CASINO CAPITALISM, OIL COMPANY CODDLING, AMERICAN INDULGENCE AND THE PLEASURES OF THE GAS NOZZLE

The rising cost of gasoline is said to be an important factor, perhaps the most significant factor contributing to the President’s currently sagging approval ratings. There’s not a lot the president can do about the price of gas, though what little can be done given political and economic realities Obama is in fact doing, though it is debatable whether he is doing so vigorously enough.

Unfortunately, Americans are to blame in several respects, some of that blame coming down to acts of commission, in other cases acts of omission. The former culpability is the longtime addiction to America’s uniquely cheap gasoline, Americans too feckless to alter their habits when prices are low, then quick to squeal when prices eventually spike. Americans, unlike citizens of other modern nations insist on cars the size of battleships, and commutes that swallow buckets of fuel. What they have omitted doing is demanding a more determined switch from fossil fuels to alternative sources, along with a persistent failure to positively affect energy policy by exerting pressure through their voter choices.  

But citizens themselves are not the only ones to blame, at least not directly so. Americans are gas pussies of course, enjoying gas prices not to be found in European, Scandinavian or Asian first world counterparts. A gallon of gasoline in France, Germany or Italy is well above eight dollars; in Britain it is even more; it is near seven dollars a gallon in Japan and about five dollars a gallon in Canada; while the US national average is around $3.80 a gallon currently. The places where oil is cheapest are Middle-eastern and Latin American oil producing countries that essentially give it away through subsidization.

But America does its own share of subsidization too, and that has kept our prices artificially low.  Our gas prices are lower because taxes on gasoline are substantially lower. This is a back door form of support by taxpayers for American-based international oil companies. The American government foregoes the revenue from higher gas taxes to encourage domestic gas consumption, which in turn boosts the profits of the oil companies, who of course subsidize a sizable number of American elected officials.

Another way of looking at it is that Americans actually are trading lower gas prices for lack of public investment in the nation itself.  European and other nations with higher gas taxes funnel that money toward their nations’ needs, for instance toward more efficient transportation and modern infrastructure, America  lagging far behind other first world nations in both areas. The modernized forms of alternate transportation mean less dependence on automobiles, hence a  lowering of the global demand for oil. Higher gas taxes serve the dual purpose of significantly enhancing revenue, and discouraging overconsumption of fuel (See: huge cars, long commutes).

The current American arrangement is one that has been very, very, very good for the oil companies for a very long time. But there are even bigger villains, and they are the speculators who bid up the price of oil in the commodity markets where the prices of oil are determined. Markets are designed to fluctuate according to supply and demand. But the commodity markets can rise and fall for all kinds of real or trivial reasons, the cost of gasoline in effect having no connection at all, or an attenuated one to supply and demand.

And of course, our old friends in the banks and financial institutions whose speculation in real estate and derivatives and credit default swaps “gassed” us to the tune of a major recession last time, now are betting their money in the commodities market, more high-stakes gambling that in this case is driving the price of oil sky high. The Commodities Futures Trading Commission which oversees the commodities market says that 81% of the trading in oil futures is done by speculators. This means that only 19% of the trading in oil is done by buyers who actually use the stuff, airlines for instance.

There have been congressional efforts to apply more scrupulous regulation to this new form of perilous gambling (perilous to us, not those doing the actual gambling). The CFTC is under pressure to revise its rules and to make them stricter. Obama’s Attorney General leads a task force charged with investigating this whole casino. Unfortunately, Obama offered to give up some of the funding for CFTC enforcement as part of his budget appeasement deal with congressional Republicans.

Still, while everybody can share some blame, the usual suspects in our recent economic troubles are high on the current list of perpetrators.

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