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vacas5
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Name: Russ
Location: Nashville, Tennessee, United States
Birthday: 10/21/1981
Gender: Male
Interests: the world, my friends, metaphysics, trying to ignore metaphysics.
Expertise: International Business, Some things Russian, Logistics (trucking).
Occupation: Sales
Industry: Other
Message: message me
Website: visit my website
AIM:  vacas5
Member Since:
11/10/2003
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| Really quickly:
I'm now 25
I'm now engaged to be married. Should happen on May 27, 2007.
I've almost been at my job a full year.
I'm becoming a member of Midtown Fellowship.
I'm still tutoring with World Relief once a week.
I've been traveling a lot: South Carolina, Texas, soon more Texas, Michigan, and SC.
I've been crazy busy.
I love you all.
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| just in case anybody actually read the first part, here's the conclusion:
Let’s look at the refining situation one more time. To me, it still seems crazy that in order for these companies to make higher profits, they had to make drastic cuts in capacity and supply. The events of the last year revealed to me, or so I thought, that our country’s demand for petroleum was pretty inelastic, meaning that demand didn’t really change all that much when the price went so high in August and here again last month. We all still have to get to work or school or what have you, and we don’t really have any alternatives to driving, at least not if you live anywhere other than major cities in the Northeast or in Chicago. The mass transit system across the greater part of this county is a joke, especially in comparison with even the least wealthy of the European countries. Tashkent, Uzbekistan has a more practical, popular, and functional mass transit system than my hometown of Nashville, for Pete’s sake. Also, as we’re all well aware, there are almost nil alternative energy sources, certainly none the vast majority of us could use in our current automobiles.
Still, gas is/was ridiculously cheap, especially in comparison to prices in Europe. It’s been so cheap that before now (or even now I would argue), most of us have never had a need for an alternative. We still won’t take the bus or carpool, and even the poorest of Americans can drive cars. It’s cheaper than a gallon of milk and even a 20-ounce bottle of water. We’ve all seen the email that compares the prices of our favorite goods to that of a gallon of gasoline. And this is a product that is sucked out of the ground halfway around the world using multi-million-dollar equipment. I’d venture to say milking a cow would be easier.
Hence, economic logic would tell me that if something had such inelastic demand and was already so inexpensive, that the oil companies, refiners, even local merchants would exploit this opportunity. Now, the low margins of local convenience stores can be explained by all the competition that they face, and we’ve explained some of the reason why a refiner wouldn’t be able to take advantage, but what about the oil companies? My belief is that major oil companies know better than to try and make larger profits by increasing price because it will only result in a consumer backlash that prompts government intervention, and eventually their attempts to make more money will be thwarted, their time and resources wasted, and their name further tarnished. Therefore, there is in effect no positive demand condition to take advantage of, even though it would seem that way.
This inevitable American consumer backlash is curious indeed, and I believe the result of the government’s intervention. Now, I don’t really expect the American people, or any people for that matter, to be too stoked about an increase in price. And its compounded by the fact that a price increase for petroleum hits the consumer twice, first at the pump when they fill up their cars themselves, and then second when they buy any product in any store (because in this country every consumable good has a 99% chance of having spent some time on a truck, and companies will eventually pass their increased cost onto the consumer). It’s only further compounded by the lack of alternatives I spoke of above.
What is curious about the consumer backlash that results from an increase in gas prices is that it is cyclical and feeds on itself. Our government has time and again responded to their constituency with small minded, short term, irresponsible solutions that have only further swelled our dependence on oil, and embedded our mindset that an increase in price is some kind of an injustice.
Time after time, the executive and legislative branches have reacted very quickly to price hikes. Some of their responses have included: depletion of the federal reserves of crude and refined product to increase the supply thus decreasing price; curtailing the replenishment of these reserves to decrease overall demand; legislation or threats thereof to prosecute price gouging thereby exhorting vendors not to try and increase their margins during a price spike ; even subsidizing the already powerful refiners in order to increase overall supply.
Traditionally, the push for this type of intervention has come from the left; from the party typically associated with the working man who’s probably hit hardest by the short term price increase, and the one that generally has never had a problem with price controls. But even from our current “laissez-faire” administration we’ve heard rhetoric of the United States being a culture of automobiles and gasoline. That it’s somehow part of who we are, or our God given right as Americans. This type of speech only fuels the fire of a consumer backlash and a call for price control. It only creates more pressure for our government to intervene to keep the American way of life stable.
These short term solutions are not only reprehensible for me as a liberal capitalist, but disturb me most as an individual concerned with the future state of our environment. There seems to be conflicting data regarding the whole global warming thing, but anyone who’s been to Los Angeles or Houston can’t argue that our current “American” way of life isn’t destructive to our environment. This way of life has cost our reputation across the globe, as acceptance of emission controlling treaties such as the Kyoto Protocol is simply a ludicrous notion on our end. The governments of other nations have every right to say that our administration isn’t doing enough to fight global warming because Democrats and Republicans alike are too quick to fold to the pressure of the American consumer instead of using a price spike as an impetus for major change.
What could the government be doing instead? Most of the responses I would suggest are proactive solutions that should be emphasized even during times when price is not a concern, naturally. Instead of subsidizing some of the largest and most profitable companies in the country in the short term, they should be investing in our mass transit infrastructure, or state sponsored research into alternative energy programs across the long term. Instead of trying to sway supply and demand using reserves, approach price control by doing away with the current taxes in place, and use funds from our already bloated budget for use of building and repairing highways. However, as much as I hate taxes, I do appreciate them as a disincentive measure in this case (a technique European governments have been utilizing for years). So, better yet, divert current funds from fuel taxes toward expanding mass transit or creating more carpool lanes, and as mass transit picks up speed, increase current taxes to create further dependence on (or even a market for) alternative fuels or forms of transportation that don’t involve pollution.
Americans themselves are not long minded people. I’d liken our current situation with petroleum to the process of boiling a frog to death. You can’t turn up the heat on the burner too fast or else the frog will realize what you’re doing and jump out of the pot. Instead, you must turn it up ever so slightly, and he’ll never notice a difference. A few weeks ago, Americans were outraged and having serious conversation about our problems and the alternatives out there. But now, after the government has taken some action and prices have gone down, even if only a portion of what they increased, no one seems to be talking about it anymore.
So, in sum, I believe very strongly that government action when it comes to gas prices should not be to put a short sighted patch on the problem, and that to do so is irresponsible and has and will only dig us in deeper. Furthermore, I am not so brokenhearted by the hit my wallet has taken recently, as long as I’m paying for change. So, I say, let the speculators speculate, and the gougers gouge. Maybe if the market had been left to it’s own devices, we’d all be driving hybrid cars by now. A tad idealistic, perhaps, but we couldn’t be worse off than we are now, that’s for sure.
Mostly, the speculators involved are hedge funds, who invest in money markets, currency markets, and commodity markets from a removed position. These speculators have little or nothing to do with the actual production and movement of oil from one place to the next, nor do they have anything to do with the value-adding process, but are the money behind all of it.
http://news.bbc.co.uk/2/hi/business/4296812.stm
http://www.slate.com/id/2125900/
http://news.bbc.co.uk/2/hi/business/4223573.stm
Keep in mind that this backlash does not necessarily mean any change in demand.
Even if the price spike is completely unrelated to natural disaster.
For those unfamiliar, the Kyoto Protocol is an agreement spearheaded by the United Nations to control and reduce emissions of carbon dioxide and five other greenhouse gases across the globe. It was not ratified by our president, and I for one do not blame Bush for not signing it. There is/was no way we as a nation could live up to the standards even with drastic changes, and there is no point in signing into an agreement which you cannot keep.
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| I wrote this in May, and the initial goal was to create a blog specifically for these type of writings, and maybe some day be one of those blogs that they reference in the news... but alas I was too lazy to write this and try and be a webmaster, so it never made it anywhere. But I thought it would be a waste to just have it sit on my hard drive, so I've been meaning to post it on here (in leu of anything meaningful regarding my life I guess). It's rather long so I'll post it in two parts. Here's the first:
So gas prices finally went down this week. Most likely due to the efforts of our current administration to do something that I as a hard-line liberal economist hate to see them do… meddle in the free market. They’ve done so by halting the replenishment of the nation’s emergency petroleum reserve, and hence I’ll save about $0.42 on my next fill up. Thanks, government. That 42 cents was definitely worth risking such a valuable resource that we’ll desperately need in case of major natural disaster or economic collapse. It’s these kind of short-term solutions that have led us to our current situation. Here, I’ll prove it to you.
First of all, we must start at the top. The question, “why are gas prices going up” has yet to receive a satisfactory answer from just about everyone in the media, government, or on the street in the first place. This is true, most likely, because the real answer is not something that the American people want to hear either from politicians or from the media. The real reason why gas prices have gone up so much in the past year or so is because they can. And in my personal opinion, if they can, then they should. Stay with me here, I’ll explain.
Thus far, I’ve heard many reasons for why fuel prices have gone up recently. Most of them political, and few of them explain in depth the economic factors behind the actual change at the pump. The most popular of these is that the Chinese have in recent years, months it would seem, increased their need for oil and petroleum products considerably. Although this is a definite statement, as the introduction of wealth into Chinese society (you can thank or rebuke global markets for this) has brought along with it a number of people who can finally afford to drive to work as opposed to taking the subway or a bicycle. However, it would seem an insufficient explanation to qualify the almost 50% increase in the price of gasoline in the past two months. There’s no way that that many Chinese have bought cars in the past few weeks and their consumption has had such an immediate effect on my wallet. It simply doesn’t work like that. Global economics is a slow process, slower than most can stomach. And that’s part of the whole doggone problem. But I’ll get there. Patience, people.
Another reason I’ve heard quite a bit, which would seem to be a much more timely response to our current situation, is the political situation in both Nigeria (unbeknownst to me previously, a significant oil exporting country) and of course Iran. From my understanding, the current questions about the future of the United States and our relations with Iran have caused speculators (“the man”) to get a little hot under the collar, and as a result they have decided to buy as much crude and petroleum products at the current market price as possible.
Let me go deeper on this point. OPEC (hope you all are familiar with this collusive organization) has held to the statement recently that they have not increased their agreed price per barrel of oil. These are the guys who have the liberty to basically set the price per barrel of oil anyway. This means that the price increase that we’ve all seen on the CBS evening news is the result of some in between third party (the speculators) who buy and sell the oil in mass quantities from oil exporting countries. These third parties are evaluating the current political turmoil and are arriving at the conclusion that because our diplomacy- impaired president has for some strange reason allowed someone in his administration to even utter the phrase “use of nuclear force” (a statement alone that makes me want to buy up all the Twinkies I can in case of impending nuclear winter), we simply may not have Iran as an oil exporting option in the near or far future. So get the goods now, at the cheapest price possible, because it will be worth much more in the future.
It makes perfect sense, and is a completely reasonable reaction. Yet like clockwork these speculators are painted as some evil faceless market force that are acting with complete disregard for the rest of humanity. As if any Joe Schmo on the street wouldn’t respond the exact same way if he knew that something valuable to him was about to go up in price. As if all the people who go to the local convenience store and fill up every one of their cars and gas cans and mason jars with gasoline the day before a price hike aren’t acting out of the exact same motivation as the “speculators.” I digress.
Still, from an economic standpoint this would seem a much more satisfactory reply to the query, “why is gas so (insert expletive) expensive?” Nevertheless, it doesn’t tell the whole story. Why, for instance, has the price at the pump increased in disproportion to the price per barrel of oil? And also, why is the price going up even when a shortage of crude oil is completely speculative? A question begged mostly because of the last time our country experienced such a drastic change in the price of petroleum: the oil embargo by OPEC of 1973.
To a certain extent I have answered the latter of these questions. Regardless of current crude levels, whether we like it or not prices are determined by demand, and in the case of oil today, demand for it has a lot to do with what could or could not happen. This is okay for a couple of reasons. One, because these speculators are buying or investing in so much oil now, they have or will soon satiate themselves and will no longer be able to invest further, or because the price has increased so much it will no longer be a wise investment. This means that prices should stabilize before too long, because most simply the speculators will no longer be buying (investing in) oil. All of this speculation that has altered the demand so drastically in the short term should mean a dip or at least a leveling out of demand in the longer term, and this should mean that once prices level out they’ll stay that way for a little while. And what if all of this nuclear stuff blows over with Iran, and things settle down in Iraq and Nigeria and Venezuela, and the price of crude actually goes much lower than what it was a few months ago? Well, then all those speculators who incorrectly speculated will be out a whole lot of money, and we can all enjoy a good laugh at their expense. Right?
So then, what about the former question: the one about the disproportionate change between crude oil prices and the price per gallon of gasoline? The answer, unfortunately, is only more complicated. The thing about gasoline that I think we often forget, is that it in order for it to actual get into the your vehicle and mine, it has to go through any number of expensive and difficult processes, let alone the sheer distance it must travel just to reach us, and the number of hands it must pass through. The bottleneck in this chain is the process that has the most direct effect on the price we pay at the pump: the refining process.
In this country a new refinery (the place where the crude oil becomes the gasoline stuff that we actually can use) hasn’t been built since the aftermath of the last energy crisis of the 1970’s. We have increased the amount of refined product that we import, but even this is not enough to curb an inevitable price increase, nor is it a great solution to “decrease our dependence on foreign oil” which we’ve been so exhorted to do. There are a few reasons why no one has been bold enough to build and run such a seemingly lucrative venture. Refineries pose a large risk to investors because of their steep startup expense, the difficulty in finding a community willing to welcome a refinery in to pollute their town (and incidentally employ hundreds to thousands of people), and also the ridiculously competitive market conditions. The refining industry currently is so competitive because, as with most industries with little threat of new entrants (especially after thirty years), any number of mergers and acquisitions has left refining with only a few, very powerful companies that control most of the market. In fact, since the 70’s, “the fashion for American refineries was not to build more, but to close existing ones.”
I found an article by Daniel Gross of Slate to be very helpful in explaining the refining business. He states, “Huge integrated oil companies such as ExxonMobil have refining operations. But the independent refiners like Valero and Tesoro are relatively anonymous. Since they occupy a spot in the middle of the supply chain, they don't have well-known consumer brands, and they don't make news by hitting big strikes of crude. Instead, they're involved in a tough, low-margin, and capital-intensive processing enterprise—turning crude oil into gasoline or heating oil.” I myself had never heard of either of these giant multi-billion dollar corporations until I started work in the diesel fuel industry.
Refiners in recent months have finally wised up to the power that they have over the market, and the potential profit to be made therein, and this explains the disproportionate change between pump price and crude price. When you talk about price “gouging” (a ridiculous term that describes what happens when a fuel vendor actually tries to make a decent margin off of the sale of petroleum), these guys are the most likely perpetrators. And Hurricane Katrina opened the door for it.
You see, the lack of new refineries being built in the past 30-odd years seems counterintuitive, even given the market conditions. For instance, the airline industry is incredibly competitive, but look at how many upstart companies we’ve seen come and go over the past 30 years. It would seem to you and me that in the refining industry there is a lot of money to be made, because there seems to be so little supply for so much demand. But, in fact, refining supply has typically exceeded the demand in our country for it. So, before Katrina, one mechanism of these refiners to increase margins was to curb supply, and they did so by shutting down existing refineries. What Katrina accomplished, in effect, was to knock out the refining capacity of a few companies, but not all companies. This hurt some refiners, but for some it meant larger margins, larger than they’d ever seen. And in the business world, where CEO’s and analysts are constantly comparing month-to-date numbers and year-to-date data: what goes up does not necessarily come back down.
The result has been a change in the basic threshold for pump price and rack price (the price at which our gas stations purchase gasoline). We’ll never see prices fall below $2 a gallon again. Face it. Refining capacity that was knocked out by the hurricanes is now back online and running full out, but the margins haven’t changed. Everyone was outraged by Exxon/Mobil’s posted profits in 2005, and part of this was the result of a tripling in their refining profits. So, one might call this gouging. Taking advantage of an unfortunate situation in order to permanently increase profit levels. Perhaps this is an example of the evils of capitalism showing its true nature. But, I for one am not too bothered by this so-called gouging, and I’ll tell you why.
If the price of anything can go up and mean an increase in the revenues of the producer, then the price should go up. In most cases in our economy, price increases happen very marginally. Obviously, Katrina and Rita created a very drastic change in price. But the most recent price spike in fuel prices is not the result of some exploitation of an unfortunate situation. Today, petroleum price only has the capacity to jump sky high because of our government’s meddling to keep the price unreasonably low all of these years and the artificial demand conditions this has wrought. Not only have the actions of our government left room for crippling price increases, but they have adversely influenced the American psyche.
to be continued...
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| we sang this yesterday, and although I'm not a huge fan of the tune, the words were pretty rockin'.
What a Friend we have in Jesus, all our sins and griefs to bear!
What a privilege to carry everything to God in prayer!
O what peace we often forfeit, O what needless pain we bear,
All because we do not carry everything to God in prayer.
Have we trials and temptations? Is there trouble anywhere?
We should never be discouraged; take it to the Lord in prayer.
Can we find a friend so faithful who will all our sorrows share?
Jesus knows our every weakness; take it to the Lord in prayer.
Are we weak and heavy laden, cumbered with a load of care?
Precious Savior, still our refuge, take it to the Lord in prayer.
Do your friends despise, forsake you? Take it to the Lord in prayer!
In His arms He’ll take and shield you; you will find a solace there.
Blessed Savior, Thou hast promised Thou wilt all our burdens bear
May we ever, Lord, be bringing all to Thee in earnest prayer.
Soon in glory bright unclouded there will be no need for prayer
Rapture, praise and endless worship will be our sweet portion there.
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| - Two Way Actiondang, people. It's been a crazy good week.
- I got promoted. Already. And the best part of all of it is that to congratulate me my brother gave me a $100 gift card to Ruth's Chris. Which means that I get to take my beautiful girlfriend to the classiest joint in town, a place I've always wanted to go, and still be a good steward of what's been given me! About the promotion. Basically it was inevitable given the current structure of the company, and there's not really any where to go from here, but shoot, I didn't expect it so soon. I'm now working with trucking companies in Missouri and Southern Illinois, so if you know of anybody, be sure to hook me up. I can save them some money, I swear.
- I ran four miles straight at a seven minute/mile pace. booyeah I'm getting in better shape
- I took my car in, the 1990 Pathfinder with 202,000 miles on it, to the Nissan dealer here for their promotional 100 point inspection where they nit pick and find everything wrong with your car that they could potentially extort you for... and guess what they found wrong? nothing. hallebooyeah.
- I got to see Steve Garber speak and talk to him a little bit. Matt was right, he's kind of touchy feely. But a nice guy nonetheless.
- I watched Dogville and had pretty amazing discussion about it with my girlfriend. If you haven't seen this I would highly recommend it. Prepare to be offended and perhaps weirded out by the set (or lack thereof). But give it a chance... I think it reveals some pretty profound things about the human condition that would be understated with a proper set. I was surprised by how dead on the whole thing was. Worth a gander.
- I'm through week two of tutoring an Iranian refugee family in English. It's been a struggle, because they don't really speak a lick, but I'm getting to use all my non-verbal communication skills that I honed overseas.
- I made quota this month!! And I got paid. You only get paid if you make quota. Just kidding.
- I'm going to the Nashville Predators game on Sunday! My first playoff game of any sport ever. I've been to a bowl game before but I don't feel like that counts. My boss had an extra ticket, and it was only $40 which is a bargain for club level seats.
So yeah, definitely a pretty blessed booyah week.
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