The Most Educated Senator Looks At Gas Prices

Senator Charles Schumer of New York has a law degree from the Harvard Law School. He is then perhaps the best educated Senator in the United States, but he is still a Democrat. It is quite interesting to see how a mind that is at once very intelligent and very Democratic works. Last night he provided a wonderful example. He was quite perturbed over rising gas prices; so he proposed that anti-trust legislation be used to break up the big oil companies. His theory being that 5 major oil companies was not enough to encourage the competition that would drive down prices to a level he thought was "good".

On the face of it, it seemed a little silly since most product categories in the United States seem to have about 5 competitors. If you look at the market for airplanes, cars, computers, tomato sauce, and refrigerators you'll see that the top 5 competitors usually control about 95% of the market. The gasoline industry is really not special even despite the massive consolidation that was encouraged during the Democratic Clinton Administration by the merger between Exxon and Mobil. In fact, over the last 10 years the ROI (return on Investment) in the supposedly oligopolistic oil business has been lower than the average for most fortune 500 companies.

During the first oil crisis of the 1970's Exxon (the biggest at the time) concluded that the future of the industry was grim as supplies dwindled and oil companies became non-value added conduits trapped between those who owned the oil in the ground and those who merely pumped it into cars on the other end. And, oil was to be gone or mostly depleted by the 1990's anyway, they proclaimed. It turned out that even their expert predictions about the future were wrong, as most predictions about he future usually are. There were more and bigger cars than ever in the 1990's in the United States. And, countries like China, India, and Russia were literally adding million of new cars to the world's fleet. The price, adjusted for inflation, was actually lower during the entire period following the first energy crisis. Exxon was so sure that it had no future in oil that it invested billions in Exxon Office Systems from which it consistently earned only huge losses. Today ExxonMobil is the most profitable energy company on earth, selling twice what they sold in the first, so called, energy crisis.

But all that has not stopped Sen. Schumer from predicting the future. Perhaps he thinks his Harvard Law degree gives him special insight into the future of the oil and automobile industries? Somehow his Harvard polished liberal crystal ball has predicted that a future with ExonMobil broken up will be better than a future with it together as per Bill Clinton's contradictory liberal crystal ball.

To make Schumer and his Democratic friends seem even more arrogantly unhinged you only have to consider the notion of a Democrat proclaiming that competition is good. If competition was good why would the acephalous Schumer even be a Democrat? If they believe in anything it is that we must have socialist government monopolies everywhere to achieve authentic utopian goodness. Republicans want vouchers in education to make it competitive while Democrats want only a continued government monopoly that produces the dumbest kids in the civilized world.

Republicans want HSAs (Health Savings Accounts) and many other measures to make health care private and competitive, while Democrats want only a single payer socialist government monopoly designed to absolutely kill competition. Between Medicaid, Medicare, the Veterans Administration, and heavily regulated insurance companies the government already controls about 65% of all medical spending. The results are that we spend 40% more per capita than other advanced industrial nations and yet live shorter lives. Still, the Democrats oxymoronically believe they can deliver a more efficient health care monopoly?

Republicans want privatized competitive pensions and Social security while Democrats want a continued Government monopoly, accountable to no one, that has already stolen every penny of Social Security savings and loaned it a government $9 trillion in debt with no conceivable way of paying it back.

So why does Sen. Chuckie Schumer of Harvard want to go from 5 competitors to 10 in the relatively trivial oil industry and keep the number of competitors in the all important education, health care, and pension industries at 0 ? Simple: he's a socialist who believes that he and his elitist friends should control what's really important, i.e., retirement, education, and healthcare, while trivial things like the oil industry can be exploited for short term political gains by encouraging the lowly public to have a gas price panic which only he can cure.

In fact, to optimize price in a free society it should be determined by supply and demand. Lately our supply has been limited by 1) severe environmental regulations, 2) severe restrictions on drilling and refining, 3) wars, 4) hurricanes, 5) political instability, 5) the belief in a dwindling supply of oil, 6) seasonal refinery maintenance, and 7) changing regional formulation requirements. Demand as been exacerbated by increasing wealth and populations in the United States, China, India, and Russia that has precipitated a taste for more and larger cars and trucks.

If the point comes where consumers genuinely want to lower the demand for and price of gasoline they have numerous Republican oriented options other than to vote for a hypocritical Democratic Santa Claus:

1) accept the fact that not everyone is entitled to own a Rolex watch or drive a 300HP car 15,000 miles a year,

2)cut demand in half by buying cars with half the horsepower,

3) drive fewer miles,

4) if there are 4 filling stations on a corner buy from the one with the lowest price,

5) don't buy premium grades when you don't need them,

6) drive slower,

7) boycott one big oil company until its stock price falls 50%,

8) use mass transportation,

9) keep tires inflated and all systems tuned,

10) car pool,

11) work from home,

12) live closer to work ,

13) work electronically,

14) buy new technology engines,

15) buy, use, and invest in alternative fuels,

16) buy stock in energy companies to share in the profits or to encourage them to reduce prices.

17) hate any politician that blocks or taxes the importation of ethanol


Some interesting facts:

1) ExxonMobil is making about $40 billion in profits per year. If it were all taxed away and miraculously given to car owners it would amount to only $300 per car. This is enough for 6 fill ups or so but hardly enough to solve anyone's long term personal energy crisis. The downside of this would be that ExxonMobil would go bankrupt and we'd all be walking.

2) The United States is the freest and richest country in the world; so our gas prices, even at $3.00 per gallon, are often half of what other poorer countries pay.

3) Some populist commentators, such as Bill O'Reilly, are implying that ExxonMobil has sweetheart deals with some countries that somehow enable it to get crude out of the ground for $22 per barrel when the spot market price, on which pump price is based, is $70 per barrel. In truth, the actual production costs of crude may be $22 per barrel or less whether Exxon or the host country pumps it out of the ground, but no country is going to grant a concession to ExxonMobil for $22 per barrel when they can sell their crude for $70 on the open market. All commodity markets work this way to raise and lower prices according to the laws of supply and demand.

4) About 80% of the retail price of gasoline is the price of crude oil and taxes. Exxon's profits must all come from the remaining 20%, but from that 20% must be deducted the cost of gas stations, employees, oil tankers, oil field infrastructure, pipe lines, refineries, distribution trucks, and, most importantly, exploration and research costs.

5) The United States desperately needs an intricate system to coordinate the activities of 1000s of people who must efficiently manage the inevitable transition from a carbon based economy. The incredible news is that we have such a system: Republican capitalism. It will accurately price the remaining crude oil on a real time basis, based on the most perfect information available; thus fairly rationing the crude oil that remains and signaling 1000s of entrepreneurs around world about the kind and intensity of work they must do to bring the next generation of fuel to market. The only risk is that Democrats will interfere with Soviet style results.

Comments: bje1000@aol.com
Ted Baiamonte
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