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« More on (and from) Feminism | Main | Blue is the Color of ... »

September 23, 2005

Hurricane Video Feed

Michael Blowhard writes:

Dear Blowhards --

Thanks to Poynter Online's Steve Yelvington, who points out that MSNBC is running a live video feed of their Rita coverage online, here.

Best,

Michael

UPDATE: Here's an informative q&a about oil prices between Newsweek's Karen Fragala and petroleum expert Sarah Emerson of the Energy Security Analysis Institute. Short excerpt:

We’ve been living in a world of $1.50 gasoline prices, and that does not reflect the true cost of gasoline. It doesn’t reflect that we rely on exporters that are thousand of miles away, that we get our oil from politically unstable regions. It doesn’t reflect the fact that it is a polluting fuel. We can’t just turn and try to help the consumer through these difficult times because that just means we’ll have more difficult times in the future.
posted by Michael at September 23, 2005




Comments

So, the market price for gasoline isn't the true market price for gasoline? Am I reading that right? Ohhh, wait. She's gettin' all meta on me.

Posted by: Markus Barca on September 23, 2005 10:22 PM



The fact that energy is drastically underpriced is not news to anyone who drags their attention from CNN and USA Today.

Posted by: Toby on September 24, 2005 7:03 PM



We’ve been living in a world of $1.50 gasoline prices, and that does not reflect the true cost of gasoline.

IOW the mkt doesn't agree with the "expert." In such cases it's usually safe to assume that the mkt is right and that the "expert" either has overlooked something important or has an agenda.

Posted by: Jonathan on September 24, 2005 7:15 PM



I'm no expert, god knows. But isn't there good reason to think of the oil market as a very rigged one?

Posted by: Michael Blowhard on September 24, 2005 9:26 PM



Well, the question that preceded the quoted text in the MSNBC interview was "Do you think the government should institute price caps on gasoline?" The first sentence of the response was left out of Michael's quotation (not saying you did it because you were being devious). It was "Frankly, I don't think the government should do anything."

I can't disagree with that. The first sentence and the last one answer the question quite well. Everything in the middle sounds irrelevant.

Okay, Ill stop with the semantics. I give.

Admittedly, it looks as though I made this out to be more more confusing than it had to be. So, what are getting at, Michael? Do you think that the price of gasoline is too low? Should the list of variables enumerated by Ms. Emerson be factored into the price of gasoline in some way?

Sorry if I'm being too dense.

Posted by: Markus Barca on September 25, 2005 2:09 AM



Markus -- Like you, I think the price of gas should be the price of gas, and to the greatest extent possible government should stay out of it. And god knows I have no independent knowledge of how any of this works. But I've read some impressive pieces arguing that gas and oil are massively (if informally) govt-subsidized. I suppose it depends on what you make of the word "subsidized." But it's clear that the cost of gas at the pump doesn't reflect much of the money we spend on roads and highways, or kooky tax breaks for oil companies, or some of the dough we spend interfering in the mideast, or the costs of sprawl and pollution. All those costs are borne by government (via taxes) or individuals (often via putting-up-with-a-lot, like ever-longer commutes and bad air). The argument basically boils down to: billions are spent every year subsidizing a gas-based economy, and very little of this shows up in the price of gas at the pump. We're given the illusion that gas is cheap when in fact it's costing everyone far more than 3 bucks a gallon. It's just many of the actual costs of gas and oil are hidden from us.

I'm all for govt getting out of the business of determining gas prices -- but not just from the point of view of "stop the bastards from imposing price caps," but also from the p-o-v of "stop the bastards from subsidizing gas in the first place." Let gas pay its own way.

To be honest, I've never read a discussion of the question that didn't seem very ideologically slanted, not that that's automatically a bad thing. So, though I'm sympathetic, I've never known quite what to make of it myself. I have no idea what the deep truth of the matter is ... Wish I did.

Posted by: Michael Blowhard on September 25, 2005 11:00 AM



Thought you'd like to have another opinion from your own blogroll.

Posted by: Tatyana on September 25, 2005 1:12 PM



MB,

It's a competitive market. That doesn't mean that some big producers don't try to jigger prices via production games, but they have limited power. If they cut production too much, the price goes up and other producers have incentive to take up the slack, consumers start to cut consumption, and entrepreneurs begin to develop alternatives. IOW producers, even the Saudis, have little long-term control over prices, unless they want to increase production dramatically, which would mainly help us.

The term "subsidies" has become the Interstate Commerce Clause of pop economics -- a catchall term invoked to justify any type of government interference. By the subsidies logic steel and rubber and other materials are subsidized too, since the automobiles we use on public roads are made from them. Are our shoes subsidized because we walk on public sidewalks? Do I receive a subsidy every time I enter a government building?

The question of who should pay for roads is a serious one. However, the fact that the financing is usually done indirectly via taxes, as opposed to directly via public or private tolls or other user fees, doesn't mean that oil consumers aren't paying almost all of the costs, including external costs, of their transportation. Most members of our society drive or ride in petroleum-fueled vehicles on public roads, after all. What the subsidies fretters seem to be doing is confusing indirect costs (i.e., costs covered indirectly by taxes as opposed to directly by user fees) with external costs that are borne by people who don't benefit from the road system (i.e., market failure). Some of the "subsidies" arguments are really about the arguers' belief that public monies currently spent on roads would be better spent on some favorite non-road project or other (mass-transit is a frequent suggestion). It's just more effective politically to complain about vague "subsidies" than it is to assert that money taken from road users to spend on roads should instead be spent on your pet scheme.

Posted by: Jonathan on September 25, 2005 1:42 PM



Jonathan -- The point isn't that gas isn't being paid for. Of course it is. It's that the true cost of gas isn't being reflected in the prices people pay at the pump. When much of the cost of a good is buried in general taxes, then the pricing/signaling mechanism goes awry, and incentives fail to operate as they should. That's Econ 101. Whatever the agenda of the people who make this point, it's still a good point.

Posted by: Michael Blowhard on September 25, 2005 4:32 PM



Can I ask a stupid question?
Michael, don't you think if all the subsidies were taken off the hands of the oil/fuel/chemical/etc industries and all the government infusions into roads/auto/logistic/etc systems were withheld so as all the actual costs of production/refinement and so on would be factored into the price of a gallon it became so high suddenly, the economy will crush?
I've no doubts the market would, like a good proper boy eventually generate realistic price taking all of the factors into account - I just think the economy is too tied up to uninterrupted oil supply to wait for market stabilization.
Now you can all laugh at me.

Posted by: Tatyana on September 25, 2005 6:22 PM



MB,

I think that you are confusing average and marginal costs. The supply part of the supply/demand equation is a function of marginal production cost -- the cost of producing the next gallon of gas. You seem to be saying (correct me if I am wrong) that gas is underpriced because its price does not reflect all of the sunk costs of exploration, refining, transportation and national infrastructure (roads, defending the oil fields and sea lanes, etc.). But sunk costs are sunk, and we might be spending as much on defense and other infrastructure even if we obtained all of our own petroleum domestically.

Consider an alternative hypothesis about prices: inflation-adjusted gas prices remain low because large petroleum reserves remain available at low cost. IMO, people who worry about underpricing are ignoring information from the market and giving too much weight to their fears.

Look at supermarket prices for common food items. If you take into account the sunk costs of the agricultural, distribution, storage, marketing and merchandising infrastructure retail prices seem ridiculously cheap. But nobody thinks like that; everyone looks at marginal costs. Why should we look at petroleum differently?

Posted by: Jonathan on September 26, 2005 10:12 AM



Economically, you have the right answer. There are several major sources of externality in gasoline prices. Government subsidy of transport and security comprise an external cost that are not reflected in gasoline prices to the consumer. The cost of pollution - in the form of edical costs, as well as non-dollar costs such as global warming and plain discomfort for the individual breathing the exhaust, is not included either. Gasoline prices do incorporate some taxes, but there is no particular reason to think that those taxes happen to equal the external costs of provision.

A market price only reflects the internal marginal costs that are actually incurred, either as dollar costs or as opportunity costs, by the seller. The external costs, because they don't fall on the supplier individually, aren't in there.

(If I sell gasoline, I gain all the profits from doing so, but I only incur my share of the tax burden, pollution, etc. This is true even in the theoretical economy where everyone sells the same thing - the individual gets 100% of their own profits, and 1/population of the costs they individually inflict on everyone else.

(In equilibrium, each individual also receives a total of 1/population of everyone's costs, but they can only influence (and thus take into account) 1/population squared of the cost, so they overprovide. Simple Tragedy of the Commons.)

(Security means coast guard crews to rescue oil platform workers caught in storms, police protection of facilities under Homeland Security, and, yes, operations like Iraq, to the extent that they do provide security for oil markets.)

Posted by: rvman on September 26, 2005 4:31 PM



'edical' costs are actually 'medical'. eg. extra asthma.

Posted by: rvman on September 26, 2005 4:33 PM



Jonathan -- Your argument seems to boil down to, "The cost of gas at the pump is what it is because, if it weren't, it would be bid to that level anyway." Isn't that a circular argument? Outside the circle, there are many elements to be taken into account. For example, the "sunk costs" that you seem to think should be taken for granted and ignored include many costs that were paid for (and are being paid for) not by the oil companies but, as RVman points out, by government and individuals. The latest federal highway bill, if I recall, has a price tag of over a hundred bill -- those aren't capital expenses that the oil companies are paying and then passing along in the price they're charging at the pump. Those are expenses we're taking care of via taxes. How much are we paying per year to patrol the Persian Gulf? The oil companies aren't paying for that and then passing the cost along to the consumer at the pump; again, we're taking care of these expenses via taxes. If government were providing this kind and level of service and support for, say, the breakfast-cereal industry, I imagine libertarians everywhere would protest. What makes the oil industry any different? I'm not arguing for higher or lower gas prices, btw. I'm arguing for letting the oil industry pay something like its own way, without nearly so much help from the government. Let the prices take their natural course.

Posted by: Michael Blowhard on September 27, 2005 12:06 AM



This is probably off point, but I always wonder a bit when people bring up 'the market' when discussing macro-trends in the U.S. How can anybody tell what the 'market' would do when the waters are so colossally muddied by government intervention and policy? I mean, during my adult life I've never seen a situation where energy policy was remotely left up to 'the market.' Or very many situations where anything was remotely left up to 'the market.'

Just wondering why anybody makes references to this mythical beast.

Posted by: Friedrich von Blowhard on September 27, 2005 8:19 AM



FvB: The oil market is subject to distortions of various types, like many markets, but it's still competitive. Evidence: it generates a price at which supply and demand more or less match; and that price, adjusted for qualitative differences and tranportation costs, is roughly the same everywhere.

MB: I don't see why government spending that is labeled as being "for roads" is necessarily a gas subsidy. You could just as easily see the low price of gas as being a road subsidy by the Saudis. I don't think either assertion is valid. The point that I was trying to make is that the same people who are paying for gas are also paying for roads. They are paying for roads via taxes instead of directly, but they are still paying, and changing the payment mechanism (e.g., by raising gas taxes, or by eliminating the taxes, privatizing the roads and funding them by tolls) wouldn't change that fact. If there is a subsidy, who do you suggest is paying it?

Posted by: Jonathan on September 28, 2005 8:31 AM






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