The Free Market, price of gas, class warfare or socialism?

Schneed doesn't mean to attack people personally, he just doesn't pull any punches with regard to how he feels about someone's opinion.

As for cooking the books, let me just say the SEC can bring the hammer when companies get too cute. In the post-Sarbanes Oxley (i.e., post-Enron/WorldCom) world, it's become a lot more difficult to overstate/understate earnings. As a securities lawyer, I must say that I have a lot of confidence in the SEC. The SEC and securities laws are not perfect, but they are pretty damn good. Moreover, dmek, companies have a vested interest in OVERstating their profits.Speaking of SOX, does anyone have any links to quality articles on the subject?

I have a paper due in 9 hours on Sarbanes Oxley.

This is quite possibly the worst idea I've ever heard of from an economic standpoint.

While we're busy "innovating" and "figuring things out", the following would happen:

- Consumer spending would drop significantly as the 100% increase in gas price cuts directly into discretionary spending.

- With lower discretionary spending, cyclical companies will undergo large layoffs and unemployment will rise above 7%.

- An inefficient market will be created, one in which gas will be available for $2 - $3 per gallon in Canada. A black market will be created in an attempt to buy gas cheaper in Canada and smuggle it across the border. Then you immediately have a national security crisis.

- Recognizing that drivers will begin to move away from the roads and towards public transportation and recognizing that demand for their services is increasing, public transportation systems will raise prices.

- Worker productivity will be drastically affected as many low-income workers will find it increasingly difficult to get to work.

- The drop in consumer discretionary spending will lead to lower profitability for our businesses, reducing the amount of taxes the government collects, thereby nullifying whatever they collect by enacting a floor on gas prices.

- Other countries will gain a competitive advantage against us as their citizens will only be expected to pay $3 per gallon for their gas, while we pay $6. This creates a scenario ripe for a bigger federal deficit, further weakening the dollar.

You're possibly talking consequences of epic proportions. Easily the worst idea I've heard in a long time.I agree with your analysis of this situation, and with SGG's, and I understand the consequences of such a move. I also understand it's a pipe dream to think that anyone in politics would have the balls to suggest such a bill, and that anyone else would vote for it.

With that said, (worldwide) economic disaster is pretty much where we are headed in terms of an energy crisis. This plan obviously wouldn't prevent that, but I think it would lessen the long term effects, and would ensure that crude oil would be available in the future, should it be needed to heat our homes or something.

I don't pretend to have the answers, but I do think a solution is required to this specific issue.

And finally...

What hasn't been discusssed in this thread is why Exxon and their ilk only make .07 a gallon. First off the cost of oil in the world is largely set by a cartel called OPEC. Now a cartel in an industry seeks to:

Collude amongst all competitors to increase profit by reducing actual competition.

Direct effects are limited supply and/or raised prices.

The price of gas is determined by:

cost of product(crude from OPEC) ~50%
refinment ~25%
taxes ~15%
distribution and overhead ~10%

When all is said and done it costs a lot of money for big oil to get a gallon of gas to a gas station.

Now I don't know enough to quite understand why oil companies make so much money. I'd like for someone who does know to explain it.

Speaking of SOX, does anyone have any links to quality articles on the subject?

I have a paper due in 9 hours on Sarbanes Oxley.

I have quality articles on SOX in the office, but they all deal with very narrow topics that probably would not be of much help. Sorry, but good luck.

I have quality articles on SOX in the office, but they all deal with very narrow topics that probably would not be of much help. Sorry, but good luck.lol. It's okay. Thanks much anyway.

Price controls are always a disaster. Nixon tried price and wage controls in the early 1970s at the urging of his chief economist Herbert Stein (father of that Bueller? Bueller? guy) and it only made inflation worse.

Commanding Heights : Nixon Tries Price Controls | on PBS (http://www.pbs.org/wgbh/commandingheights/shared/minitextlo/ess_nixongold.html)

"Only one segment of the wage-and-price control system was not abolished -- price controls over oil and natural gas. Owing in part to the deep and dark suspicions about conspiracy and monopoly in the energy sector, they were maintained for another several years. But Washington's effort to run the energy market was a lasting lesson in the perversities that can ensue when government takes over the marketplace. There were at least 32 different prices of natural gas, a rather standard commodity, each of whose molecules is based on one atom of carbon and four atoms of hydrogen. The oil-price-control system established several tiers of oil prices. The prices for domestic production were also held down, in effect forcing domestic producers to subsidize imported oil and providing additional incentives to import oil into the United States. The whole enterprise was an elaborate and confusing system of price controls, entitlements, and allocations. It was estimated that just the standard reporting requirements for what became the Federal Energy Administration involved some 200,000 respondents from industry, committing an estimated five million man-hours annually. "

I use to think that our government should endeavor to overthrow Hugo Chavez. Then I read that he had implemented price controls and realized we didn't have to bother. His own people will end up stringing him up by his thumbs.

Chávez Threatens to Jail Price Control Violators - New York Times (http://www.nytimes.com/2007/02/17/world/americas/17venezuela.html?ex=1329368400&en=d269f7053b2143cd&ei=5088&partner=rssnyt&emc=rss)

Price controls simply do not work. They are a utopian idea that empirically always cause havoc and almost always make the situation worse for those that the price control is supposed to help.

Price controls simply do not work. They are a utopian idea that empirically always cause havoc and almost always make the situation worse for those that the price control is supposed to help.

I agree. Out of everybody (off this board) that I have spoken with, nobody believes this is a good idea. And I've spoken to both staunch Republicans and Democrats.

More intelligent people have already made fine arguments for the positions I support:
a) price controls on gas are unworkable and would create havoc in the economy (and, of course, would create a HUGE bureacracy to enforce compliance); and

b) $.07 is an incredible amount of profit given the amount of gas consumed in a day by the US, that being approximately 9 Million Gallons a day. (This Week In Petroleum Gasoline Section (http://tonto.eia.doe.gov/oog/info/twip/twip_gasoline.html#demand)). Alos for a breakdown of the costs that go into making gas see: Low profits mean gas station owners share your fueling pain (http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/04/24/BUGD3CDRAL1.DTL) (yes, I know it's an old article but you can see the various costs that go into the final cost of gas at the pump - and, please notice, that taxation is already a significant price inflator). Finally, remember, a lot of these oil companies own the downstream refining companies and I am not sure how this works into the $.07 profits.

One other point I'd like to address is the idea that all of a sudden we are going to be out of gas and/or we will end up with such expensive gas that it is simply not economical to use.

The REASON gas is in such high demand is precisely b/c it is an absolutely dirt cheap transportable fuel in comparison to anything else that is currently mass produced. As this ceases to be the case, competitive alternatives will be developed - Not overnight, but as the price escalates. Will there be a few bumps on the way? Sure. But trust that, even now, some innovator(s) is/are out there looking for a cheap way to mass produce and deliver cheap energy. At some point, quite literally, when the price is right, alternatives will be developed.

The REASON gas is in such high demand is precisely b/c it is an absolutely dirt cheap transportable fuel in comparison to anything else that is currently mass produced. As this ceases to be the case, competitive alternatives will be developed - Not overnight, but as the price escalates. Will there be a few bumps on the way? Sure. But trust that, even now, some innovator(s) is/are out there looking for a cheap way to mass produce and deliver cheap energy. At some point, quite literally, when the price is right, alternatives will be developed.

Excellent, excellent post.