You and I are very close on this topic; I'll only touch on those issues where I have a comment.

I achieve from 60-68 mpg in my 2000 Honda Insight. 45-58 in our 2005 Prius.

That's the only divergence.

There are vehicles that could come to market fairly quickly that get incredible gas mileage.
http://www.canadiandriver.com/articles/gw/vw1litre.htm

Note that certain political parties have been opposed to energy conservation efforts and are only now jumping on the bandwagon. And your man at 1600 PA killed the PNGV program that was to produce family cars whose prototypes acheived over 70 mpg. Of course, now that Andrew Card is gone...

It's been several years since I've been to Europe and more since I'e actually driven there, but I read recently that petrol is closer to $8.00 a gallon there.

Anybody know if that's true?

Yah, but that's petrol Shelly. I'm talking about gas.

*tosses blonde hair*

It's over six bucks a gallon in the UK, then it slides down to just under five on the rest of the continent. Half of that six bucks is taxation.

There are few things to remember economically about oil. One is that it's a world market, and all conservation is a subsidy to those who don't. At $4/gl Canadian tar sands are the way to go! Can you say 51st state? To paraphrase Rodger Schlong, "USA! USA!USA!"

A genius biz pal of mine and former Marine grunt type was telling me two and a half years ago that gas would be $1.25/gl before the election. So, a pox on ALL you stupid fucking conspiracy theorists, MARKETS RULE!

"I hear less talk about how oil companies also don't want new refineries to be built. I believe both are true"...

(1)the term "oil companies" covers a lot of waterfront. There are many different kinds of oil companies, with different motivations and incentives.

(2)more fundamentally, it doesn't matter whether oil companies want refineries to be built or not. There are billions of dollars sloshing around and looking for ROI, in private equity firms and on corporate balance sheets. If there is money to be made in refining, and if regulation doesn't prevent it, then somebody will build 'em.

One key point about capitalism is that incumbents rarely have veto power, however much they might wish they had.

Let me see now: the government makes more on taxes per gallon of gas than the oil companies do profit and the oil companies are the problem? Right. Makes perfect nonsense.

BTW, why aren't the commies screaming about the auto industry charging ridiculously high prices for hybrids? (See excellent recent WSJ editorial on the economics of hybrids. Simply put, the cost-benefit analysis doesn't add up.) Since liberals have decided that supply/demand no longer matters, I think it is time for the government to declare that every citizen be given a free hybrid at the expense of the evil, price-gouging auto companies. After all, their CEOs make far too much money and profits are evil.

This is a very thoughtful post. And I'm glad I read it. Even the comments were thought-provoking. Good to see some reasoned talk going on in the blogosphere.

That said, WHERE'S MY PETER PUMPKIN comic for the day!!?!?!?!?!

JD, this is what the pick up artists call a "take-away." It just makes you want Peter Pumpkin all the more.

"I don't want nuclear power though."

Give me 15 minutes and I could convince you otherwise.

Okay, make it 30 minutes. I've been known to expound on subjects that I know about at nauseating length.

Well, it's working.

To quote my over-qualified, brilliant, now deceased high school chemistry teacher: "Like it or not, we will be using mostly nuclear power in the future." Also, I'd like to one-up Physics Geek and claim to create NP converts in 10 minutes.

Ten minutes? I'll use the powers of necromancy to bring bad the old FedEx commercial guy from the dead. He'd create converts in 30 seconds flat.

Well I am enjoying the high oil prices and hope it goes up much more. But then, my wife works for Conoco Phillips and we have stock.
Seriously, in my city, mostly a nice city, the people are about 80% shitheads when it comes to vehicles. three out of every four vehicles on the road (not an exaggeration) are either huge SUV's, Hummers, or giant Pick ups.
Smog is horrible, and getting around anywhere is a pain in the ass. So that's another reason I want the prices higher.
Got no problem at all with nuclear and we would not be in the big mess we are in now if it were not for the "no Nukes" movement in the seventies.
These are of course the exact same people now railing against the big oil companies.
As for oil company collusion, I doubt that it is occurring, though I suppose its possible. And no, it doesn't have to be an oil company that builds a refinery. No refineries are being built for the exact same reason no nuke plants are being built: enviro whackjobs, horrible government restrictions, and NIMBY.

that last post was me

I can kill the argument for NP in five seconds. When you don't know what your costs for waste disposal are, you don't know what your life-cycle costs are. When you don't know your life-cycle costs are... you can't justify the economics.

I'm with Kyle re gas prices. Dependence on oil, especially to the extent we're doing it in the US, is the pathway to poverty and destruction of our natural resources. I think a huge part of why hybrids are so expensive is because there's virtually no encouragement or government spending on R&D for more efficient means of energy consumption. Why is this? I blame both the government AND the oil companies. Virtually every single person in the federal government is corrupt, and I mean that without exaggeration. There are no more Mr. Smiths. Capitalist America has taken care of that. I'm not a communist and I don't believe in higher taxes. But I also disagree with wackos like Ayn Rand who think greed is good. bullshit -- greed is the root of all evil, to paraphrase the Good Book.

I'm extremely nervous about nuclear power. Especially after watching a terrifying photo essay about Chernobyl. I don't care how much people will try to say that our technology makes leaks and meltdowns virtually impossible nowadays, until scientists come up with a CURE for radiation poisoning, I don't want a goddamn reactor within 500 miles of me or my family.

I'm not saying I have an answer. But I think there are other answers to be found by people more scientifically literate than I.

I forgot to say -- great post, Annika!

You were missing my point about the expense of hybrids, LF. They are expensive because there is currently not a large demand for them. Consequently, the price is high because the supply is low. The auto industry knows that the demand for them comes from a very niche market of do-gooders who will pay the extra cost regardless. Now, when the cost of gas becomes high enough to justify the extra expense of hybrids, demand will go up....but so will supply and the price will adjust accordingly - eventually bringing it down to a point were economically rational people will consider purchasing them. BTW, there is plenty of R&D going on in this area. Who doesn't want to be the first company to come up with the electric car that can actually go enough miles to make it worthwhile to the consumer? The market works every time it's tried. Read more Friedman and less Krugman.

Shelly,

I was just in Spain and I paid approximately $4 a gallon there.

Annika,

Thanks for the link!

Blu, I minored in economics in college (4.0 average in the subject) and graduated from the University of Chicago law school. I've read more Friedman than most Angelinos have read People magazine. That's admittedly an exaggeration but I hope it will take care of any implications that I'm a slouch in economic theory.

Your hybrid theory is an oversimplification. There's more to supply and demand than, well, simple supply and demand. The supply and demand function, in the basic way you describe it, only holds true where all other things are equal. Whether or not enough is being spent on R&D is an issue of policy, so we'll leave that point out except to note, as I don't believe you can refute, that if more money were going to R&D the supply curve would shift outward, thus boosting the quantity produced and purchased and lowering the price.

You're partly correct that demand for hybrids would increase if gas prices continue to go up for a non-superficial period of time (note, though, that this would have to be a SIGNIFICANT period of time in order to shift the demand curve in any meaningful way). One of the things held constant in the typical demand curve is the cost of substitutes (such as regular cars versus hybrids). If the cost of the substitute (regular cars) increases (again, for a significant period of time, since people don't buy cars on a very regular basis and it would require a fair amount of fed-up-ness at gas prices in order for people to change their car-buying habits), the demand curve will shift upwards. Note that this causes BOTH quantity AND price to increase. I take it you would consider these new buyers to be "economically rational" (as opposed to "do-gooders," who apparently are not rational actors, unless of course you consider the possibility that their demand constants for regular cars have greater elasticity) notwithstanding the now-HIGHER price of hybrid cars.

As to supply, I don't think the cost of gasoline would cause the curve to shift UNLESS manufacture of hybrid cars is a reasonable substitute occupation for manufacturers of regular cars. Here's the problem, though: if, as you argue, (1) R&D funding for hybrids is sufficiently high, (2) any car manufacturer would like to manufacture more environmentally-friendly and energy-efficient vehicles and (3 -- this is implicit, I think, in your argument) that manufacturers of regular cars can reasonably switch over to manufacturing hybrid cars, why hasn't this already happened? I put to you that one or more of these three variables is preventing, for instance, Chevrolet from jumping into the hybrid market. This means that one of your two stated assumptions is incorrect, or that suppliers will not jump ship once gas prices get higher. If suppliers don't jump ship, the only way to shift the supply curve outward, and thus reduce prices, would be for new suppliers to enter the market. Maybe that will happen, maybe not. But the "rational actors" in society are not making the choices you have predicted.

Thus, you are incorrect that it is low demand driving the high price -- to the contrary, low demand would cause a lower price. It is low supply that is the problem, and something such as increased R&D funding for hybrids would help to remedy this.

LF,
I declare you the winner of this debate due to the cleverness of your second sentence.

Seriously, though, I read you post and need to think about it. I can appreciate your demand argument,and I'm tempted to re-think my own. However, I think your supply argument is much weaker, though I need to think about a response that has more intellectual power than "you're wrong and I'm right."

Impressive academic pedigree. Just so you know you are not debating with a dummy, I have a graduate degree from the Univ. of CA and another from USC. BTW, I got recruited out of high school to go to the Univ of Chicago because I was pretty smart for a dumb jock. But let's just say that the athletics don't quite match the academics at U fo C. Still, both the economic and political science departments at that school are legendary. I don't know as much about the law school but assume it is similar.

Not being particularly smart makes this as mind numbing for me as, say, health care. Certainly government interdiction has played a negative role in so far as no one has built a refinery in a long time. Perhaps Oil Companys are overinflating prices but I'm not sure it's completely without merit. Even though ANWAR is not the end all isn't it just a high profile case of many more like it?

It seems enviromentalists have effectively tipped the scales a little too far in the wrong direction, especially in the 90's and it's coming home to roost. And, not that I like paying more but, why is gas treated like the price of gold instead of a real commodity like lumber which always inflates with the rest of the economy? Free market is definately the way to go, even for OPEC, but shame on us for not drilling our own to give us a few cards at the oil table.(I realize there would still be majority reliance on outside sources)

Nukes, the same thing. The French somehow garner my respect for getting this right. Plants right in the middle of the suburbs with houses backed right up to the cooling towers. If it can be done in that bureaucratic quagmire why can't we do it here?

We've been somewhat spoiled with stability. If things get bad enough American ingenuity will come to the rescue with or without government funding.

It may be time to start a war for oil. Hey, why didn't I think of that sooner?

Shit LF, you clearly have the bonafides, but you miss the fundimental underlying economic facts: all conservation is a subsidy to those who don't conserve. Anyone who buys a hybrid is basically writing a check to the the Chicoms. Happy motoring.

Blu, thanks -- didn't mean to imply I had a more impressive or worthy background than anyone else here, just trying to demonstrate that I'm not *quite* talking straight out of my ass :) Having attended U of C, I'm about the last person to whom you need to explain that it's a bunch of unathletic nerds. I for one have never been accused of being a jock :)

Casca - Chicoms?

That Prius that gets such good mileage is fine, but you can't do anything with it but putt around. You can't move a couch and a dresser and two end tables in one trip. You can't drive it thru a foot of snow in a Rocky Mountain winter. And if my 6800lb F-150 hits it, you're toast.

Worldwide demand on oil is rising fast, and supply is straining to keep up. This pushes up prices. It's that simple. And if anyone's gouging, it's state and federal gov't thru gas taxes. Think of it. Gov't makes more off a gallon of gas than the oil company, and gov't did absolutely nothing to produce that gallon of gas. Whether that gallon sells for $1 or $3, the oil company makes about 6.5 to 9% profit. Uncle Sam gets his 18.4 cents a gallon no matter what. And then your state gov't gets its cut- again, regardless of the unit price, and without having contributed anything to producing the gasoline.

These gas taxes comprise up to 50 cents per gallon to the cost of gasoline. Don't we as Americans pay enough in income and sales and how many other types of taxes to keep the roads paved and maintained, without having to pony up even MORE taxes when we gas up?

And anybody who has ever mumbled the words 'war for oil' is a certifiable nutjob. If it really is a war for oil, where's my $1 a gallon gas?

Rising gas prices are a big shit sandwich, and we're all gonna have to take a bite.

Next time ANWR or offshore drilling comes up for a vote, watch who votes no. These are the politicians who don't give damn about you, or how much you spend on gas.

Environmentalism is fine, right up to the part where it drives people out of business, creates financial havoc for working families, and hurts the economy.

Chicoms = Chinese Communists as opposed to Chinese Nationalists

Somewhere in my late twenties, I discovered a hole in my historical education where the last half of the 20th century should be. My remedy was to turn to the Godfather of American conservatism, and essayist, William F. Buckley. Conveniently, his essays are easily available in book form since he's in the habit of publishing anthologies every few years. My favorite is Right Reason, but one should lay the foundation with Up From Liberalism. Let me know if there's something you want to read. I keep duplicate copies just for proselytizing.

Oh, BTW, I knew there was something special about LF. When you graduate from any program at the University of Chicago, not only do you get an impressive degree, but I'm reliably informed that you're also awarded the Combat Infantry Badge for living in that neighborhood.

Many weeks could be spent on this subject just to cover the basics; I won't pretend to toss out a few slogans in a vain attempt to explain it all.

>That Prius that gets such good mileage is fine, but you can't do anything with it but putt around.

Isn't that what most people do 99% of the time?

>You can't move a couch and a dresser and two end tables in one trip.

I don't have a need to, nor would I make a decision about a vehicle based on such insignificant requirements.

> You can't drive it thru a foot of snow in a Rocky Mountain winter.

It's very rare that we get a foot of snow around here: when we do, it is removed by snowplows. If it does snow heavily enough for the need for big 4 wheel drives, everything is closed and the people with big 4-wheel drives go to the office then leave, as hardly anyone is there.

> And if my 6800lb F-150 hits it, you're toast.

I'll grant you the likelihood of you killing family members with your 'monument to excess' is higher: you're bragging about this?? And note that the overall likelihood of an occupant dying in an SUV is actually higher than that of a car.

> Gov't makes more off a gallon of gas than the oil company, and gov't did absolutely nothing to produce that gallon of gas. Whether that gallon sells for $1 or $3, the oil company makes about 6.5 to 9% profit. Uncle Sam gets his 18.4 cents a gallon no matter what. And then your state gov't gets its cut- again, regardless of the unit price, and without having contributed anything to producing the gasoline.

For the large part, these gas taxes are used to continue American's addiction to oil through road and bridge building, etc. Think of them as 'user fees', which is a Republican slogan (except when it's not).

>Don't we as Americans pay enough in income and sales and how many other types of taxes to keep the roads paved and maintained, without having to pony up even MORE taxes when we gas up?

Sure, just take it out of schools or police,etc. Our local taxes here are 78% schools; should we decrease our illiteracy even more?

> And anybody who has ever mumbled the words 'war for oil' is a certifiable nutjob. If it really is a war for oil, where's my $1 a gallon gas?

Think "major miscalculation" by Cheney/Rove/Rumsfeld.

> Rising gas prices are a big shit sandwich, and we're all gonna have to take a bite.

I don't buy the "Ok, let's just suck it up" for all the mistakes in forecasting global petroleum trends.

>Next time ANWR or offshore drilling comes up for a vote, watch who votes no. These are the politicians who don't give damn about you, or how much you spend on gas.

Does enabling addiction mean that a politician gives a damn about the addict?

> Environmentalism is fine, right up to the part where it drives people out of business, creates financial havoc for working families, and hurts the economy.

If people create a demand that cannot be sustained by supply, then they should blame no one but themselves for electing people who would bungle the job badly.

Just agreeing to turn our air and water into the toilet bowls of addicts is not a policy strategy, it's just another reactive mistake.

Casca, I still have the scars... I don't know whose brilliant idea it was to plop a major university in the middle of the ghetto -- and not just any major university, but one whose student body makeup is largely uber-nerds who lack the street smarts to prevent themselves from dying in the ghetto. It's probably all a grand conspiracy of some sort.

As to the Chinese communists, I think it's overstating to say that buying hybrid cars plops money into their billfolds, unless the Chinese start manufacturing hybrids to sell in the United States. True, there are positive externalities, thus lowering the direct benefit any individual receives from purchasing a hybrid. There are ways to account for those externalities by providing an extra benefit to people who buy hybrids -- like, for instance, allowing people in hybrids to park at meters without paying, as do many places in southern California (and probably other states as well). Someone could also suggest a tax break for people who buy hybrids -- or if you want to go supply-side, a tax break for hybrid manufacturers (thus lowering the cost of production, shifting the supply curve outward, and creating more supply at a lower cost). It's the same sort of thinking that goes into federally-funded student loans and federal money to universities.

"For the large part, these gas taxes are used to continue American's addiction to oil through road and bridge building, etc. Think of them as 'user fees', which is a Republican slogan (except when it's not)."

First of all, I'm pretty committed and tuned in Rep and have not had a lot of experience with the slogan "user fee" except when it is being used as a semantics trick by Democrats to try and raise taxes by mind-fucking a fairly brain-dead public. Why the need to toss out such random BS during a discussion on the cost of gas? Do you think your audience is a bunch of 6th graders? Secondly, gas taxes are routinely raided to pay for other programs. I'll admit that it is both parties that engage in this co-mingling of funds. There has been a PR campaign going in CA (via radio mostly) initiated by groups with an interest in highway building funds to try and stop this.(Because, of course, everybody wants their place at the public trough.) My point is, though, that gas taxes are going to other programs.

>I'm pretty committed and tuned in Rep and have not had a lot of experience with the slogan "user fee"

I haven't heard it lately much, but quite a bit back in the 90's and early 00's. Just yahoo search on;
Republican "user fee"

and you'll get 34,000 hits. I don't have the time to bring you up to speed on this (and I don't mean that smugly, either).

>My point is, though, that gas taxes are going to other programs.

As there are 50 States, and most with dozens of counties, cities, and townships, I have no doubt that there is some truth to your statement in many of these jurisdictions. However, in the Federal arena, as well as my State (Va), the gas tax is watched very closely to ensure it covers road, bridges, and other transportation needs.

I know what you're thinking LF... did he write six responses, or only five. Well since I have an online W$J account, the most powerful access to clear thinking biz info in the world, you've got to ask yourself one question... have you read HOLMAN W. JENKINS? Well have ya? PUNK!

online.wsj.com/article/SB113452451241821912.html?mod=opinion_columns_featured_lsc

BTW, U of Chi in the good old days was in a high tone burb, the ghetto grew up around it. In the 1960's the U told the city that if they didn't get eminent domain over the surrounding blocks, where the housing is now, they were moving to the burbs. Chicago gave them what they wanted, and they stayed. I always get a kick out of that congressional district, Jesse Jackson Jr, Gus Savage, et.al. lmao.

"Someone could also suggest a tax break for people who buy hybrids -- or if you want to go supply-side, a tax break for hybrid manufacturers (thus lowering the cost of production, shifting the supply curve outward, and creating more supply at a lower cost)."

LF in da house busting out Laffer. Nice.

" Just yahoo search on; Republican "user fee" and you'll get 34,000 hits. I don't have the time to bring you up to speed on this (and I don't mean that smugly, either)."

Not being smug either, but I just did a search on "Democrat User Fee" and got 257,000.

If you just search on "user fee" you get 21 million hits. Of course, none of this really matters because the way the searcy engine is just looking for words not policy options.

Actually, my apologies for keeping this debate about "user fees" running. I have the day off and obviously I'm spending way too much time on the computer.

"Do I think prices are being manipulated? Yes, that's my gut feeling. But when people tell me (usually with conviction) why they think prices are not being manipulated, I don't know enough about the market to make a counter-argument. In the end, I still believe prices are being manipulated. It's just natural cynicism at work. And, it's probably true."

No, it's very false. Conspiracy theories ALWAYS are bogus.

It boils down to this:

Supply is low (for many reasons);

Demand is high (also for many reasons).

When supply of something is low but the demand is high, the manufacturer will raise prices. Prices serve two purposes. 1. They help the manufacturer recoup his costs, and 2. they signal to the consumer how much or how little to purchase.

I have many articles and books I can direct you on the topic, assuming you wish to educate yourself on the matter.

Gasoline in Italy is over $6. Most of Europe is higher, I believe.

"Conspiracy theories ALWAYS are bogus."

"Always," Mark? *Really*? Care to offer some proof there?

Conspiracy theories are paranoid delusions, incomplete fantasies that exclude logic, reason, and reality. Do I really have to explain this?

I'm not the police or something. Just pointing out that you're making unsubstantiated claims. Nothing is "obvious."

Ole Nic is right, and LF is delusional, or perhaps it's a U of C chick's way of flirting when she's sexually frustrated.

LF is pretty much on track IMO. Casca's bellicose arrogance and unwarranted condescension is humourous but ultimately futile. People who listen to such do not think for themselves or are easily intimidated.

The key word in this instance is "oligopoly." Oil companies do not have to explicitly collude in order to keep prices high; with limited competition, there's no incentive for anyone to cut prices. While Valero has emerged (I don't recall seeing them until recently), you have Chevron and Texaco combining, plus BP and Arco combined when I wasn't looking. I don't think we need Standard Oil Breakup II yet, but any future oil company mergers should be scrutinized.

However, it is important to note that the government is making much higher profits on gas than the oil companies are. And how many pension funds are invested in oil! Those evil unions, profiting on misery... :)

All Canadians are conspiracy theorists, and the postulates of nicodemo apply.

Will, you are obviously channeling strawfuck. If I'm incorrect on this one, you faggots should hook up, cause it'd surely be love at first blather.