Big city-dwellers notwithstanding, American consumers may purchase gasoline more frequently than any other item. In fact, according to a 2009 Nilson report, when it comes to credit card purchases, gas is the most frequent purchase. Food, groceries and retail items are also on the list, but when you think about it, it makes sense—most Americans pump their own gas on a very regular basis.
For many people the price of gas relates directly to their work. Taxi drivers, truck drivers, and the millions who commute by car are directly impacted by fluctuations in the cost of gasoline. For these reasons and many others, we as well as many people in other developed countries are hyper-sensitive to gasoline's price. It is also difficult to think of almost any business, anywhere in the world, whose bottom line is not affected by the price of a fossil-fuel based energy. In other words, if you move anything other than paper the price of gasoline is probably important to you.
Hence, the stir caused by Republican presidential candidate, and recent winner of the Iowa Straw Poll, Michele Bachmann. She asserted that, if elected, she will fight to bring us back to the heady days of $2 per gallon gasoline. It's one hell of a campaign promise.
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Watch Video Ever since that promise was made, we've heard a few folks say that it can be done, and many more folks say that it absolutely can't be done. Meanwhile, at least one well-televised observer has said that Bachmann is "flat out nuts" for making the claim at all.
For the moment at least, let's get past the debate about whether it can, or can't, be done (frankly, I am in the "it can't" camp) or the sanity, or lack thereof, of the campaigner. Instead, let's talk about what the price of gasoline should be—not in some moral or utopian sense, but rather in terms of pure and simple economics.
Gas 101: the price at the pump is related to the price of oil. The nature of the relationship, however, is more complicated.
Ever notice that the price of gasoline doesn't seem to decline in perfect tandem with the price of oil, but does seem to increase, on tempo or even faster when the price of oil heads north?
That said, complaining about the price of gasoline is tantamount to complaining about the price of oil. Just this week, I've heard or read about at least a half-dozen explanations as to why the price of oil is so high. They include: excessive speculation on Wall Street; the elaborate mystery of OPEC price manipulation; the excessive profits of the multinational oil companies; the heavy taxes on big oil; and, of course, too much or too little government regulation—take your pick.
Just last week, I was discussing the subject of this column with a friend at our local coffee shop. During the course of that conversation, I consumed a bagel, a 16 oz. latte and a 16 oz. bottle of water. While we ate and discussed affairs of state, I put pencil to paper. A recent price of a barrel of oil was $84. A barrel contains 42 gallons. A gallon contains 128 ounces. Therefore, a 16 ounce cup of oil, however unpalatable it may be to drink, would cost me a quarter. I paid $1.25 for the water, and $3.95 for the latte. I'm not a geologist, but I'll bet you that this earth has a great deal more water and coffee than it has oil—and while I was at the coffee shop, it started to rain.
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