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« Boutique Fuel Nonsense | WILLisms.com | Tony Snow: All But A Done Deal »

Trivia Tidbit Of The Day: Part 318 -- Black Gold, Texas Tea.

Oil, That Is-

Speaking of gasoline prices and boutique fuels and whatnot, here are some important facts on energy prices:

During the seventeen years between 1986 and 2002, the price of West Texas Intermediate crude oil averaged $20.53/bbl. In 2003, the average price for oil reached $31.14/bbl., in 2004 it was $41.44/bbl., in 2005 it was $56.47/bbl., and during the first three months of 2006 the price has averaged $63.35/bbl. On Friday, the price rose above $75/bbl., an all-time high in nominal terms....

After adjusting for inflation, the price of oil is still below its peak of $85/bbl. in the second quarter of 1980. Yes, energy prices are rising rapidly, and consumers are spending $244 billion more on energy per year today than they did in 2001. However, total after-tax incomes are running $1.7 trillion higher. In other words, consumers have $1.48 trillion more to spend today - even after subtracting energy costs - than they did in 2001.

Here's a quick visual of those changes from 2001 to now:


The black circle is additional after-tax income Americans have added since 2001. The yellow circle is how much of that is eaten away by rising energy costs. Almost shockingly (shockingly, if we buy into the "record" gas price hysteria), inflation in the U.S., including energy prices, has been relatively tame, at or below most long-term historical averages. Take out energy prices, and inflation has been well below normal.

This makes the anecdotal stories of folks pawning off their possessions to pay for gas all that much more ridiculous.

Indeed, if anything, gas prices were deflated far too much, for far too long. Think back when crude hovered around 10 bucks a barrel in the late 1990s, with the price at the pump accordingly low. Funny how that time coincided with other unsustainable ridiculousness (dot com bubble, naivete about Islamic terror, etcetera). Looking at the big picture, over the course of more than two decades, gasoline is just now catching up to increases elsewhere:


So, while certain members of Congress are busy feigning outrage about Lee Raymond's retirement package, and complaining about $36.1 billion in profits, and railing about the fact that ExxonMobil is #1 on the Fortune 500 list, and posturing about all the terrible price gouging by the big, bad oil companies, the truth is that gas prices just aren't up that much relative to other products and services.

At the same time, energy industry profit margins aren't even up that much, relative to other industries:


Yet, we have far too many politicians in Washington who believe the solutions to higher energy prices are: 1) to prevent domestic exploration and production (ANWR), 2) block near-shore terminals for more efficient importation of liquefied natural gas, 3) implement windfall profits taxes on top of already-exorbitant energy industry taxes, and 4) otherwise demagogue the issue. Even governmental efforts to support renewable sources of energy are often just pork-fests that do little or nothing to lower the price at the pump in the short-run or long-run.

Meanwhile, let's just be thankful that we don't pay European (or even Asian) prices for gas:


That being said, paying roughly 40 cents per gallon in taxes isn't chump change, either. What's even more scandalous than gasoline taxes paid by consumers is how much energy companies have paid in taxes over the years:

...over the past 25 years, oil companies directly paid or remitted more than $2.2 trillion in taxes, after adjusting for inflation, to federal and state governments—including excise taxes, royalty payments and state and federal corporate income taxes. That amounts to more than three times what they earned in profits during the same period, according to the latest numbers from the Bureau of Economic Analysis and U.S. Department of Energy.

Yikes. Just who is price gouging whom, here?


Previous Trivia Tidbit: Awesome Religion Maps.

Posted by Will Franklin · 25 April 2006 04:34 PM


Posted by: maria at April 25, 2006 05:39 PM

Yes, I did, and that's an unfortunate waste of time and money. But it's what the people want right now.

Posted by: Will Franklin at April 25, 2006 06:31 PM

Good graph on the price increases in gasoline relative to tuition, healthcare, etc.

The price increase has to do with Nigeria, Iran, Iraq, and increased demand. No matter what the politicians claim, those are the reasons. Militants are targeting oil facilities in Nigeria. Iraq doesn't supply the world with as much oil as it did pre-war. Iran and the U.S. are saber-rattling, which makes commodities traders nervous. In addition, demand is increasing in China, India, and the U.S.

Everyone needs to get over it. You can complain at $5/gallon, but not before.

Posted by: Shawn at April 25, 2006 06:46 PM

I am so pleased to be able to read Ken's Boutique Fuels post, AND followed by Will's Texas T post. It is incredible the grandstanding going on! WHY doesn't the media report some basic grounding in reality so people don't get so riled up? Oh, I forgot! They would if a Dem Socialist Administration were in power!

Posted by: Zsa Zsa at April 25, 2006 07:12 PM

You make some great comparisons regarding the relative inflation of various expenses and your main point on additional energy costs v. income growth is a good one; but your graphic with the yellow circle in the larger black circle is misleading.

The 244 B$ energy expense is 14.3 % of the total income increase 1.7 $T. The graphic displays circles with that ratio to their diameters, .8 and 5.5 scaled from the screen. However, the graphic is visually comparing AREAS, a function of the square of the diameters. The smaller circle should be approximately 2.1 inch diameter compared to the larger circle's 5.5 in., or 2.6 times its current size to make the areas the proper ratio.

I trust this was an honest mistake on your part, I love your sight and read it regularly. Keep up the good work at getting the information out.

Posted by: CrashEx at April 25, 2006 08:59 PM

You're right. Blah. That's why people don't do things right after getting wisdom teeth pulled.

Posted by: Will Franklin at April 25, 2006 10:17 PM

(fixed it, by the way, I hope, if anyone was wondering)

Posted by: Will Franklin at April 26, 2006 08:48 AM

What is the significance of the 1982-1984 period? i.e. why did you choose those dates for the price comparison, as opposed to 1981 or 1985?

Also, what does the median household pay in energy costs? And how much has their after-tax income grown since 2001? How about for households at the poverty line?

Looking at the whole economy is interesting, but it is not very informative about how typical Americans may be impacted by economic changes. Bush's tax cuts disproportionately benefited the wealthy, while rising gas prices are likely regressive. Without answers to the questions above, it is a little ridiculous for you to mock people who are feeling the pain of rising energy costs.

Posted by: Dave in NYC at April 26, 2006 11:13 AM

Dave in NYC..."mock"??? How are you contributing to the people who are feeling the pain of rising energy costs? If oil co. were able to drill in Alaska and other taboo areas that the environmentalists have blocked off maybe we wouldn't be so dependant on foreign oil? I would suggest conserving energy is one method we all take. Another suggestion is quit depending on the Federal Government to fix everything! "Mock people who are feeling the pain of rising energy costs" That is what is holding so many able bodied Americans from taking care of themselves.

Posted by: Zsa Zsa at April 26, 2006 11:57 AM

You don't like the word "mock", fine. I don't think it makes sense to dismiss the claims that ordinary people are being hurt by rising gas prices, or to pretend that such people don't exist, just because the overall economy is growing faster than energy costs.

How are you contributing to the people who are feeling the pain of rising energy costs?

As a start, I am not spreading misleading information in an attempt to dismiss their hardship.

I would suggest conserving energy is one method we all take.

I agree. I don't own a car and I walk to work every day, so I'm somewhat limited in how much I can accomplish by conserving.

Posted by: Dave in NYC at April 26, 2006 12:45 PM

I find nothing in the article misleading, Dave.

Posted by: Hoodlumman at April 26, 2006 12:51 PM

Dave...It seems the oil business is always getting picked on in times when it is making a profit? Look at a cup of coffee or bottled water? Unfortunately we all are prone to circumstances that will affect our lives. Some of us deal with it. Some of us decide breast feeding off the federal government is the way to deal with circumstances. Our country depends on oil and yet we are not allowed to drill in key areas that would provide us from depending on foreign oil. The new energy bill congress passed has caused gas shortages. Keeping congress from creating new recipes for fuel would be a good start for us all.

Posted by: Zsa Zsa at April 26, 2006 01:38 PM

Dave...BTW, walking is to be commended! All of us can do something.

Posted by: Zsa Zsa at April 26, 2006 01:40 PM

Zsa Zsa, I am not trying to pick on the oil companies or the government on this issue. I just want people to recognize the reality that there really are people who are going to be in financial trouble if energy prices continue to rise. Writing articles about them isn't ridiculous.

Dave...BTW, walking is to be commended! All of us can do something.

Thanks. But it's more a matter of cost and convenience, not any nobler reason.

Posted by: Dave in NYC at April 26, 2006 05:03 PM

Dave, sorry to be sensitive about the comments regarding rising energy prices, it is not ridiculous to be worried about the welfare of our fellow man. What IS ridiculous are the answers our govt leaders provide to ameliorate the situation...in conjunction with conservation we should remove impediments to market forces. This would help keep energy prices low relative to other expenses. It does not help to pass a windfall profits tax, ban drilling for oil & gas in the Eastern Gulf of Mexico or ANWAR, drag energy CEOs before the Senate, retard energy development in the Western US, etc., etc.

Posted by: Zsa Zsa at April 26, 2006 08:16 PM

Dave in NYC said, Bush's tax cuts disproportionately benefited the wealthy...

1. It is not "disproportionately" when one looks at the figures and sees that the wealthy pay most of the taxes.

2. Letting people keep their own money isn't a "benefit".

Posted by: likwidshoe at April 27, 2006 04:30 AM

Because gas is so widely used in our economy, high prices do three things: 1. They add to the price of most goods. So more inflation is coming.
2.They cause people to conserve by using less, using substitutes (bus, walking, carpooling.), and buy fuel efficient cars. 3.They act as a drag on the economy because more money goes into energy and less is available for other purchases.

Those three effects will trigger other things: 1.The economy will go into recession as business cools. 2. Interest rates will go higher than anyone expects to curb inflation.(The Fed will go too far.) 3. Oil companies will do more drilling and find more oil, which, coupled with conservation, will drive oil and gas prices down.

And then the cycle will start all over again. It's called the economic cycle and it hasn't been repealed.

Posted by: Jimmy J. at April 29, 2006 05:07 PM