The lawsuit brought against the oil companies in 2016 by President Huckabee's Attorney General, Rudy Giuliani, was supposed to be his "April Surprise", but like President Obama before him, the effort went badly almost from the beginning, with the Federal Courts ruling in August that even in the face of Shell v. Huckabee on the legality of price controls, "neither Congress nor the President can compel a company to commit economic suicide" by selling their products at a loss.
Thus, the same inability to come to terms with soaring gasoline prices that doomed President Obama also turned out to doom President Huckabee's goal of a second term as well. In an "a curse on both your houses" mood, voters turned away from both mainstream party candidates in the election of 2016, voting into office independent, octogenarian, billionaire businessman Warren Buffett, who promised to "do for the economy what he had done for the shareholders of Berkshire Hathaway," as one television spot put it. President Buffett took strong actions to balance the Federal budget during his first year in office, and reoriented government policies and spending away from direct or indirect subsidies for oil and (now) nine dollar-per-gallon gasoline. But the economy of the United States doesn't undergo such radical shifts easily or quickly, and, as I write in mid-2018, the jury is still out on whether Buffett's plans will have the desired effects. It's true that the steady run up of oil and gasoline prices has flattened in the last twelve months, but it's not clear if this is a pause while the oil price monster catches its breath, or a true long term high point in gas prices, as massive investments in alternative energy sources start to come online and affect the economy. But in the meantime, Americans of all incomes and classes have learned to cope, to a greater or lesser extent, with the effects of nine dollar a gallon gasoline. Here are some of the things they've experienced over the past ten years.Car Sharing
One of the first grassroots reactions to gasoline prices emerged spontaneously in late 2011. "Car sharing" was a logical extension of the notion of car pooling. But instead of splitting a ride to work between two or three people, car sharing involved a group of two or three or four neighbors agreeing to split the usage of their second cars -- the ones typically used by Moms to run local errands, pick up the kids after swim practice, go grocery shopping, and the like. Each participant's car would be "in service" on one designated day, and that family would coordinate with the others to work out schedules for the days when their car was "out of service". Because a group of seven families could cooperate to ensure that their car was in use for only one day a week, car sharing pools were almost inevitably very local, usually being organized within a block or a neighborhood. Never ones to miss an opportunity, Google combined their online mapping technology with Google Groups's calendaring features to create "Google CarShare", which enabled people in a car share group to enter their appointment and shopping calendars, instantly highlighted potential double-bookings, and worked out fairly optimal schedules and routes to follow for that day's designated driver, even going so far as to select routes which maximized the number of right turns, so as to minimize time spent waiting at stop lights or for oncoming traffic to clear. (Most people did not seem to mind the ads that popped up alongside the day's route map , highlighting the names of doctors, businesses, and other companies anxious to acquire new customers/clients who might find them just a bit closer to home.) Similar software packages were (and still are) available for purchase to run on computers at home, but they never became very popular because of the need to allow others to access the program's calendar database (which made people feel vulnerable to hackers). Mostly they are used by individuals who agree to coordinate things on behalf of the members of their group without computers or internet access, and, while the effort involved is considerable, the payoff in terms of gas savings for all concerned makes up for it.
Naturally, arguments and disagreements among car share participants would inevitably arise, usually over disputes that one party or another was not carrying their share of the driving load, or over members who drop out suddenly, leaving the rest with a gap in their schedules. Google CarShare calculated statistics on the "equity" of each day's route compared to the others from that week, month, quarter, or year, even going so far as to recommend additional half or full days of driving if needed to more evenly distribute the mileage among the group's members. Not surprisingly, lawyers quickly moved in to address these problems as well, creating standardized, fill-in-the-blanks car sharing agreements, contracts which were legally enforceable in court should the need arise.Gasoline Theft
As the price of gasoline has continued its steady climb over the last ten years, it was inevitable that criminals would quickly come to see it as something both valuable and virtually unprotected. At first, the effects were small, petty thefts, mostly gasoline being siphoned from car fuel tanks in the dead of night. The upsurge in demand for locking gas caps that started ten years ago was not for nothing. Around the same time, hospital emergency rooms also began to see a steady climb of admissions from people who swallowed or inhaled gasoline in the course of trying to siphon gas by mouth.
Locking gas caps became standard equipment on most cars almost overnight, but that only put a modest and temporary dent in the gasoline theft crime statistics. Gas thieves quickly realized that while the gas caps themselves were now generally inaccessible without a lot of fuss, noise, and inconvenience, there were other, simpler ways to now get what they wanted. The next point of attack was the neck that led from the cap to the tank itself: depending on the location of the filler door and the tank, the neck was often easily accessible from under the rear fender, and was just as easily punctured to provide access to the contents of the tank. Because there was so simple aftermarket way to protect the neck, again the manufacturers immediately announced that the filler lines would be jacketed in a cover of hardened steel; naturally, the luxury car makers like BMW, Lexus, and Mercedes went one level beyond, offering tank necks jacketed in bulletproof Kevlar. By 2011, when the obviously accessible means of reaching the tanks seemed to be fully covered, the thieves simply moved on to the tanks themselves. Most cars (and especially trucks, vans, and SUVs) had their gas tanks positioned fairly far rearward between the rear wheels. Getting at it often required only scooting a foot or two under the rear bumper to be able to puncture a hole in it; people who parked on driveways that sloped downwards from the rear of the car were particularly vulnerable to this attack.
Finally, in 2014, the car manufacturers collectively decided (at the urging of the Department of Transportation) that it was better to come up with a comprehensive solution to this problem instead of fighting piecemeal battles with the car thieves. Automobile fuel systems were completely locked, armored, alarmed, and protected, from the filler opening, to the tank itself, to the fuel lines leading to the engine, and even to the engine compartment itself (with locking hood latches, and protective shields to deter assaults from beneath the engine).
But the game of cat and mouse with gas thieves still did not end there. While protecting the fuel systems of individual cars turned out to be a strong deterrent to individual thieves trying to steal from individual cars, criminal syndicates working on larger scales simply mored up to the larger and more profitable targets higher up on the gasoline food chain. Organized crime syndicates and criminal gangs of all sorts soon discovered that it was fairly easy to break into the storage tanks at the gas stations using simple tunneling techniques. They would acquire a building on an adjacent piece of property, then use it as a base camp to burrow over to the station's tanks, attaching pumping equipment to the side of the relatively unprotected fiberglass tanks. A truck standing on the adjacent property would look like it was making an oil delivery to the building, when in fact it was hooked up to the pumping system and taking on hundreds or even thousands of gallons of gasoline from the station next door. As happened with cars, station tanks became better protected, and equipped with sensors to detect any unusual or untimely lowering of the levels in the tank. And again, the criminals moved on to even more lucrative frontiers, beginning to carry out hijackings of the delivery trucks themselves. Police responded by routinely escorting gasoline tankers in unmarked cars from the time they left their loading terminals to the time of their last delivery. But this soon turned out to be impractical and tremendously expensive, so President Huckabee ordered the National Guard to take over these protective escort duties in 2014. In addition, the oil companies and distributors developed their own defensive methods, putting additives and tracer chemicals into each truck's load that could serve to identify the source of the gasoline, even if thoroughly mixed and diluted with many other truckloads of fuel. (These truckloads were never intended to be delivered to stations, and, if the truck were not hijacked, it would make simulated deliveries that day and return to the terminal in the evening to unload the tagged fuel. Any station caught selling tagged gasoline was immediately shut down, and subsequent investigations often led to the gangs and syndicates selling the stolen fuel; more than a few were busted up in just this way.
A large problem that took some time to resolve involved government and municipal vehicles, which typically refueled at small pumps in Highway Department garages or at the local precinct house. These were often even more vulnerable to vandalism and theft than regular filling stations, since they were often located in out-of-the-way areas, at buildings that often were not equipped to monitor them at all times. These pumps were quickly eliminated, and these fleets wound up refueling at "secure depots" -- everything from police stations, to armories, to nearby military bases if they were available. In New York, for example, the city government built five heavily secured municipal filling stations, one in each borough -- the locals waggishly nicknamed them "Fort Exxon", "Fort Shell", "Fort BP", "Fort Chevron", and "Fort Gulf", due to their more than passing resemblance to prisons, with bright lights, patrolling guard dogs, and fences topped with coils of razor wire. The New York City government also eliminated 70% of its municipal vehicles on 2015, issuing their former users with monthly MetroCard transit passes. "If the subways and buses are good enough for so many of the people who live and work in our city to use, I don't see why government employees can't do the same," the Mayor remarked at the time.Spot Pricing
One of the great truths of investing is that the vast majority of investors are relatively unsophisticated about investing. They tend, by and large, to choose one "thing" and stick to it; that's why many people don't examine or reallocate their 401(k) account investments, and why investment companies have come up with "retirement date" funds, that automatically reallocate their investments as the targeted date nears.
In particular, many investment advisors will tell people to mainly stick to stocks, bonds, and cash, and to shy away from "fancier" investments like options, derivatives, and commodities. The machinations of the markets for these instruments are almost always well over the heads of investors, and "Stick to what you understand" is always sound financial advice.
So it came as quite a shock to many people when a steeper-than-usual surge in oil prices in late 2016 turned gasoline prices into a game of roulette, a crap shoot that even those opposed to other forms of gambling were forced to play. People who grew up in the 1960s with the knowledge that the price of gas was reliably stable, and who watched prices crawl slowly upwards during the intervening forty years, were taken aback when retailers decided that their tiny profit margins couldn't survive the vicissitudes of the commodities markets, and so decided that they would instead price gasoline based on the daily trading prices on the exchanges plus their retail markup. There have been times during the past fifteen years when gas prices climbed on an almost daily basis (for example, in the months following Hurricane Katrina), but this was different. While the overall trend was still unmistakably upwards, the price of gasoline as a commodity fluctuated every day, due mostly to swings in the price of oil that were in turn influenced by geopolitical and global economic factors beyond many people's knowledge or control. So did you buy gas today, or bet on a two -- or three -- or five -- cents lower price tomorrow? Guess right and you saved a few bucks on a tankful; guess right often, and you could have a substantial impact on the family gas budget. Of course, you could also guess wrong, with the opposite effects on the family exchequer. So without their consent, many average Americans, who couldn't read the stock tables in a newspaper if their lives depended on it, were given a difficult choice: try to keep up with all the factors affecting the price of oil and gas, and place their bets appropriately, or just surrender to the inevitability of higher prices and try to ignore it all. Local media like radio stations contributed to the excitement by adding "gas price reports" to their local traffic reporting ("The Mobil at 33rd and State Streets lowered it's self-serve premium price by two cents at two-thirty this afternoon, so all of you who use Super may want to swing over to the West Side of town to fill up while you can!").
And so life in America carries on in the face of nine-dollar-a-gallon gasoline. The highways, while by no means empty, are far less crowded than they have been in more than fifty years. The automobile accident rate has dropped proportionally, probably the only good thing to come out of it. But the doubling of oil and gas prices over the last ten years, have made many people stay close to home, their armored cars sitting in their fortified and alarmed garages, listening to the hourly gas price updates on the news, and wondering if this winter will be as cold as last year's was, and how they can afford to keep up.#