TheBanyanTree: Gas

[John]

Problem:

 

Lots of folks have been complaining lately about the high prices for gasoline, but nobody seems to have a solution to the problem. Let's try to figure out why the price is so high. We could blame it on the greedy bastard who owns the gas station, but that would be too simplistic. The gas station owner has to buy his gas from the oil company, and he has to make a little profit on the transaction when he sells gas to us. After all, he needs to cover his expenses for all those gas pumps and the electricity to run them.  Maybe he's not so greedy after all.

 

Blame:

 

Ah ha! Then it must be the greedy corporation that runs the oil company that has made record profits of zillions of dollars in their most recent quarter. Let's blame our disgust with high prices on the oil companies! But, hey. Just because the oil company is big doesn't mean it shouldn't make a profit, too.

 

Profits:

 

Maybe the problem is really with profits, and our capitalist system which depends on them. So let's look closely at profits. Actually, everybody needs profits. If you run your own small business, you know you need to make a profit or your business will die. It may take a few years for your new business to grow until it can make a profit, but that is the ultimate goal. As your business grows you find you have more work to do than you can do yourself, so you hire an employee to help out. But an employee must be paid a wage, and that employee must contribute more to the business than his costs of employment. Profit. He must contribute profit to the business. If his efforts result in a loss to the business, if he costs more than he contributes, he will lose his job. Isn't it a comfort to know that as an employee you are always worth more than you are being paid?

 

Reality:

 

These harsh realities of running a successful business apply all across the board. They apply to the one-man apple orchard business. They apply to the corner gas station with ten employees, and, yes, even the giant multinational oil conglomerates must turn a profit. Small businesses generally make small profits. Larger companies can make larger profits from their economies of scale, though they may also be saddled with losses during some years. But a business will not stay in business unless it makes a profit overall. And to make a profit the business must cover its expenses first.

 

Here's the Story Part:

 

Since we want cheaper gasoline, let's just start our own oil company and make the damn stuff ourselves. Certainly we can do it cheaper than the guys who are already in the business. Let's borrow some money from our rich uncle, so we'll have funds to buy equipment and hire some workers. We build an oil derrick in the back yard, drill a well and start pumping crude from the vast reserves beneath our property. Behold! We lucked out and discovered a previously unknown deposit under our house. We brag about our success to our rich uncle, and he comes across with a larger investment so we can put a refinery in the front yard. We build that too, and start converting oil into gasoline to sell to our neighbors. 

 

But wait a minute, the neighbors are complaining about our ugly, noisy, smelly equipment disturbing their domestic tranquility. They called the city government officials about it. The government came out and informed us we don't have the required permits to drill for oil in our back yard, or put up a refinery, either. So we need to spend a lot of money on studies and permits and satisfying the numerous government requirements for the city, county, state, and federal laws. Oh, goodness! We forgot about the government-imposed expenses we will have to bear, on top of our expenses for supplies, equipment, and labor.  Before our new little oil company can start to make a profit, we will have to deal with many layers of government bureaucracy. When all we wanted to do was be able to sell our gasoline cheaper than that greedy bastard who runs the local gas station. 

 

Back to Reality:

 

There have been no new oil refineries built in the United States since 1976. That's more than 30 years. Why? Because the expense of government regulations, supported gleefully by the environmental movement, has made it impossible for an oil company to make a profit on their products without charging higher prices than you pay today. 

 

Moral:

 

If you support the CO2 emissions restrictions that your government has been discussing lately, you had best be prepared for even higher energy prices from all the oil companies, coal companies, gas companies, and the utilities that use their products. Wave goodbye to that two-dollar per gallon gasoline you purchased a few short years ago. You're not likely to see it again in this lifetime. 

 

Later, John.