Monday, June 09, 2008

Gasoline prices, party politics, and distributive justice 

Not surprisingly, the morning papers are fairly bursting with stories about gasoline prices. They raise some interesting political questions, including whether the policies pushed most aggressively by the most affluent constituencies within the Democratic party may be doing the most damage to the very people the Donks like to brag about helping, the deserving poor.

First, the New York Times devotes front page space to the impact of $4 gasoline on working people in rural parts of the country, many of whom have to drive long distances in inefficient vehicles to jobs that do not pay well by urban standards.

Across broad swaths of the South, Southwest and the upper Great Plains, the combination of low incomes, high gas prices and heavy dependence on pickup trucks and vans is putting an even tighter squeeze on family budgets.

Here in the Mississippi Delta, some farm workers are borrowing money from their bosses so they can fill their tanks and get to work. Some are switching jobs for shorter commutes.

People are giving up meat so they can buy fuel. Gasoline theft is rising. And drivers are running out of gas more often, leaving their cars by the side of the road until they can scrape together gas money.

The story includes this interesting graphic that shows gasoline expenditures as a percentage of disposable income, by county. I hope that in November somebody smarter than I am runs this map against electoral results to see whether it had a systematic impact on the election.

Then there is an article in the Wall Street Journal about how "leaders around the globe fumble attempts to temper oil prices." The main point, of course, is that rising oil prices have confounded politicians all over the world, in no small part because policies that would reduce demand for oil and boost its production conflict with other domestic political requirements. In China, for example, maintaining stability just before the Olympics is the top priority, and the leadership is concerned that a big increase in the (now controlled and subsidized) domestic price of gasoline would put that at risk. In the United States, the Democrats oppose policies that would boost production, or signal to markets that more production is on the way:
In Washington, meanwhile, Republicans and Democrats are at odds over what is causing the spike in oil prices. Democrats, who control the U.S. Congress, blame a combination of speculative trading and what they view as price-gouging by OPEC members and oil companies.

Republicans, including Bush administration officials, tend to argue that the problem is a shortage of supply needed to keep up with rising demand from industrializing countries like China and India. With encouragement from the oil industry, Republican lawmakers are pushing to allow drilling in areas of the U.S. that have been off limits, including the Arctic National Wildlife Refuge in Alaska.

Although higher prices have meant record profits for oil producers, there was little evidence that industry executives were celebrating Friday's spike. In recent months, representatives of major oil companies have been repeatedly dragged before Congress to answer charges of price manipulation and profiteering.

The companies have consistently said they don't control oil prices -- an argument supported by most experts -- and are using their profits to find and produce more oil. At a forum in Russia on Saturday, executives from major oil companies said they are facing political challenges not just in the U.S. but around the world.

Chevron Corp. Chairman David O'Reilly called restricted access to new developments "the biggest risk in expanding production," while Exxon Mobil Corp. Chairman and CEO Rex Tillerson said concerns about access to new supplies are fueling the surge in prices. "Just a signal that such access will be granted would have an immediate effect on the market," Mr. Tillerson said.

There is some evidence that the industry's arguments are having an impact on public opinion. A recent Gallup poll showed 20% of Americans blamed oil companies for high gasoline prices -- down from 34% a year earlier.

Democrats in Congress have shown little indication that they are ready to open up large new areas for drilling, at least in the short term.

Now, go back and look at the New York Times graphic. Virtually all the states where gasoline represents a low percentage of disposable income are Democratic strongholds. The voters in those states are not suffering nearly as much from high gasoline prices, which remain a small proportion of their income. Not a terrible price to pay to avoid oil platforms in sight of the beach house.

Finally, do not miss this short note on delays in the approval for the expansion of an oil refinery in Illinois:
Plans to expand an Illinois refinery have hit a stumbling block because of rejection of key air permits by a board of the U.S. Environmental Protection Agency.

The Illinois EPA had given the Wood River project a green light, but last Thursday, the federal EPA's Environmental Appeals Board sent the decision back to the Illinois agency. The appeals board was acting on a petition by the American Bottom Conservancy, an environmental group, and the Illinois chapter of the Sierra Club.

Now, the EPA might well have had good grounds to block Conoco's refinery expansion, but that does not change the fact that its actions at the behest of environmentalists are raising the cost of capital for the project and thereby, no doubt, reducing cap ex budgets elsewhere within Conoco. At the margin this decision will have a negative influence on the supply of gasoline in the future, which will increase its price at the pump.

Taking these stories together, one is forced to conclude that the Democrats and their political allies in the environmental movement are pushing for policies that have a disproportionate impact on the rural "working poor," the vast majority of whom live in states that tend to vote Republican. Smart move.


By Anonymous Anonymous, at Mon Jun 09, 11:55:00 AM:

No mention of the fact that the whole commodity universe's prices are rising.

This is a dollar issue and policies that attempt to fix everything but the dollar are going to cause the law of unintended consequences to run wild.  

By Blogger David M, at Mon Jun 09, 01:51:00 PM:

The Thunder Run has linked to this post in the - Web Reconnaissance for 06/09/2008 A short recon of what’s out there that might draw your attention, updated throughout the day...so check back often.  

By Blogger Georg Felis, at Mon Jun 09, 05:31:00 PM:

Suprised that the NYT headline didn't read something like "$4 Gas gives record profits to Rich Republicans, poor and minorities hardest hit"  

By Blogger Miss Ladybug, at Mon Jun 09, 09:23:00 PM:

I live in a red state. I have always driven a fuel efficient car. I try not to drive any more than I have to. If I wait to fill up until the low fuel light comes on, it costs me over $40. Not that many years ago, I could fill up for between $10-15.

I'm not anti-public transportation. I made use of it regularly when I was a teen and my dad was stationed in Germany. Used it when I went to London my senior year of HS. Used it when I played tourist in DC about 4 years ago. However, public transportation where I live is not conducive of getting anyplace fast. If I were to attempt to take a bus to get to work (the only kind of public transportation here), it would take hours instead of 20 minutes. And I won't even consider walking or biking in the Texas heat. Driving my car with A/C is the only reasonable option.

And, although I am still able to pay off my Exxon account every month, others aren't so lucky. Filling up my Honda Civic makes that monthly bill $100 (when it had been more like $30-35), I can only imagine how much someone who drives a less fuel efficient car, or has to drive more than me, is managing to pay that bill, although with all the other necessities. And I don't blame the President or Republicans (in general) - I blame Democrats and the environmentalist lobby...  

By Anonymous Anonymous, at Mon Jun 09, 11:09:00 PM:

I recall reading about a discussion between a European leader and a Saudi Oil minister late last year.

The European leader complained about the difference between the selling price of oil(around $80/barrel at that time) and what he believed was the Saudi's cost of producing that oil( supposedly less than $10/barrel)

The Saudi countered by offering to swap their profit on a gallon of gasoline sold in the European market with the taxes the European governments were charging on a gallon of gasoline which the Saudi pointed out was much higher.

I'm wondering if the Saudi's are holding back their spare capacity in anticipation of the European governments caving to the protesters and strikers and reducing the tax on gasoline.

Once this happens prices will fall at least temporarily. If the flow of oil is not increased supply and demand will eventually reach a new equilibrium with prices near the current level but with the OPEC nations receiving a larger share of the price of gasoline.  

By Blogger Dan Kauffman, at Tue Jun 10, 09:01:00 AM:

"Taking these stories together, one is forced to conclude that the Democrats and their political allies in the environmental movement are pushing for policies that have a disproportionate impact on the rural "working poor," the vast majority of whom live in states that tend to vote Republican. Smart move."

Smart move as long as they don't link their tribulations with the Democratic Party.

Keep in mind Bitter Gun Clinger can get grouchy  

By Anonymous Anonymous, at Tue Jun 10, 12:22:00 PM:

In the end, the energy issue is the rope that will hang Democrats if the Republican Party and it's nominee will only wake up and use it. McCain must soon recant on the cap-and-trade nonsense and his domestic oil drilling phobia as having "seen the light" and that circumstances now demand bold CHANGE.

Even the greenest weenies are very concerned about gas prices and their disastrous consequences as they work their way through the economy. I think this issue is THE political trump card of '08 if only there is a declarer who will make the pre-emptive bid!!!! Time to go for it!!!! "A choice, not an echo".
sS/Green Mtn Punter  

By Anonymous Anonymous, at Sun Jun 22, 05:08:00 AM:

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