gas prices / primer economics

[Tubaryan12]

that stuff above my post

Gas prices here (N.E. Ohio) have been falling lately. Several station in the greater Cleveland area are back below the $2/gal mark.
Just as important as driving less, I have started to drive slower. Reducing the speed I drive, putting more distance between me and the car in front of me, driving smarter by staying out of situations where I may have to slow down, and making sure there is enough air in the tires has decreased the amount of fuel I use each week. I work with a guy who basically owns the same car as I do ('00 Hyundai Elantra vs. '01 Hyundai Elantra). We both drive approx. the same distance to work each day on basically the same route. He drives at least 10 miles per hour faster than I do (60mph vs 70mph). His car averages between 27-29 mpg. I get between 32-34 mpg. 14 gallon tank shows a difference of 42-98 miles difference per tank. At $2 per gallon thats between $2.62-$5.76 per week in gas savings ($136-$299 per year). That buys a lot of tuba stuff .

Another thing: using sites like www.gasbuddy.com can help you find the lowest price gas in your area. You can set up your own personal list of stations so you dont have to go out of your way to find the best price for you.

[Chuck(G)]

Geopolitical forces are the most likely influence on oil prices today. Yesterday, Chavez threatened to cut the US off (he's signed a deal with the Chinese last December); The situation in Nigeria's delta is disintegrating fast with rebel forces kidnapping foreigners and damaging facilities.

It's worthwhile remembering that the commodity oil prices have less to do with available supplies than with human emotion--much like stock prices. So even though there's not a big change in supplies because of the above, you can expect to see oil prices on Monday spike $2-4 a barrel.

The distasteful thing about the whole affair is that it forces the US into partnership with Middle East producers who are not necessarily friendly to us.

And yes, I believe that there's "silent inflation" going on. The CPI computation has been "cooked" to exclude the influences of food and housing, which makes no practical sense at all.

If Breton Woods II falls apart, then we can expect to see some really serious inflation. What's keeping the dollar afloat right now seems mostly to be a game of chicken.

[tofu]

[Joe Baker]

Hold the phone.

If Ford holds the price steady, but gives you less, that's a price increase.

But if Dell holds the price steady, but gives you more, that's NOT a price decrease???


_________________________
Joe Baker, who thinks this is inconsistent.

[Chuck(G)]

Hold the phone.

If Ford holds the price steady, but gives you less, that's a price increase.

But if Dell holds the price steady, but gives you more, that's NOT a price decrease???

No, just the logical progress of an immature technology. Let me put it this way. I paid almost $3000 in 1983 bucks for my first IBM PC with 64K of memory and a single-sided 5.25" disk drive and monochrome display adapter. Monitor extra.

I could buy 10 Dell desktop systems for the same number of dollars today. Does that mean that my 2006 dollar is worth 10 times as much as my 1983 dollar?

OTOH, automotive technology is fairly mature--you're not going to see drastic reductions in production cost by technological forces. OTOH, if you export production to China, you could claim that the lower price means that we've had a deflationary trend. Oh wait, that's why they leave housing and food out of the CPI!

But maybe not--you could always live in a big-screen TV shipping box. But I wouldn't want to eat a DVD player.

[Joe Baker]

I could buy 10 Dell desktop systems for the same number of dollars today. Does that mean that my 2006 dollar is worth 10 times as much as my 1983 dollar?

If you're buying computers, then yes -- it means exactly that.

I've bought (for my family's use) 5 new computers in the last 2 1/2 years (4 laptops and a desktop). Computers have been a pretty significant portion of my spending. If they still cost what they did in 1983, not only could we not have easily carried them to work and school with us, but I'd have had less to spend on food & housing! Yes, as a matter of economics, there's a "lowest profitable price" at which there's enough money to go around to manufacturer, distributer and retailer, and for laptops that seems to be about $700, or $400 for desktops without monitors. The prices won't drop below these points, so in order to induce people to buy them they just give more and more for the same money. Besides, it really DOES work in the reverse of the car example. With the first couple of laptops I bought, there was no built-in wireless, so there was the additional cost of a wi-fi adapter. The first one didn't even have a CD Burner, so I also had to go buy an external CD burner. The price of the basic laptop itself has come down by about $150 in that time; but the price of a laptop WITH wireless and CD burner has come down by around $350. And that's before you even count the faster processor and larger memory, which saves me time, which -- you may have heard -- is money. The new ones are sturdier, too, and I believe they'll last a good bit longer, which means I won't need to replace them as soon.

Besides, the REASONS for a price reduction are immaterial. Less for the same money is a price increase (we agree on that one, I think). More for the money is a price decrease -- regardless of the REASONS you get more for the money.
_________________________________
Joe Baker, who thinks all those economic ineces are phony-baloney, but who won't cotton to faulty logic by their detractors, either.

[Chuck(G)]

If you're buying computers, then yes -- it means exactly that..

But as an indication of the dollar's overall purchasing power, it's a pretty lousy measure. So using it as a factor in the computation of CPI while leaving out housing and food is more than a bit disingenuous.

I think we're saying the same thing about the CPI. It's meant to be an objective measure of the dollar's purchasing power but the computation methodology is phony.

On the other hand, if the CPI were to be based on the essentials for life, it might mean something.

[Joe Baker]

If you're buying computers, then yes -- it means exactly that..

But as an indication of the dollar's overall purchasing power, it's a pretty lousy measure. So using it as a factor in the computation of CPI while leaving out housing and food is more than a bit disingenuous.

I think we're saying the same thing about the CPI. It's meant to be an objective measure of the dollar's purchasing power but the computation methodology is phony.

On the other hand, if the CPI were to be based on the essentials for life, it might mean something.

Yeah, we agree more than we disagree here; but I will say that housing is a much trickier item, and hard to include in these indeces if you ARE going to have them. For one thing, its price increases and decreases can vary VASTLY from one city to another -- often from one zip code to the next. For another, many (is it most now? don't know) people have purchased a home, so the price of housing won't vary so much from one year to the next. My mother's housing costs haven't changed by much over the last 20 years, but mine -- having moved five times -- have roughly quadrupled for the same quality of house. Which is exactly WHY these indeces are phony baloney. If you include housing cost increases, they don't accurately reflect my mother's cost of living; if you DON'T include them, they don't accurately reflect MY cost of living. If you compromise and use some sort of weighted average, you don't accurately reflect EITHER of our costs of living.

Of course, the government has put itself in the position of taking care of everybody, which means they have to do something to figure out how much dough to dole out. And they have to have some sort of measurement so they can show us how good things are (which is not to say things are bad for me -- they're not -- but I've never seen ANY relationship, proportional or inversely so, between my family's fortunes and the government's numbers).
___________________________________
Joe Baker, who thinks that there is no such thing as a one-size-fits-all "cost of living", and that "consumer prices" depend on what it is you're consumin'.

[bort]

However, if most all continue to drive across cities and the countryside for non-essential purposes (socializing/entertainment), visiting friends, heavily using two (three, four, or five) family cars, not using public transportation, not walking or riding bikes, etc. during times when gas prices are higher, these people are actually un-complaining to the gas wholesalers and retailers by clearly saying, "Go ahead and charge me as much as you wish because I can afford it and I don't care."

I think that just about sums it all up. Even when gas costs more, many people would rather not have to change their habits, and just pay a little extra for it. Soon enough, that becomes the new "normal."

A few years ago, I moved closer to work, partially because the 70-mile round trip each day started to cost too much at $1.50/gallon. Glad I moved when I did. Now that I live 6 miles from work, I only gas up about a third as often, even with plenty more of those "non-essential" trips. Too bad my city's public transportation system is shitty, or I'd be able to get away with driving even less.

[Dan Schultz]

Currently (Feb '06), wholesale petroleum prices are falling very fast and very significantly.

Gasoline prices are below $2 here in southern Indiana for the first time a quite a while. Perhaps Cheney should shoot a lawyer every week!

[Chuck(G)]

Geopolitical forces are the most likely influence on oil prices today.

I suppose, then, that all of that political malarky must actually a stablizing force, since

In reality, even at c. $3/gal, gas prices (adjusted for inflation, and adjusted for the many add-on taxes over the years) are no higher than they were thirty years ago.

bloke "Follow the money. 'Politics' is a smokescreen."

Joe, I don't think we're saying anything different. Oil prices are largely determined by the commodities market, which at times seems to be run by a bunch of irrational hysterical paranoid biddies.

Chavez threatened on Friday to cut the US off. I don't think he can achieve that, but there will be a reaction in the market for sure. Same with the Nigerian kidnapping of Shell Oil employees.

If the spike lasts long enough, it'll push gas prices higher and the Dow down, when in reality, nothing will have changed--the same amount of oil will be coming out of the ground.

[Kevin Hendrick]

Too bad my city's public transportation system is shitty, or I'd be able to get away with driving even less.

Interesting how words change over the centuries, isn't it? I've often wondered when and how the second word bolded above morphed into the first (the connection, as you've noted, is obvious) ...

[Chuck(G)]

Interesting how words change over the centuries, isn't it? I've often wondered when and how the second word bolded above morphed into the first (the connection, as you've noted, is obvious) ...

The morphing comes pretty easily if you follow this guy's lead:

[Chuck(G)]

sure...fine...but - except for investors - none of this (nor its effects) seem to matter to anyone in the U.S. Americans are tremendous consumers of refined crude oil, and if Americans were reactive to price (which Americans are not...not even a little bit) with their consumption, crazy Chavez, crazy Nigerians, and even crazy investors would (in spite of their various insanities) be forced to take notice.

What will change American's habits at least temporarily isn't a price hike, but shortages like we had in 1973-74, where almost no amount of filthy lucre wouild purchase a fillup.

It was bad news for Detroit, who was hoping that the whole thing would blow over quickly. When the embargo was lifted, US oil consumption had dropped 30 percent.

I think GM and Ford are caught in the same "it'll blow over" mindset now. Both had terrible balance sheets last year, while Toyota had record sales. (But not necessarily bad news for investors--if you were savvy enough to buy Ford preferred stock at the nadir of bad news, you'd still collect your 10% dividend and sell it later after Ford put together a recovery plan for a nice profit).
But high prices alone won't change US habits significantly, any more than high coffee prices around the same time caused folks to quit drinking coffee.

[Chuck(G)]

Shortages and hard times aren't bad things in every respect. I've no doubt that we would have been burning coal in our trains well into the 1960's, had it not been for the Great Depression:

http://www.msichicago.org/exhibit/zephy ... index.html

[bort]

Too bad my city's public transportation system is shitty, or I'd be able to get away with driving even less.

Interesting how words change over the centuries, isn't it? I've often wondered when and how the second word bolded above morphed into the first (the connection, as you've noted, is obvious) ...

Actually, living in the city is great, and I'd strongly recommend it. Most everthing I may need is within walking distance (including a new water-front Best Buy). It's just that I still find myself needing to drive to work. The recently double-railed N/S-only Light Rail system doesn't cut it for me.

Hey, even "The Greatest City in America" has room to improve...

[tofu]

[Chuck(G)]

The Economist felt it was leading to misleading inflation numbers and I have to say as both a consumer and investment banker I think they are right. Also most people don't know that we now have this "fudge" factor in the inflation number.

It used to be that government numbers actually gave an indicator of something useful. Not only does the CPI not include housing, the GDP includes real-estate sales in its value!

Maybe as an investment banker, you consider real estate appreciation a valid component of our domestic "product", but it seems a little fishy to me.

[tofu]

The Economist felt it was leading to misleading inflation numbers and I have to say as both a consumer and investment banker I think they are right. Also most people don't know that we now have this "fudge" factor in the inflation number.

It used to be that government numbers actually gave an indicator of something useful. Not only does the CPI not include housing, the GDP includes real-estate sales in its value!

Maybe as an investment banker, you consider real estate appreciation a valid component of our domestic "product", but it seems a little fishy to me.

No Chuck I sure don't consider it part of GDP and I am very uncomfortable with the fact that we are losing so much of our manufacturing sector. It seems like there is no shortages of "experts" who try to convince us that this is not only not a problem - but actually good for us. This constant tampering with government statistical indicators is in many ways an attempt to massage the numbers so that we don't think we're actually suffering a negative effect of the loss of our manufacturing sector. I'm certainly not an isolationist or believer in tariffs etc. and you can not blame business for moving to overseas locations because of cost advantages to protect shareholders etc.

I lay the blame on the back of government policies that are for all intent and purpose hostile to manufacturers. You have agencies such as OSHA which have administative judges who not only enforce the law they actually can make law. They are the only judges who can actually make law. I don't want to imply that OSHA does not do positive things, but they have done things to great harm to some industries/companies that anybody with common sense would just cringe at.

Layer on the "corporate ambulance chasers" who again are pretty much just giant parasites who exist to suck the life blood out of business both big and small. The balance seems to be completely out of wack with these guys able to shop cases to plantiff friendly jurisdictions and with many folks not wanting to serve on jurys (resulting in dumbed down jury pools) coupled with long drawn out complicated business case trials and you get jurys that come up with crazy decisions with ridiculous punitive damages.

I'm amazed how even sophisticated folks don't understand how a profit or loss comes about and that just because you are a corporation doesn't mean you have some vast pile of money to hand out. There seems to be a disconnect in the notion that public corp. are own by private shareholders/citizens and taking money from the corp. is in effect taking money from your neighbor or yourself if you are a shareholder.

My favorite is when shareholders sue their own company which is in effect like suing yourself. Can you imagine being happy by suing yourself and winning a large judgement. You now take the money out of your left hand - deduct 40% for the lawyers - and put the remaining 60% in your right hand. Getting 60 cents back on the dollar.

Yeah - that makes economic sense to me!

[Chuck(G)]

I could probably fill up a couple of threads with ranting about what's happened to the high-tech sector and how the effects are rippling down through our educational system.

But, as an investment banker, you probably pay attention to where venture capital is going.

Every year, one of my engineering trade rags publishes a list of electronics industry startups, who's backing them, and what the mission is. This past year, it seemed as if about a third of them involved setting up design facilities in India or Russia and manufacturing in China. Of the remaining ones doing some design work in the US, I suspect that a fair amount of the employment will be via H1-B visas (why bother with paying a fair wage when you have what amounts to an indentured worker?).

The result is pretty predictable. Engineering enrollment in our universities has plummeted from a decade ago; R&D industry grants to those same univeristies are drying up. I suppose that most new enrollment is in business and law.

So when easy money policies fail to keep the economy afloat (don't get me started on the catastrophe that interest-only mortgages will turn out to be), what are we going to do?

The lawyers will be busy, I suppose.