$4 Gas and Fragile Finances

Right now, as I look at AAA’s Daily Fuel Gauge Report, the nationwide average for a gallon of regular unleaded gas is $3.53. Just one month ago, it was $3.12 per gallon, a $0.41 jump.

I’m lucky – I work at home. My wife is at least somewhat lucky – she commutes in a fully-paid-for car that gets 45 miles to the gallon. The rising price of gas isn’t crunching us much at all.

Yet.

Of course, I’d also have to be blind not to see some of my Facebook friends already talking about how it’s a struggle for them to hit the gas pump once a week and have to drop an additional $10 to fill their tank that they barely have. Examples of such comments (often tongue-in-cheek, of course):

Move over Weight Watchers, there is a new way to lose weight. It’s the “I can’t afford to buy groceries to feed myself because I just filled my gas tank” diet. And its companion plan – “I’ll Be Walking Soon – So I’ll Really Peel Off the Weight”!

Just filled up my gas tank. Just emptied my wallet.

Gas in the tank or food on the table? I’ll fill up, but it’ll be beans and rice for a week!

While these folks are taking the rise in gas prices lightly (for now), there’s certainly a real worry underneath all of these statements. How will I make ends meet if the price of gas continues to rise?

Yes, it’s easy to say that such a concern is the result of fragile finances. If your apple cart is upset by a small rise in gas prices, the logic might go, then you’ve not been making reasonable financial choices.

The reality of it is that many people are in that very situation. They’re not making much income – or they’re unemployed. Their debt load is heavy enough that the income they do make is gobbled down by debt payments. They have a larger family than their income can really handle.

It’s not just the dollars you pay at the pump, either. Rising gas prices mean it’s more expensive to ship things across the country, which means that the price you pay for everything at the grocery store goes up because the cost of getting it to the grocery store goes up.

What can you do if you find yourself in a situation where rising gas prices make you nervous about making ends meet over the next month or two?

First, buckle down when it comes to frugality. There are countless little steps you can take to shave your spending, both active (making better choices, like choosing not to drink alcohol and drink water instead) and passive (permanent money-saving measures, like installing a programmable thermostat). I find that the active ones are more exciting but harder to sustain, while the passive ones are less thrilling but always stay in place, so try doing as many as you can of both kinds.

Second, don’t immediately spend that savings. If you make some good spending moves over the next month, you’ll probably start to see the proceeds from that in your checking account (or, at the very least, find yourself able to deal with rising gas prices). Don’t give into the temptation to spend it after being “good” all month. That’s completely self-defeating.

Instead, put that money into a savings account and forget about it (for now). It’s now your emergency fund. It’s the money you turn to when the chips are down. It helps bail you out when the transmission fails in your car. It’s how you put food on the table when you’re laid off. It’s what you turn to when you need a down payment on a replacement for your current car or a deposit on a new apartment.

I usually encourage people to build up $1,000 in their emergency fund. For many, this seems like an almost insurmountable task. But if you can shave just a few dollars a day from your spending on average, you’ll get there. If you can trim your monthly energy bill by $30, cut your monthly food spending by $20, cut down on your frivolous impulse buys by $20 per month, and trim your spending on gas by $10 a month by driving more thoughtfully, you’re saving $1,000 in a year.

Even better, if gas continues to go up, then you’ve got $80 or so a month of extra breathing room in your monthly budget.

Having stable personal finances isn’t simply for the rich or for the lucky or for the “good people.” Anyone can do this stuff if they choose to. You do not have to be caught in a situation where the whims of the oil market make it difficult for you to put food on the table. It’s your choice.

If you enjoyed reading this, sign up for free updates!

Loading Disqus Comments ...
Loading Facebook Comments ...
  1. Personally, I welcome an increase in the price of gas in the US. It will push us towards eliminating our dependence on foreign oil and prepare us for Peak Oil…something our elected officials seem to be ignoring in hopes that “science” will solve the problem so they don’t have to deal with it, since such a move is practically political suicide today.

  2. Brandon says:

    Mmm, delicious generic advice. Is this a repost from 2007 with some numbers changed?

  3. krupa says:

    I unfortunately have to drive 30 miles to work one way so the recent increase in gas prices has been hurting me. I do have a bit of a lead foot and it has gotten worse since I started working so far because I just want to hurry up and get home. I was filling up my tank twice a week between having to go to work and running errands and such.

    So I decided to do a bit of an experiment this week and see if all that advice about getting better gas mileage would work. I tried to reduce the amount of errands and trips to the store. I’m a couponer so that meant passing up deals that got posted in the middle of the week unless they really were a great deal. I also went no faster than 65 on the interstate. I also tried to stay in one lane and not switch too much. So far I have amazing results. I am still on the same tank of gas since Monday. I will have to fill up tomorrow to get to work and go grocery shopping over the weekend but a tank and half as opposed to the two tanks in a week will save me about $20. Plus by driving at or under 65 my chances of getting a ticket are greatly reduced.

  4. Andrew says:

    Just be sure you buy the right kind of of programmable thermostat and install it properly, or you’ll be paying your friendly neighborhood electrician for an emergency call.

    Seriously–it’s electricity. Be careful.

  5. Johanna says:

    And even if your “apple cart” is stable for now (mmm…apples…), you can start looking at ways to make your life less vulnerable to fluctuating gas prices. Next time you buy a car, keep fuel efficiency in mind. Next time you look for a new job or a new home, keep the length of your commute in mind. Ask your boss now whether telecommuting once or twice a week is an option for you. Start asking around now to see if neighbors or coworkers are interested in carpooling or combining errands. Get involved in making your town safer for pedestrians and cyclists. And so forth.

  6. Matt says:

    If the gas prices hurt, try walking or biking for some of your errands. This obviously doesn’t work for those in truly rural environments, but if you live in the city or suburbs chances are you can eliminate at least a couple car trips a week – and those short trips are the ones that use fuel least efficiently. Take a look at where you drive – it’s likely you drive places that are less than a mile or two from your house, and those distances are easily walkable or bikeable in all but the hottest/coldest weather.

  7. Nikki says:

    I just received a car for free (a thank you for some advice I gave to a very wealthy person), after living without one for about a year. The car is a 1998 Lincoln Continental, V8, with only 31,000 miles on it.

    I know I sound ungrateful, but I wish the person had given me the cash paid for the car instead. But, if I ever have financial troubles, I have something I can sell for cash before I have to dip into my savings.

  8. kristine says:

    Steve- I agree with you entirely,

    Gas prices have been artificially supressed for a decade as we were the main market. (Europe pays much more-hence the smaller cars). Now that China is going auto big time, our prices will rise as we stop being the biggest customer in town.

    That and overall destabilization of the mideast, and a finite supply that can no longer meet demand… and well… I find Kunstler’s The Long Emergency paints a plausible picture. I think the fluctuations will become an upward trend, then eventually the new norm. A major rethink of transportation and commuting is in order.

  9. Interested Reader says:

    Not just a rethink of transporation but we also need to cut back/rethink all of the peteroleum based products. Obviously the rising gas prices are on everyon’s mind but oil is used for other things besides gas.

  10. eva says:

    Try walking or biking. But in some places, that’s not very possible–because many of our cities and suburbs were built with the assumption that everyone would easily be able to use a car. So very little attention was paid to making places where you can comfortably get around without one.

    So I would also urge everyone to get involved in local government and make your community less car-dependent. Write to your representatives–or better yet, join your local planning/zoning committee or board–and support efforts to create the kind of streets and neighborhoods that are safe and comfortable to walk and bike on, which have local stores and groceries, and schools close to homes. It is amazing what a few street trees and changes to speed limits can do, and these are decisions you can influence.

  11. lurker carl says:

    Egads, another useless recommendation for a programmable thermostat. EPA’s EnergyStar program suspended recommendations for them in December 2009 because in-home usage studies show they actually increase energy usage.

    Excised from “ACEEE Summer Study on Energy Efficiency in Buildings” by UC Davis, commissioned by Florida Power and Light:

    “Most notably, results included the conclusions that 1) day-setback programmers produced
    both 25% higher demands and higher curtailment impacts than non-setback or manual mode
    users in both summer and winter; and 2) programmers used 12% more energy than nonprogrammers, counter to the traditionally held benefits of programmable thermostats. Indoor
    temperature data, gathered at the thermostat, provided new insight into a key reason for higher
    energy use among programmers.”

    “The EPA Energy Star program cites other evidence
    that programmable thermostats do not result in reliable energy savings and can result in
    increased energy use. As a result, Energy Star suspended its labeling of programmable
    thermostats on December 31, 2009. In May 2009 the EPA notified programmable thermostat
    manufacturers that “EPA has been unable to confirm any improvements in terms of the savings
    delivered by programmable thermostats and has no credible basis for continuing to extend the
    current Energy Star specification.””

  12. valleycat1 says:

    Although our household will be able to absorb the higher gasoline bills (we’re in California where a good price is almost $4.00/gal), the real problem is that almost everything will be more expensive due to increased transportation costs. Grocery items are already showing the impact, and we’re looking at much higher airline ticket costs than we’d planned on for a summer trip we can’t postpone.

    I agree with Trent that we’re better off anticipating those increases (I had just been thinking last week about taking a new look at our budget now that this has developed) and planning ahead instead of acting all surprised when we come up short at the end of the month.

  13. KC says:

    I hate to say it but I look forward to $4 gas. My car gets 32mph on the highway (we won’t discuss city mpg :) But last time prices were that high there were fewer cars and especially tractor trailers on the road. People also slowed down – they didn’t drive their cars like they stole them. It was actually sane out there.

    I realize there are economic impacts, too, food prices jumped and so did services t hat required companies to use fuel. Funny how those temporary gas surcharges didn’t go away. But this is something we need to be prepared for. The days of easy oil are gone. You can’t just drop a drill on dry earth and find oil. You have to extract it from underwater or from sands. The easy oil reserves are in many places with unstable leadership and our addiction to oil makes them stronger and more bullyish. It’s a never-ending cycle. But it’s something we need to get used to cause there is more to come.

  14. Steve says:

    I have encountered a couple instances of this recently, where I bit my tongue rather than point out the fragility of someone else’s finances. One was someone who works for the state and couldn’t handle the soon to be imposed furlough. (Granted, a single two week block without pay is pretty rough – most people would have an easier time with 1 unpaid day a month instead.) The other was someone who was complaining that someone stole his lunch out of the fridge. Now granted, having your lunch stolen is lame, but if one lunch is enough to tip you over the edge into the poorhouse… maybe you need to take a look at what you’re doing wrong.

    @lurker carl – I had not heard that about programmable thermostats. More information please!

  15. Tracy says:

    @Steve

    I don’t know that I’d consider either of those fragile finances, though. If I suddenly wouldn’t get paid for two weeks, I wouldn’t go broke and I wouldn’t be charging anything, but it would *hurt* – I mean, literally unless you are saving 50% of your net income every month, you’ll be dipping into savings to some extent in order to make ends meet. (In the situations where I’ve heard about this happening, people have had some warning but a matter of a few weeks or months)

    And the second one – maybe the person was actually like ‘I can’t afford lunch’ but it’s probably more likely they were just mad that their lunch was stolen, because when their lunch was stolen, that person stole more than food, they stole time and trust.

  16. After reading the comments, I’ve got to agree with the majority of people here in saying that Trent missed an opportunity to discuss the challenges real people face with rising oil prices…it’s a good thing Trent has many astute readers who can fill in the gaps. To me, a discussion of rising oil prices isn’t complete without hitting on Peak Oil right out of the gate. In order to counter the effects of Peak Oil, as some have suggested, get involved with local politics and find local solutions to local problems. Our system was NOT established to be free of oil, and our communities are heavily dependent on oil for their survival. When the days of cheap oil come to an end, it’s going to cause huge problems for people in these places.

    Trent, as someone mentioned above, James Howard Kunstler is a great voice in the issue of Peak Oil. I’d suggest you check out his work. It might open your mind to future articles to combat Peak Oil in a meaningful way instead of (again) installing programable thermostats…that one’s about as worn out as the homemade laundry detergent.

  17. Caz says:

    This is annoying because the USA pays FAR less for petrol than anyone else. We’re regularly paying $1.20-1.50/L or upwards of $6 a gallon in Australia and somehow we can afford it and/or budget for it. Our dollar is even higher than the American currently so that argument is null. Considering how much oil the USA needs, it shouldn’t be paying a far cheaper price for it than everyone else. Maybe it’s just time American’s realized what things actually cost and payed for them in full.

  18. cv says:

    I have to laugh when Trent talks about saving on energy bills – it’s so clear that he writes from the perspective of the owner of a single-family several-bedroom detached home in a place with harsh winters. My electric and gas bill combined has never been over $50 per month, and it’s often more like $35, including heat, hot water, gas stove/oven, and electricity. Rent in this area (San Francisco) is astronomical, but at least the utility bills are cheap.

  19. Jules says:

    Yeesh. So much for the American Dream. Now that the government is broke, people are going to find out just how much of the white-picket-fence-two-cars lifestyle is subsidized, directly or indirectly, as costs of living go up.

    And the funny thing is, I’ll bet they still vote Republican.

  20. Des says:

    @Caz – While I totally agree with what you’re saying, it is more than just getting used to higher prices. Our infrastructure has been set up based on cheap gas prices, and it takes time to update infrastructure.

    I don’t know about Australia, but I visited family in the UK recently, and transportation is just different there. We walked everywhere. And even when we drove places, we parked and walked around. It was no big deal, because everything was set up for walking. Buildings were near one another, and there were sidewalks. It was safe, and easy. We were in Cambridge, which is the same size as my city (Eugene, OR) and is a college town like mine, so it is a reasonable comparison.

    For that very reason, I’m all for increasing gas prices. I would love it if we could walk and bike everywhere rather than drive.

  21. Mary says:

    After seeing what gas prices are now (3.59 and there’s still snow on the ground here in WI! I find that very depressing), I decided to use my tax return wisely (though I’m sure some people might disagree) – I bought a moped! My current car (94 Buick Century) is a beast to drive around and gets just above 20mpg. I knew I needed something to just get around town to get to work/school. All I hope for is lots of sunny days and spring to get here soon so I can drive it! It’s gonna be fun. :)

    I also agree that high gas prices are somewhat needed in order for alternative energies to really ramp up in research and development. It sucks, but gotta start somewhere.

    And Trent is right about getting $1000 saved up in an emergency fund – it didn’t take long for my boyfriend and I to rack up $1k, in a matter of a few months. Granted he was throwing a lot into it while still paying off debt, but still. It helps when you have it automatically deducted and somehow you magically forget that money’s there. You then check your savings after two months: WOW I have a lot saved up! Then you just want to make that number go higher. :)

  22. lurker carl says:

    The EnergyStar decision in a nutshell.

    In-depth, real world studies are finding that changing thermostat settings over a 24 hour cycle uses more energy because the building and contents change temperature along with the air. By the time the HVAC system equalizes air and contents temperature, the thermostat changes and shuts off the HVAC to begin the temperature change cycle again.

    It’s the same principle that makes a full refrigerator/freezer more efficient to operate than empty – the contents help keep temperature constant and reducing the need for frequent compressor cycling to maintain temperature. Shutting off the fridge for short periods of time does not allow the appliance operate efficiently.

  23. valleycat1 says:

    #14 Steve – The funny about money blog had a post within the past 6 months or so about her switch to a programmable thermostat & her subsequent higher energy bills – she lives in AZ. I’ve always heard the theoretical arguments but never any hard evidence one way or the other. I recognize that her story is just anecdotal evidence of one person, but tend to see how it can make sense.

    We have programmables in the building I work in & people are always overriding the settings, or the settings get out of whack (probably when people are trying to figure out how to override temporarily) & I don’t see much difference in heating/cooling usage. People get too hot or two cold & override. Or, if you’re somewhat comfortable, you don’t tweak it to make it better.

  24. Nancy says:

    If you have an interest in fuels read The End of Oil by Paul Roberts. It gives an interesting account of the history of fuel that makes it a page turner. I got it at my local library. Good read.

  25. Troy says:

    Here is how I read the post.

    Gas prices are going up. Doesn’t affect me because I am so smart I bought an overpriced hybrid that gets high mileage.

    A lot of other dumber people are being affected because they don’t drive an eco bumper sticker, don’t have savings, drink, or don’t have a programed thermostat.

    The consistently increased laziness and condescension of this blog is impressive.

  26. almost there says:

    I welcome the higher fuel prices as it will increase the chances of selling my 08 Honda fit sport that I’ve listed on eBay.

  27. spaces says:

    I’ve been thinking of selling my 2006 Scion xA and getting into something slightly bigger because I am about to have a second kid and it’s kinda cramped in the front seat with two car seats in the back seat. Bring on $5/gallon and make my 40 on the highway something truly notable!

    Seriously, tho, if you’ve arranged your life such that you’ve bet on gas prices staying low, I don’t have a lot of sympathy for you as you haven’t been paying attention.

  28. Claire says:

    Currently in the UK at today’s prices, and exchange rate, petrol is $9.67 a gallon.

    Whilst it is true that many cities have better infrastructure than US cities with regard to public transportation , many other areas are not linked by good transport. Cambridge is an excellent example, being a University town in Fenland (i.e. land is perfectly flat for miles). The centre of Cambridge is very old, and totally unsuited to cars. When cyclists reach a critical mass, there seems to be an incentive for people who would not normally cycle to get a bike.

    However, the average mileage each year in the US and in the UK is approx the same at 15K per year, so on average, we in the UK are paying about 3 times as much for our transportation.

    Most of what we pay is in tax, to fund our NHS and schools, which I support, but that’s not a discussion I want to veer off into here.
    Best Rgds
    Claire.

  29. I just did some calculations and here in the Netherlands we’re paying a whooping $8.89 per gallon. Just putting things in perspective.

  30. Claire says:

    oops – hit return too soon.

    wanted to add that not every city in the UK has Cambridge’s advantages when it comes to being suited to cycling. I live in Edinburgh, freezing cold, and built on Seven Hills (like Rome :) ).
    Even up here there is a thriving cycling community, so it can be done.

    I believe that Portland is great for in town cycling though, so maybe the infrastructure exists elsewhere in the US as well.

    Best Rgds.

  31. Ben says:

    You guys have a long way to go. Your petrol is somewhat subsidised (subsidized for US). In NZ and a number of other countries it’s heavily taxed. Currently in NZ we pay about $5.90 US dollars per gallon.

  32. marta says:

    We pay about 7.60 per gallon, so I really have a hard time feeling sorry for you. I do hope you catch up soon with the rest of the world!

  33. Sandy says:

    Well said Ben!I was gonna say ours is over $2 a litre here…..

  34. Jeroen says:

    I’ll join the rest of the foreigners in stating that currently in Belgium, the cheapest kind of fuel (diesel) is at 1.3 EUR per liter (non-diesel fuels are around 1.6 EUR. In dollars, that’s between $6.77 and 8.36 per US gallon.

    (yes, I know our distances are shorter, cars smaller and public transport better, but high gas prices are one of the reasons that we have these things.

    On the bright side: every time fuel gets more expensive, other forms of energy become more viable.

    BTW: Peak Oil has been debunked by most economists (rising prices means less demand and rising prices make oil that is currently too expensive to get at suddenly viable.) This means that peak oil will be a slow process we can easily adapt to.

  35. deRuiter says:

    Thank you #11 Carl! A breath of reason in an overwrought world! A lot of the well meaning government programs have unintended consequences, like the curly light bulb which if broken require a hazmat clean up and puts all that NASTY, TOXIC stuff in the landfills to leach into your drinking water that regular bulbs don’t. Consider that as cars get smaller and lighter, more people are maimed and killed in car crashes because there is no protection around them. I’m content to get less mileage, and be safer in case of a crash. Figure that any one in a tiny plastic car like a metro gambles that there will be no crash. Good luck!

  36. deRuiter says:

    We need to drill in America, drill everywhere, and drill often. The Bakken Shield is LOADED with oil. America could be self sustaining in oil if the environmental wackos didn’t insist we use only foreign oil where the drilling isn’t done as safely and environmentally carefully as America. Maybe with more Republicans in positions of authority and an election in 2012, we will again have many good oil drilling jobs in America to stimulate and cheaper prices for gas to stimulate the exonomy the correct way, without the non stimulous where the government takes from the productive and gives to the non productive so the economy continues to stall. Vote Conservative and get cheaper oil!

  37. Telephus44 says:

    lurker carl, thanks for the information on the programmable thermostats. We have them, mostly because when we bought our house, it had the super old mercury thermostats, and since we have children wanted to get rid of them, and programmable seemed the way to go (plus, to be fair, they really aren’t that expensive and are easy to install).

    I’ll have to think of some way to test whether they actually cost us more of not – being in New England, we have very inconsistent heating needs, but I’m curious.

    And on the high cost of gas – count me as another person that kind of welcomes it. I convinced DH to buy a small Honda Civic to replace his SUV in 2007 (right before the last spike in gas prices) and we are really glad we did. I wish more people would drive fuel efficient cars, use more public transporation, car pool, walk, etc. And high gas prices is one incentive to do that.

  38. Kevin says:

    Just ran the numbers. At today’s exchange rate, we’re paying the equivalent of $4.62 USD/gallon in Canada.

    I agree with the others – US gas is incredibly cheap, in a global context. I have no sympathy. This is just the US finally catching up to the rest of the world. Looks good on you.

  39. VickiB says:

    deruiter – you are not wrong, but a middle ground is needed. Here in PA, we have the whole Marcellus issue going on. It IS relevant because there are many transit and public vehicles that run on nat gas – so it is conceivable that this energy source may be utilized privately as well. But there seems to be NO middle ground. Our current Repub Gov refuses to listen to any taxing on the shale, like they do in Texas, for instance, that could be used for clean up, oversight, safety, protection of water supply. The greenies, conversely, will hear NOTHING but NO DRILLING !! NIMBY !!! So here we all are, worried about Libya, Iraq, Eqypt, and other places which would otherwise be a pile of sand. In Pittsburgh, no compromise, drilling banned. And here they sit with a catastrophic deficitin their pension obligations and lots of brownfields where maybe they could drill. If we are EVER to end our energy dependence (and EVENTUALLY get to all renewables – we just aren’t there yet), we need COMPROMISE – not heated rhetoric. To the greenies – this WILL involve using our OWN natural resources. To the Repubs – there MUST be strict oversight, we CANNOT have whole mountaintops coming off or our waters polluted. It is sad that a third world country like Brazil has the public resolve, even with THEIR OWN oil to push towards alternative energy, and in the US it’s all left and right rhetoric and nothing gets done !

  40. Ryan says:

    deRuiter, are you talking about the minuscule amount of mercury that may be released if a CFL bulb breaks? That’s hardly something to worry about. The bulbs last for years, drastically reducing the chance of breakage since they aren’t being handled. I don’t have a link right now, but I’d venture that burning more coal to make more electricity (for old style bulbs) releases just as much or more toxic compounds. And don’t landfills have barriers between the ground and water supply?

  41. Andrew says:

    All the programmable thermostats and reused Ziploc bags in the world will not make a difference unless this brain-dead country of ours gets serious about facing the future. Not only with energy policy but across a broad spectrum ranging from education to infrastructure all we do is sit around on our fat rear ends and complain. Sooner rather than later this will catch up to us.

  42. Johanna says:

    “Vote Conservative and get cheaper oil!”

    And with that, deRuiter becomes a parody of himself.

  43. Johanna says:

    (…or maybe conservativism becomes a parody of itself. It’s hard to tell.)

  44. Josh says:

    Gas in the U.S. is not subsidized, it is taxed, just not taxed nearly as heavily as Europe and some other parts of the world.

    If anything, gas is artificially inflated in Europe. Personally, I think that is a good thing to help keep demand down and support other forms of transit, and think the U.S. should raise the gas tax, but chances of that happening are pretty slim.

  45. jim says:

    lurker carl, my understanding from what I can find is hat EPA discontinued the energy star program for programmable thermostats. They did so apparently because the thermostats can be complex to setup and some people ended up using them wrong and used more heat. Or people may incorrectly assume that a programmable thermostat will magically save them energy and then crank the heat up. I have not seen any studies that showed that proper use of a programmable thermostat used more energy. If you have links to such studies then please share. All the academic studies I’ve heard of say turning down your heat uses less money.

  46. jim says:

    The key reason that gasoline is much cheaper in the USA than most other countries is LOW TAXES.
    Compared to most countries our gasoline taxes are very cheap. The gasoline tax in the USA is about $0.40 / gallon on average. Thats about 11¢ per liter. The tax is a fixed rate /gal and there is no general sales tax or VAT added.

    Compare that to the Netherlands where the gas tax is about $3.5 per gallon PLUS 19% VAT on top of that. Thats about $4.2/gal in taxes alone.

  47. Miguel says:

    “Gas in the U.S. is not subsidized,”

    What do you think that little adventure of ours in Iraq is, besides a massive failed try to subsidy gas?!

  48. spaces says:

    Not to mention farm/corn subsidies = ethanol subsidies.

  49. Evita says:

    As usual, great comments to a bland, repetitive and borderline useless blog post!

  50. AnnJo says:

    The price of gasoline itself is approximately the same worldwide, since it is basically a commodity. (Distance from refineries and some differences in refinery regulation may vary the price a little.)

    The difference in prices at the pump is almost entirely taxes. Currently gas taxes (including state and federal)range from 18.4 cents a gallon in Alaska to about 65 cents a gallon in California. The federal part is 18.4 cents. In other countries, gas taxes can run into the several-dollar range and gasoline might also be subject to VAT taxes.

    For those people who believe all resources belong to the government, I guess you could say that gasoline in the U.S. is ‘subsidized’ by not being taxed higher, but otherwise, there’s no subsidy.

    Ethanol is subsidized, but ethanol is not gasoline but an additive to gasoline. Moreover, the effect at the pump of ethanol subsidies is about a wash with the negative effect it has on gas mileage. You save 2-3% in price but lose about 3% in mileage using ethanol-spiked gasoline.

    I can’t understand people who wish for higher gas prices; maybe they are annoyed that other people worship at different altars. But it makes no sense. If it’s actually possible to ‘run out’ of oil, the growing cost of extraction and decrease in supply will gradually drive the price upward, increasing the demand for alternative chemical and technological products, spurring innovation and driving down the cost of those alternatives.

    Artificially increasing the price early, though, is simply wasteful of resources, unless you think the things the government would spend the extra tax revenues on would add value to most people’s lives, which is doubtful. Or you think there’s some value in leaving unused oil in the ground for future generations after other technologies have replaced its utility.

  51. Johanna says:

    “Or you think there’s some value in leaving unused oil in the ground for future generations after other technologies have replaced its utility.”

    That’s an interesting way of saying “You acknowledge the reality of global climate change.”

  52. jim says:

    AnnJo: “unless you think the things the government would spend the extra tax revenues on would add value to most people’s lives, which is doubtful.”

    Most of the gasoline tax is spent on our highways. I think most people who buy gas would in fact consider highways to be useful.

  53. moom says:

    Peak oil does seem to be here more or less. New oil discoveries in recent decades have been much lower than in the decades before and though techniques for extracting more oil from old fields have been developed and improved there are limits to increasing the supply of oil. On the other hand, demand has soared in China and other developing countries. I don’t agree with those (like James Kunstler) who think Peak Oil will mean a collapse of civilization. But it will mean a difficult period while alternative energy and more energy efficient technologies replace the old ones. I also don’t agree that Peak Oil has been “debunked” as @Jeroen claims. I’m an energy & environmental economist BTW.

  54. jim says:

    Miguel said:

    ““Gas in the U.S. is not subsidized,”

    What do you think that little adventure of ours in Iraq is, besides a massive failed try to subsidy gas?!”

    No it wasn’t. You might argue it was a ‘war for oil’ but thats not a US gasoline subsidy.

    If you take the assumption that the Iraq war was all about oil prices then that doesn’t equate to a subsidy for US gasoline prices. Oil is sold on the open market and then converted to gasoline in refineries. If Oil prices are impacted up or down then that would impact oil costs worlwide and then have a direct impact on gasoline prices worlwide.

    But it would not be US specific. If we had in fact fought the war to keep oil prices down and that worked then it would keep oil prices down worldwide and not just in the US. It would then also keep gasoline prices down worldwide and not just in the US.

    A gasoline subsidy in the US would mean prices that are ONLY in the US. Cheaper oil means cheaper oil for everyone and cheaper gas for everyone.

  55. Ash says:

    Count yourselves very very lucky. Gas prices here in Ireland are €1.50 a liter about $9.38 in Gallons, if my calculations are correct. The prices are much the same in other parts of Europe and slightly higher in Britain.

  56. David says:

    “Peak Oil has been debunked by most economists” (Jeroen)

    This is alarming news indeed, for the course of history (especially recent history) indicates that the probability of occurrence of a catastrophe is in direct inverse proportion to the number of economists who believe that it will not happen.

  57. marta says:

    “And with that, deRuiter becomes a parody of himself.”

    Indeed. But I think that should be “herself”.

  58. David says:

    No, no. “Themselves”, perhaps, or possibly “itself” (perhaps even “zitself”, if “zie” is the nominative).

    Still, I do see what you mean: Johanna should not necessarily assume that merely because someone is an idiot, that person must be a man.

    In fairness, she has some evidence from my previous post in which I used one too many negatives and said the exact opposite of what I meant. But the fact that all men are idiots does not logically imply that all idiots are men.

    Some deconstruction: “Ruiter” is a Dutch word that meant “rider” in the sense of someone who sat on the back of a beast (usually a horse) and hoped thereby to get somewhere faster than by walking. You may wonder why this someone didn’t take out a mortgage on a Toyota Prius instead, but: [a] these had not been invented; [b] even if they had been, horses are a more environmentally sound mode of transport; [c] you can’t park anywhere in the Netherlands, as those who have been there will readily testify.

    “Ruiter” has some chivalric connotations: the important people who went about on horseback in the old days were knights (of the Round Table, Templar, and so forth). The knight in chess was called “de Ruiter” in Dutch until not all that long ago (nowadays it is simply called “paard”, which means “horse”). Whether or not our deRuiter thinks of zitself in those terms is unclear; I draw only the tentative conclusion from the length of its posts that – like the Beatles – it wants to be a paperback Ruiter.

  59. Miguel says:

    “I can’t understand people who wish for higher gas prices”

    Gas taxes, tolls, pay-per-mile taxe. Whatever. I just wished the US government started treating mobility like the Soviet Union did and started to make consumers internalize their external costs.

  60. AnnJo says:

    @Jim, I agree that highways are useful, but people who advocate a higher gasoline tax for the express purpose of reducing consumption of gas are unlikely to want to spend the money raised on highways.

    Your answer to Miguel was spot-on.

    @moom,

    Given your expertise, I’d be interested in your opinion on whether there is adequate incentive at this time for oil exploration in the U.S. My impression is that the political climate is so hostile to U.S. drilling and we’re so poorly exploiting our known resources, that there’s little point in looking for more.

  61. AnnJo says:

    @Miguel, I know that just because the source of an idea is evil, it’s a fallacy to conclude the idea is evil, but when you prepare to offer the Soviet Union’s take on something there should be at least a moment’s pause to consider.

    The Soviet Union tightly controlled its subjects’ mobility as part of a police state that sought to control every other aspect of their lives as well. As a method of limiting externalized costs, it may be overkill.

    Since you obviously believe our recent foreign adventures have been “all about oil” have you considered that the people most responsible may be those whose strict environmentalism has restricted our ability to use our own oil? (I don’t offer that as a sound argument, because as Jim has pointed out oil is a commodity and more U.S. drilling may bring down the price but is unlikely to shut down Middle Eastern oil wells. But while economically unsound, the claim is logically consistent with the argument you’re making.)

  62. marta says:

    David, I said “herself” because I remember a comment by deRuiter where it was clear she is a woman.

    Just that!

  63. Peggy says:

    Those of you that are “welcoming” higher gas prices, must be “welcoming” higher prices of a trip to the grocery store, the dollar general, the malls, the boutiques, as well.

    I don’t “welcome” higher gas prices. Thats like “welcoming” the flu, to prove you can keep yourself from getting dehydrated, or feeling fatigued.

    Just plain insane to “welcome” more hardships.

    Lets see how you “welcome” eating beans and rice, and having your house foreclosed on. And if not you, then, some of your close friends or relatives.

  64. Kate says:

    The problem with so many people is that their memories are short. A fellow worker just bought a bigger car and was bemoaning the fact that the price of gas has gone up recently. Rising and falling gas prices are a fact of life. People who want to be frugal should buy a car that gets the best gas mileage for their money. Period. I can’t see shelling out the money for a Prius there are a number of smaller cars that get good gas mileage.

  65. Miguel says:

    @AnnJo, it was a mistake. I wanted to say STOPPED instead of started (I intended to start the phrase in a completely different way, and the work carried on to the final comment). Treating the economics of mobility like the soviets is exactly what we do right now (with not so very good results in terms of efficiency).

  66. almost there says:

    #63 Peggy, I was expressing welcome as a tongue-in cheek comment only because I am trying to sell my car. Gas prices as stated by Kate, #64 rise and fall. A good time to sell a fuel efficient car is when gas prices are on the way up. In a consumer society low prices are king and enable people to spend their money on more instead of less. I am not a wacko enviro that wants us to dress in sack cloth and eat gruel to spare the earth. This belief is held by the rich and powerful that run the world and believe in population reduction to a capacity of 500 million to a billion people total earth population. Not me.

  67. almost there says:

    #63 Peggy, I was expressing welcome as a tongue-in-cheek comment only because I am trying to sell my car. Gas prices as stated by Kate, #64 rise and fall. A good time to sell a fuel efficient car is when gas prices are on the way up. In a consumer society low prices are king and enable people to spend their money on more instead of less. I am not a wacko enviro that wants us to dress in sack cloth and eat gruel to spare the earth. This belief is held by the rich and powerful that run the world and believe in population reduction to a capacity of 500 million to a billion people total earth population. Not me.

  68. Peggy says:

    @Almost there, there was more than just one that said that….

  69. Ian says:

    The price of oil is subsidized at the oil company level. They pay next to no corporate taxes. The whole industry is subsidized by government/taxpayer money. Correct that and the price of oil/gas will rise to it’s actual supply/demand price.

    The only time Americans ever reduced their oil usage was when oil hit $4/gallon after Katrina. No one would dare raise gas taxes to a level to support the maintenance of roads, so YES! THERE ARE SEVERAL WHO WELCOME THE HIGHER PRICE OF OIL.

    We will become more efficient. We will buy more fuel efficient cars and industry will get more efficient as well.

    Cheers, Ian

  70. AnnJo says:

    @Ian, you’re welcome to your own opinion, but not to your own facts. Oil companies do indeed pay massive amounts of corporate taxes, which you could ascertain for yourself by reading the publicly available financial statements of any oil company.

    For example, Exxon Mobil paid $21.6 Billion (out of net income of about $51 Billion) last year. That’s almost 41%. On top of that, the shareholders had to pay income taxes on the dividends they received, so there was another $2-4 Billion there. And that doesn’t count state and local taxes, nor the federal and state gasoline taxes.

    I’m sure there are some ‘subsidies’ in the tax code to encourage capital investment or new hires, the same as all businesses have, but when you say that they pay practically no taxes and the “whole industryis subsidized by govenrment/taxpayer money,” you are straying far from the facts.

  71. Ian says:

    Just google “exxon taxes”.

    Then google “oil subsidies”.

    Or just hang out at foxnews.com all day…

  72. Nate says:

    I get bored when people kick and scream when gas prices spike. It seems irrational to me. Not the part about it being more expensive to transport yourself. It’s the scale of how it really affects most of us. For someone who drives 12,000 miles per year, the difference between $3.50 and $2.50 gas works out to about $40 per month if you drive a car of modest gas mileage.

    Yes an extra unplanned $40 expense sucks, but is it REALLY as life changing for the average American as all the hang-wringing media likes to report?

    It bothers me too, but from a general-health-of-the-economy sort of way. I don’t pretend that I can’t simply choose to cut some other non-essential part of my budget to put food on the table when faced with the horror of 10% of my budget suddenly becoming 13%.

    I don’t mean to belittle the folks whose transportation costs are a huge part of a tight budget. But let’s be honest, that’s a pretty small group of people. I get annoyed when people who spend several hundred per month on luxury (shopping, eating out, cable tv, etc etc) pretend that high gas prices are causing them such hardship. It’s just something else to complain about in an incredibly fortunate time and place to be born into.

    I really hope that the real threat of high fuel prices to the general economy in the long run doesn’t give us something to really complain about.

  73. Judy says:

    Yes, it is really life changing. I have been slowly cleaning up my debt load on a marginal salary. Eighteen months ago my employer rescinded the transit subsidy we received for using public transportation. That reduced my take-home by 7%. A year later the transit authority raised their rates (for me that was a 65% increase in ticket price). That now makes my commute costs 12% of my take-home. If you add in the additional from other oil related price increases, it can’t help but hurt. I am not yet to the point of choosing gas or food but I might be if I had not been inspired by Trent in the first place.

    And Nate, it’s a much larger group than you are apparently aware.

  74. Nate says:

    Judy,
    Thanks for giving such a detailed example. I find it ironic that you cited your commute costs as now 12% of your take-home to refute my made-up example of gas prices causing 10% of a budget to balloon to 13%. I hate to assume anything, but it sounds like you rely on mass transit and don’t own a car? Sometimes I wished I lived in a city with a mass transport system because I always enjoy traveling that way as opposed to being in traffic. But, like Trent, I live in Iowa and the costs of operating a vehicle are almost mandatory to be able to do most things around here. Also, because I live in Iowa, my housing costs are low. I’m guessing yours are much higher than mine as a percentage of income.

    I applaud your efforts to get your finances under control and am sorry that your employment situation has made that more difficult. I’m traveling the same rough path of recovery. You cite the derivative effects of higher energy costs, not the price of a gallon of gas as the source of your hardship. Which is pretty much the point I was trying to make. Expensive oil strangles our economy in many ways, one of the smallest ways is the direct effect of gasoline on the average household budget. I’m sorry but I have to disagree on the amount of people THAT really affects in the way most people like to pretend it does.

  75. AnnJo says:

    @Ian,

    If paying 41% on Exxon’s corporate profits is too little, what do you contend is the right percentage? And what ROA, ROI and ROE would application of that tax rate result in for Exxon investors?

    Look, if you think oil production should be banned, just say so and make your argument honestly. But don’t raise fake arguments about how oil companies don’t pay any taxes. I have no idea what Fox news says on the issue since I don’t watch TV news, but if they are saying the same thing I am, I agree with them, and you’ve offered nothing to contradict it.

  76. jim says:

    If you look at the balance sheet you’ll see that Exxon paid $21B in taxes in 2010. But it doesn’t say what those taxes were and who they were paid to.

    In a CNN article they say specifically for 2009 that Exxon paid income tax bills as follows:

    U.S. federal: -$156 million
    U.S. state and local: $110 million
    International: $15.2 billion

    You can find those figures in the 10-k annual report for 2009 or maybe buried in the annual report.

    That sums up to paying $15.1 billion about. Yet in 2009 in the US the fed, state & local gave Exxon a subsidy of $46 million.

    For 2010 they actually did pay Income taxes in the USA. The 10-k just came out a few weeks ago and hasn’t made it into a annual report document. Buried way down in the depths of their recent 10k report for 2010 on page 111 they give the following figures :

    U.S. federal: $1319 million
    U.S. state and local: $340 million
    International: $19.9 billion

    So this past year Exxon did pay taxes in the USA. But again the vast majority of their income taxes are paid in other countries.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>