Monday, March 29, 2004

Gas, oil, and conspiracies

This morning on the news I saw a story on "record high gas prices. Poked around a bit, and it seems to be all over the web. But I was immediately reminded of a couple of articles I had seen links to (on Volokh and LGF) and so I thought I would jot down a couple of quick thoughts.

The first important thing to note is that although the cost of gasoline today is higher for Americans than it has ever been in absolute terms, it is actually pretty cheap in the longer, historical view. (This graph is illustrative.)

One reason for this is

In real (inflation adjusted dollars) gas is actually still cheaper than it was back in 1980!

Even though a gallon of unleaded in the US has shot up 21 cents per gallon recently...

And Gasoline is fast approaching the peak prices seen during both Gulf Wars...

Though many in the press are claiming that gas prices are at an all time high...

When adjusted for inflation, it is clear that gasoline prices are far below the 1981 inflation-adjusted peak of $2.94.

A second reason that gas prices should be considered historically cheap is purchasing power:

Another comparison: The average price of gasoline during the 1950s was about $1.80 in today's money--meaning that during the period enshrined in our collective political nostalgia as Energy Heaven, gasoline cost slightly more in real dollars than the amount now being theatrically bemoaned as a "record" price. But wait; in the 1950s, per-capita real income was less than half what it is today. That means that for the typical American in the 1950s, gasoline cost twice as much, in terms of buying power, as today's gasoline. Adjusted for inflation and for buying power, the purported "record"-priced gasoline at your pumps now is substantially cheaper than the gasoline your parents bought.

Today's gasoline is also substantially higher in quality, containing engine detergents and having had most of its pollutant content removed at the refinery--"reformulation" of gasoline to remove pollutants, begun on a national basis in 1991, being a leading reason that air pollution is declining. But even if you don't care that gasoline today is substantially better in chemical quality than gasoline of the 1950s, it's still much cheaper.

These facts cannot have escaped the press, since complaints about high gas prices have come up before. In fact, in 2000, this was a major campaign issue. (You may recall that George W. Bush vowed to bring down the price of gasoline by drilling for oil in the Artic Wildlife Preserve.) In 2000, when Bill Clinton was president, there were many stories in the mainstream press explaining that the 'record high' gas prices were really record lows after controlling for inflation. With the return of this issue during Bush's presidency, I have seen no comparable big media stories. Interesting.

It's also interesting that we are seeing 'record high' oil and gas prices after fighting a war which was said by its critics to have been motivated solely by a desire to gain access to cheap Iraqi oil. Now that I think of it, the same claim was made about Afghanistan-- that the American invasion was a pretext for building a pipeline from the Caspian Sea. I wonder how many of the people who said "No blood for oil!" are now saying "Gas prices are too high!"?

(As an aside, here's a fun game to play with the "it's all about the oil" crowd. Find a left-leaning conspiracy theorist and ask why we invaded Iraq as part of the 'war on terror'. Answer? Duh, Iraq has lots of oil. Ask the same person why the US continues to support Saudi Arabia, despite its much closer ties to Al Qaeda. Answer? Duh, Saudi Arabia has lots of oil. Okay. Oil = invasion; oil = no invasion. That's some good thinking there, hippies.)

But, clearly, gas prices have been rising lately. Why? Who is to blame? Senator Chuck Schumer points to at Saudi-dominated OPEC:

This move by the Saudis is profit taking plain and simple � it has no other purpose other than to maximize OPEC's profits by making us pay through the nose to fill up our cars and heat our homes.

I'm not so sure that there is "no other purpose." Ed Lasky argues compellingly that Saudi Arabia is cutting oil production in order to punish George Bush and prevent his re-election. This because Bush has seriously disrupted the status quo in the middle east, threatening entrenched Saudi elites:

President Bush has provoked this response by proclaiming his intention to encourage democracy and liberalism in the Middle East, liberate the Arab masses from despotic rule, bring peace and prosperity to the region, and halt the spread of militant Islamic terror groups. Unlike past Presidents who, in varying degrees, paid lip service to these ideals, President Bush has acted decisively on them. His politically perilous actions, such as his invasions of Afghanistan and Iraq, his conditioning support for a Palestinian state on the cessation of terror, corruption, and dictatorship, and his active promotion and support for liberal groups in the Arab world, have aroused Saudi fears and provoked a quiet counterattack.

George W. Bush seriously disrupted the previous cozy relationship that Saudi Arabia historically enjoyed with the Bush family -- and with Washington power brokers, in general. The Saudis feel that their family�s absolute rule over the kingdom may be endangered, and that their efforts to spread their virulent brand of Islam, Wahabbism, may be curtailed by the current Administration. The Saudi royals may well feel abandoned, and in their disillusionment have resolved to prevent a second term for George W. Bush.

Read the entire article. It's fascinating.

One last thought and then I must get back to work. The one good thing that I see coming out of higher gas prices is a renewed interest in reducing America's dependence on foreign oil. The less we depend on middle eastern oil production, the less we will need to be involved in this volatile region and the less leverage repressive regimes like Iran and Saudi Arabia will have on US foreign policy. So here's hoping that gas prices which aren't so cheap will help reignite public interest in alternative sources of energy.


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