Why I Don’t Mind High Fuel Prices

By Dennis Sanders | Related entries in Economy

Jetta TDI.

I’m showing you a picture of my car, which a 2002 Volkswagen Jetta. It’s a nice car that gets me where I need to go.

So, why am I showing you this?

Look at this next photo.

Yes, Virginia, there are diesel cars.

Do you see the letters “TDI?” That stand for “Turbo Diesel Injection.” Yes, my car runs on diesel fuel.

I know what you are thinking. You are probably remembering the diesels, General Motors introduced in the 70s when they basically put modified gasoline engines that supposedly took diesel fuel into their cars and the result was disasterous. My diesel runs great even in the harsh winter climate of Minnesota. (My car starts even when it’s 20 below.)

I got this car for two reasons: first, it has great mileage. It’s about the high 30s in the city and in the low to mid 40s on the highway. Since I drive to work (there are no buses that go to my place of work in the ‘bubrs) I only have to fill up about once a week. (When I was taking the bus, I filled up every two weeks.)

Second, it puts less greenhouse gases in the atmosphere. It’s not perfect, since there are still bad particulates, but because of government mandates, it’s getting cleaner.

I made a decision in the free market to get a fuel efficient car. So, the rising fuel prices do take some bite, but not as much in the long run.

This is a really long way of saying that I’m not sad that we have rising prices for fuel. These high prices have made us think about buying more efficient cars. The car companies are even bringing more small cars to the market. People are considering trading in their gas guzzlers and getting more efficient cars like a Honda Civic.

Americans thinks that they can buy huge SUVs and not pay the prices that come with it. In Europe, people are used to high gas prices , most of which come from taxing gas highly, that they have adjusted accordingly.

The high gas prices are not because the evil gas companies are gouging us. This is all about economics. It’s about a simple thing call supply and demand. Demand is high. Americans drive innefficient cars and drive a whole lot. And then we have to deal with the rise of China and India whose economies are rising. So demand is outstripping supply. And that causes high prices.

My take is that we need to tax gas more, not less. I think we should pay $4 a gallon. Maybe then we would see more conservation and greater fuel efficiency.

As Ronald Reagan said, there is no such thing as a free lunch. America has lulled itself to believe it can get oil for cheap. It’s time to wake up and smell the petroleum.


This entry was posted on Friday, April 28th, 2006 and is filed under Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

14 Responses to “Why I Don’t Mind High Fuel Prices”

  1. Justin Gardner Says:

    As Ronald Reagan said, there is no such thing as a free lunch.

    A politician and an actor saying there’s no such thing as a free lunch? With a straight face? Wow, that takes guts.

    Listen, I agree that gas prices should probably be higher, but the current situation is odd. Americans are having to pay more and yet the oil companies are making record profits? Those numbers don’t square because the supply problem should also be hitting the oil companies. If they’re then passing that cost along to the consumer, they should be showing normal to weaker profits, not stronger ones. As it stands now, they’re jacking up the price and reaping the benefits. I’m not saying they don’t have the right to do that, but it’s a really $#!++y time to be doing that to the American public. Because both you and I know who this is hurting the most, and it ain’t the people who are driving Hummers.

  2. Dennis Sanders Says:

    I don’t agree. I think a lot of people just want to get mad at someone instead of themselves and the oil companies are a neat target. I also think we get all mad when oil companies make a profit, but that’s called capitalism. People are driving more and demand is up. There is no hidden cabal of oil execs who are finding ways to stick to the consumer. That’s a nice comforting thought, but in reality we have caused a lot of this by buying inefficient cars and moving far away from where we work that we have to use cars to get there.

    The thing is, the high prices are getting us to think about conservation. When gas was below a buck in the late 90s no one cared about this. Now they do. And as for worrying about the poor, that is a bad thing, but the majority of drivers aren’t poor but of moderate and high income. The poor have to rely more on pubic transportation, since as you know, it’s rather expensive to purchase and maintain a car.

    Finally one point. Microsoft charges a lot for their software and yet they are making money hand and foot. I don’t hear people complaining that they are gouging people.

    I;m sorry to be so seemingly callous, but Americans aren’t entitled to cheap gas. Other nations are used to even higher prices and it’s time we do as well.

  3. Justin Gardner Says:

    I;m sorry to be so seemingly callous, but Americans aren’t entitled to cheap gas. Other nations are used to even higher prices and it’s time we do as well.

    Again, I think gas prices should be higher. But we need to think about some type of tax breaks for the middle and lower income groups. It’s not about cheap gas for them. It’s about making a living for their families.

    Also, the Microsoft analogy is really stretching and don’t think it’s really relevant. People NEED gas. They don’t need Windows. In fact, they can get Linux and Star Office for free. There’s no alternative to driving, unless you can take public transportation. But most medium size or smaller cities don’t really have anything like that that can get you anywhere. And so, people drive because they must. And they can’t afford more fuel efficient cars either.

    Hey, I’m a Dem. I don’t think the free market is necessarily always the best way to address problems like these. It’s an uncaring, amoral system and the people at the bottom get routinely screwed over as a result. Sure, some of them deserve it, but the majority don’t. And hearing stuff like “Well, that’s supply and demand” is only part of the explanation.

  4. wj Says:

    You have to remember that the oil companies’ profits are large (in dollars) mostly because they are very large companies. Exxon had a profit margin of just under 11% this last quarter. And it is the most profitable of the oil companies — for example, Chevron had a profit margin of 7%.

    Just to compare, here are some other companies in other industries:
    AT&T/SBC 11%
    Bank of America 20%
    Google 24%
    Yahoo 45%
    If the oil companies are making “excess profits,” what does this say about these other guys? And are these others producing “unnecessary” products? Try functioning economically without a bank account. Try working in most industries these days without an e-mail account.

    Should we chop the tax breaks for the oil companies? Sure — but realize that the price of gas will likely go up to compensate. Not necessarily a bad thing, as both of you note, but for all that an unintended consequence as far as the politicians are concerned. Should we raise the taxes on gas, to further encourage more efficient use? Yes.

    But enact an “excess profits tax? Only if someone wants to decide what constitutes “excess profits” and apply it across the board to all companies — and the mind boggles at how they would figure in the risk premium for different companies.

  5. Sean Aqui Says:

    I disagree with the idea of tax breaks for the poor. I’m open to persuasion on the subject, but the whole idea behind an increased gas tax is to price people out of the market for gas so that they start to use alternatives. That’s how supply and demand works — the price is set at the point where supply balances demand; those who can’t afford it don’t buy it.

    Exempting the poor would mean they’d keep using just as much gas as they used before, making the whole thing kind of pointless if your goal is reduced consumption.

    Phasing the tax in will allow people — and transportation systems — time to make adjustments, such as living closer to work, taking the bus, carpooling, etc.

  6. Bob Aman Says:

    What Sean said. This isn’t about taxing the rich and letting the poor guy slide on by. It’s about genuinely pulling back on oil consumption and forcing America to make choices that won’t jeopardize our long-term future. That means the poor have to consume less, just like the rich. And if the rich insist on consuming at their present levels, well the taxes will simply be used to fund alternative energy sources anyhow, so there’s still a push in the correct direction despite their inevitable resistance to the change.

    Also, I agree with wj on the whole record oil profits thing. Additional taxes on the oil companies is a bad idea. They may have record profits, but they are not unreasonable profits. However, I don’t think they should be getting tax breaks right now. I say the oil companies should get no new taxes, and they should have any tax breaks that they’ve been getting thus far removed for the coming year, but they shouldn’t be forced to pay additional windfall taxes above and beyond the normal amount. Treat them exactly like everyone else.

  7. Lewis Says:

    I was in Europe the other week. Most people are driving really neat little cars or motorscooters in some countries. Gas is over 6 bucks per gallon with a couple bucks of that as tax. Traffic is as bad or worse as in the US.

    Nobody was very happy about the amount of gas tax and everyone I talked to thought the tax was way too high. Truckers in England were going to France to fill their tanks. Taxes were much less there.

    My opinion is that a gas tax that high obviously did force a change to fuel efficient small vehicles. BUT, I think it’s also helped to stunt the growth of European business. It’s added a cost burden to their products, making them more expensive and less competitive in world markets. Life seems to be more difficult financially for ordinary people over there.

    I think it would be a big mistake for the US to follow the European model of high taxes, over regulation and big social programs.

  8. JP Says:

    Lewis, while I see where you’re going in the big scheme of things, your argument sounds like the “we have a God given right to cheap gas” argument Bush and Cheney have used until this year. There are two ways to look at it–either you assume that the oil will run out and people will be more limited geographically than they are now, OR you believe in the entreprenurial spirit and assume that we’ll find an alternate source just as plentiful and easily distributed as oil and gas.

    I’m not one for assuming, and while many on the right like to defend America’s right to spread out over the wild frontier and live as far away from each other as possible, I tend to think some of our most sprawling cities like Atlanta and L.A. are unsustainable long-term, once the oil runs out. Could be in 2 or 300 years, but at some point our lifestyles will dramatically change. And they’ll become more European, God forbid.

  9. Jimmy the Dhimmi Says:

    A very informative read here. Things are just not that bad for the average American consumer. High gas prices coinciding with a booming economy are a blessing. Not only can gas companies control supply with pricing (without the threat of recession), but alternative fuels like ethanol become profitable.

  10. Rathje Says:

    The funny thing is, if you look at how much the price of gas has risen in the past twenty years and how much the price of grapfruit has risen in the past twenty years,

    They’re pretty much in the same ballpark (and I think grapefruit has risen more). Actually, all consumer goods have risen just as much as gas has in the long term.

    Why the outrage then?

    1. Gas rate hikes are visible on every street corner.

    2. Gas rate increases are not steady, but sporadic due to an artificial economy (ala OPEC).

    3. Gas takes up a bigger chunk of budget.

    But in reality, the oil execs are really no different from the Chiquita execs. Inflation happens.

    If you don’t like it, stop buying so much gas. That’s the only real solution. The recent price increases are simply the price of gasoline equalizing to where it ought to be after years of artificial price suppression.

  11. Lewis Says:

    JP,

    I’ve been involved in the manufacturing business for 25 years. The way it works (from what I’ve seen), is you look to develop products where you can make the most money. Then you do a financial justification to make sure if you spend all the time and money necessary to engineer the product, develop the manufacturing and then develop the market, you get a reasonable return on the investment.

    “Naturally” high gas prices make it more attractive to invest in developing fuel efficient/alternative vehicles. It will cost a bundle, take a while and the risks are high. Higher gas price = lower risk.

    However, if the government interfers and sets artificial high prices then the risk can actually go up. That’s because without government interference, the price will go back to the natural sustainable level. This may not be high enough to support the more expensive products and the market can collaspe. And since government is so fickle, you just can’t trust them.

    As an example, look at what happened to solar energy. A big government push in the seventies. Remember passive solar homes and solar water heating? The only thing that got it started and kept it going was government funding. Once that stopped, the market was not sustainable (for various reasons). It basically collasped. The only stuff that survived was easy, inexpensive and cost effective products – better insulation, windows and A/C/heating units.

  12. Greg Prince’s Blog » Energetic musings Says:

    [...] Justin Gardner has an interesting link at The Moderate Voice.  He in turn is linking to Dennis Sanders at Donkelphant, who waxes poetic about the virtues of his Jetta TDI. [...]

  13. learn to read, not my fault you might be dee dee dee Says:

    TDI stands for turbocharged direct injection. When was the last time you read you owners manual. DEE DEE DEE

    And mine gets 51 mpg if I baby it! Top that you oblivious soccor moms and dads who give their wives that huge road hazard. Low mpg should equal performance not stupidity.

  14. Steve Willis Says:

    Crap like this abour how you people up North say let the oil comp.raise their pricxes for fuel you talk about your little cars and that is real sweet but how do think you could feed 300 head of cows out of that little car.We the working people in Texas Panhandle who drill maintain the gas plant that has to pump you dumbass yankees pipeline the gass and oil so your little cars can run on,so that because you don’t want the drilling.You people don’t even know that 85% or more of unleaded gas is made from drip gas,that is a by product of natural gas.Tilla few years ago the oil companties would just blow the drip on the ground so the gass would flow better.
    What makes me so mad the truck driver who has to haul everthing we use and i meen every thing it is killing us and if we go out of bunessnes who and for how much will it coast.If people will look at the stores everything was brought there by a truck
    The U.S. goverment let truck driver and trucking co. apply for a card that would let them buy there fuel at the tax free rate same as the farmers do for there tractors,then maybe they can make it and keep the stuff we have to buy down because if we the people don’t do something it is going to be real bad
    thanks
    Steve

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