I never cease to be amazed at the ability of human beings to adapt. On the positive side, it’s one of the reasons why many doomsday scenarios, developed by extrapolating current trends, don’t come to pass. We seem to be resilient in changing our behavior to meet certain kinds of dire challenges. But when the challenges are not life-threatening, we often see very different behavior.
The less-positive side to this “adaptation” trait is one of “acceptance,” particularly where we are placed under pressure and then the pressure, or part of it, is withdrawn. It usually takes a high degree of discomfort to get a large group of people riled up enough to take action. But often, when that discomfort is reduced, a new base is established.
We adapt to a new “comfort level” (higher than previously) and it takes more than returning to the old high point to re-stimulate action. We adapt to a “new normal.” Such may be the case with the pain many people feel when they pull up to the gas pump.
If you have recently filled the tank of your vehicle, you will have noticed a dramatic increase in the pump price over the last several weeks. The Lundberg Survey reported an average of 5.31 cents per gallon during the last two weeks, pushing the average price to a level 54 cents a gallon higher than last year at this time.
In the 1970s, when we experienced the impact of the Arab Oil Embargo, the public outcry was enormous -- enough to actually penetrate the halls of Congress. Both availability of supply and price levels were at issue, but there were also grave concerns expressed about the petro-dollars flowing to the Middle East. That was before terrorism had become a part of modern life.
Since then, the price of gasoline (and of crude oil) has skyrocketed, and it is likely that some of the dollars being paid at U.S. pumps are finding their way to support terrorist actions -- actions aimed at the United States and the same people who are purchasing the gasoline. Yet it was not until 2008, when the price of regular gas reached the $4 mark, that a loud outcry came from the consuming public, again loud enough to get congressional attention.
Then prices eased off, and so did the public pressure. It’s like a person who wears a size 9 shoe experiencing unbearable and unacceptable agony when squeezed into a size 7 but then feeling a sense of relief and a willingness to put up with mild discomfort when the 7 is replace with a 9. It’s still uncomfortable, but not enough to elicit the earlier reaction.
Where does all the money go to? If one looks at the composition of the price of gasoline, tracing a path from oil in the ground to gasoline at the pump, there are several key elements: extraction, refining, distribution and marketing, and then of course, the government getting its share through taxes. In January 2010, when regular gasoline was selling for about $2.75 per gallon and a barrel of crude was about $75 (a barrel of crude, containing 42 gallons, yields about 20 gallons of gasoline), the Department of Energy estimated the flow of every dollar the consumer spent on gas. About 67 cents went to the sellers of crude, 15 cents went for taxes, 11 cents for distribution and marketing, and 7 cents for refining. (United States consumption is about 175 million gallons a day.) It would be interesting to see those numbers today.
Price increases invariably bring questions about costs and profitability. In recent months there have been few changes in any of the costs associated with transforming crude oil in the ground to gasoline in the motorist’s tank. The exception may be in distribution, since petroleum products are consumed by the distribution channels. Clearly, the impact of crude oil prices is a major factor -- a function of supplier prices and price variations introduced by speculators, both influenced by anticipated future events (such as unrest in the Middle East). Clearly, most of the price increases results in profits going into someone’s pocket. But like Thomas Nast’s famous cartoon of the Tweed Ring, everyone seems to point the finger at everyone else.
In particular, the claim is often made that the retailers are at the mercy of the fates, earning only a few cents per gallon on the gasoline they sell. But drive around any community and look at prices at the pump -- and remember, gasoline is a commodity product. There is very little difference from one pump to another, and often the same tanker goes from station to station, filling the underground tanks. One can find variations of as much as 40 cents a gallon. Granted, the station that sells high volumes can negotiate better prices than one that does a relatively modest business. But it is hard to accept the generally stated argument that the retailer is not part of the problem when such price disparities exist (unless one assumes that the lower priced stations are charitable organizations which are selling at a loss in order to benefit the public).
Although the issue of gas prices comes up over and over, Congress does not seem to have the will to deal with the issues and educate the public. The impact of the oil lobby is an important factor. But, at the same time, there doesn’t seem to be enough concern within the public to force that to happen. This raises the entire question of regulation of industry and some mechanism for looking out for consumer interests. Since existing government processes don’t seem to work, and since it is so difficult to build concerted public pressure to make things happen, perhaps we need an agency for Consumer Affairs -- one which will look into situations and at the very minimum, provide information upon which consumers can act, as a group. At the maximum, it might have authority to officially question things that negatively affect consumers, and even to impose sanctions.
The upshot of all of this is that we are likely to continue to mumble and grumble every time we need to refill our gas tanks, and the industry will look after its own interests, as prices move to their whims ... unless we find a way to take the concepts of the free enterprise system and make them work on both sides of the equation -- for both producers and consumers.
But there is a new player on the scene ... the Internet! Frequently, people don’t respond to discomfort because they feel they are alone or because they think that they can’t really influence the outcome or because they lack sufficient information to be effective. With the Internet providing easy interconnectivity, that situation may change in the future – as exemplified, perhaps, by the dynamics of what is currently taking place in many Middle Eastern nations. In any event, interesting times lie ahead, and there is little doubt that change is in the wind.
Melvyn Copen lives in both Georgia and Arizona. He is an educator and businessman who has worked and lived in many foreign countries and provides consulting services throughout the world. His column appears every other Wednesday. Please share your comments with him via e-mail at email@example.com.