Choose Capitalism If You Want Cheap Gasoline
Oil companies are an easy target for the current high gas prices we are now facing in this country.
But, let’s examine the facts:
$1 would buy you a lot of goods and services in 1950. Today; however, what you bought for $1 in 1950 now costs $8.78. The price of gasoline in 1950 was about 30 cents a gallon. Adjusted for inflation, gasoline prices ought to be about $2.64. This assumes taxes have remained the same.
But taxes haven’t stayed the same…not even close. In 1950, the tax per gallon of gasoline was roughly 1.5%. Today, taxes on gasoline make up about 20% of the posted price of gasoline, and a significant portion of the cost you pay to fill ‘er up.
That 30 cents a gallon in 1950 should cost you about $3.13 today. But this assumes supply and demand has remained constant. It hasn’t. China and India are probably the most visible examples of this. China and India are quickly rising to the top of the “food chain” in terms of consumption, and they are requiring more and more energy every year.
Add to this the fact that the United States hasn’t built an oil refinery since 1976. Government regulation has pushed this issue for the last 30 years. Some countries have nationalized their oil industry, making investors nervous which in turn causes a risk premium to be priced into oil (thus affecting gasoline prices).
Lastly, about 9.5% of the price of gasoline goes to the oil companies. A whopping 20% goes to Federal, State, and local taxes. A very small percentage goes to privately held gas station owners and the rest is used up in the cost of production and getting the product to market.
Politicians often tell us about “greedy” oil companies. But if “windfall profits” were the real issue, why not go after other industries who have larger profit margins than oil companies?
For example, why not chase down [Periodical] Publishing companies? There profit margins are 24%. The shipping industry, application software industry, and tobacco industry all operate at or above 18% profit. Some utilities have 10.2% profit margins.
What’s the solution? Cut back product distribution? Now that will cause a problem…more of a problem than we already have. What’s another solution? Cut their profit margins down even more? They already operate on pretty thin margins. Don’t these companies have a right to exist? And, if they don’t, then who does? And why?
A third option is to leave them alone. Tell your representatives to eliminate coercive laws, regulations, and then demand lower taxes and spending in Washington.