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Thursday, May 01, 2008

 
Yikes

Some of the most expensive gasoline in the world is in Sierra Leone. Cost is somewhere in the neighborhood of $18 plus a gallon. My mind boggles at the very idea that it could cost $180 to fill my Corolla or a total of $720/month.

I looked up Sierra Leone in the CIA Factbook because all I know about the country is the blood diamond thing and civil war thing and that I believe it's in western Africa. Literacy rate is 35.1 percent (US = 99 percent). The country's a constitutional democracy, which surprised me because I was sure it was a dictatorship of some kind as 70 percent of its population lives below the poverty line (12 percent in the US). Sierra Leone's GDP is $4.83 billion (US = $13.86 trillion) but it has a higher growth rate than the US -- 6.8 percent versus 2.2 percent -- but then Sierra Leone has to deal with an inflation rate of 12 percent versus 2.7 percent in the US.

In 2007, Sierra Leone's GDP per capita was approximately $800 -- or about the amount it would cost to fuel a Corolla for one month. Comparatively, the US GDP per capita is $46,000, which is very close to the average income for an American family. In Sierra Leone, the average income is $200. You put all that together and look at $18 plus a gallon and then you think about what it might cost to feed a family on $200/year and just... wow.

We've got it good.

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| 10:26 PM |

Wednesday, April 30, 2008

 
The gasoline tax holiday

I've seen mention of a gasoline tax holiday here and there, and seriously, it's one of the lamest political moves ever. Today, taxes over all make up 13 percent of a gallon of gasoline; crude itself is 72 percent. Back in January of 2000, taxes (federal, local and state) made up 32.1 percent of the price of a gallon of gasoline and crude was 47.1 percent. The world price for crude back in January of 2000 was between $23 and $25. In April of 2008, the price has ranged between $103.46 to $118.53/barrel (ignore the hijinks during the day -- it's the closing price that matters). In January of 2000, the average price for a gallon of gasoline was $1.50.

If you look at January of 2000, we paid approximately 48 cents per gallon in taxes. Average price in April of 2008 is $3.50, and we pay approximately 45.5 cents per gallon in overall taxes. Federal taxes -- which is what the gasoline tax holiday is all about -- are 18.4 cents* per gallon so the rest of the 45.5 cents goes to local and state taxes. You slice out the 18.4 cents and you drop the price of gasoline to around $3.32 for about 3 minutes, because the fundamental problem still remains -- the price of crude is what's going up, not the taxes which are a fixed cost (not to mention it would be politically unpopular to raise taxes on gasoline, even though personally, I think it might be a smart idea).

The proposed federal gas tax holiday would go from Memorial Day to Labor Day, which is approximately four months. Indulge me and pretend for a moment that the price of crude doesn't go up during the driving season. So someone like me with a fuel-efficient vehicle and a 10-gallon tank who fills up four times a month would save somewhere around $30 for the duration of the gas tax holiday. I can save that much by just eliminating two dinners out a month or heck, just waking up early enough so I don't take the toll road to work. And note from the exercise above -- it's the price of crude that's causing the pain, not the taxes. And crude's going to keep on going up and up unless we change our behavior, and that's not going to happen at all.

The taxes go to a highway fund that helps with road construction. When you have no funds, you have no road construction. When you have no road construction, you lose jobs. We don't want to lose jobs so we have to make up that shortfall *somewhere* and guess where the money comes from? Ding ding ding if you guessed China or some other foreign entity. The US is so deep in debt right now that China et al essentially owns our collective butt and that doesn't help with the value of the dollar.

So, in a nutshell, the gas tax holiday is stupid because:

1. In the grand scheme of things, most drivers won't be saving that much money to make a significant difference in their economic situation

2. Reducing the price of gasoline through government intervention will not change behaviors; instead, a reduction will influence people to drive *more*, thus driving up the price once again, essentially negating whatever savings might have been gained through the gas tax holiday

3. The US has to borrow money to finance this hare-brain scheme, which means we, as a nation, we're even deeper in debt and while I'm no economist, I'm pretty sure that doesn't help with the weak US dollar

I want to point out that crude is priced in dollars and for every 10 percent decrease in the value of the dollar, crude rises $4. I haven't figured out the exact way our debt figures into the devaluation of the dollar -- I only know how it impacts my daily life. What we need is a stronger dollar, less consumption on our parts, and then maybe we'll see a meaningful impact in the price of fuel. But the gas tax holiday, now that's just stupid pandering by politicians -- including *my* candidate -- who really want to be president.

Taxes on diesel are approximately 24.4 cents, so if you're driving a diesel vehicle you'll save around $40 for the gas tax holiday

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| 8:41 PM |

Sunday, March 09, 2008

 
Gas prices

The US government has one of the best websites out there on energy issues and prices. Check out this link to learn what the price of a gallon of gas is composed of. It's pretty easy to read and understand. The bottom line is, if we see $70/barrel any time soon, I'll be surprised. It wasn't too long ago that I thought $50/barrel as the ceiling was crazy. Now I'm anticipating $110/barrel in the not-so-distance future. My concern is demand destruction if we see $105-$115 range for more than 6 months and the effect on the world economy. My suggestion? When you get your tax rebate, bank it or pay down debt. Don't spend it on things you don't need. The two things might not seem related to you, but the higher those prices go, the more likely it is our economy is going to slow down even more than it already has.

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| 10:45 AM |

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