Let's get real about fuel prices

TangoWhiskey

TangoWhiskey

Touchdown! Greaser!
Joined
Feb 23, 2005
Messages
14,210
Location
Midlothian, TX
Display Name
Display name:
3Green
While it is certainly painful to the pocketbook to fuel up these days, and nobody can deny the higher costs, this quote from Bob Miller's Over the Airways newsletter this morning gives one pause to consider...

Bob Miller said:
We're hearing enough complaining about fuel prices already. A gallon of AVGAS today is less than the federal minimum hourly wage. A gallon of AVGAS in 1965 held the about the same relationship to the minimum wage.

Okay, you may take issue with my economic theory but you get the point. Prices are up, but so are wages, salaries, and retirement income.

Yes, these are uncertain economic times but, other than the first term of the Eisenhower Administration, when were economic times ever certain?

It's time we all grab that brass ring known as the privilege to fly. When we do, we'll all be better for it!
Click to expand...
 
Yeah but Troy I don't think that wages and salaries are going up as fast as fuel ( auto or aviation) percentage wise.
 
Our corporate pilot made the same point. I can't remember the plane he used for the example (maybe a 172) but he said the price of a new one held the same relationship to the cost of a new house, as it did back in the 60s.
 
No one commodity or object subject to sale is immune from inflation. That doesn't mean they are as easy to afford as they were a few decades ago. I don't believe income has kept up with the rate of inflation. But, taxation has certainly kept up with income and the cost of goods.
 
Here you go:

Gas_inflation.gif
 
Everskyward said:
Here you go:
Click to expand...
I think a large part of that is the cost of production coming down due to efficiency. I may be wrong but it's my take on the change when inflation is considered.

Efficiency of production has brought down (or kept lower) the cost of many products. But, I still do not see income keeping up. In comparison, I paid my CFI $12 per hour in 1981 and he received all of it. Now, a CFI is receiving $22-25 per hour. While that's somewhat in line with minimum wages of $3.35 in 1981 and $5.85 today, the cost of becoming a CFI is more than five times the cost it was in 1981.

It takes no more talent to earn minimum wage these days than it did in 1981.
 
jesse said:
Not many of them are receiving that...Sure--some are--but there are plenty that aren't.
Click to expand...
Quite true. Which is why I didn't use the higher numbers by a few schools who are paying $30 per hour or better. Some still only want to pay $15-17.
 
tonycondon said:
and some instructors get even less than that BEFORE taxes after the FBO takes their cut from what the customer is charged.
Click to expand...
So true. And, I'll never understand why I've heard some complain. They run out with no more than a private pilot certificate, possibly an instrument rating, and purchase a new or used, high performance aircraft for $300-600K or more. Then, they don't care to pay for a CFI to stay current.

I'm not saying that's the case with all but it sure is with enough "customers" that schools and FBOs are keeping the rates down to satisfy the masses in the end. In order to the needed staff, some schools have just started turning over a greater portion of the charge to the CFI but that's pretty limited from what I'm seeing as I watch the various advertisements.
 
Consider that costs businesses used to assume as the cost of doing business is now placed on the employee and/or the consumer, the price of their commodity has gone up beyond inflation. In 1970, it was extremely unlikely the consumer COULD dispense his own gas; now, it is nearly a requirement. And guess what, the major gas companies are posting record profits.
Let's take gasoline directly. In 1970, the price of a gallon was $.30. In 2008, it is $3.20. My minimum wage job in 1970 was $1.85. In 2008, it's $5.85. It doesn't take a pocket calculator to see a problem.
The HMO of the consumer has gone beyond gas. It was reported that most major retail chains will convert their checkouts to selfserve within 5 years. Baggers are out; cashiers are out; companies are outsourcing stocking. When does it end.
 
silver-eagle said:
Consider that costs businesses used to assume as the cost of doing business is now placed on the employee and/or the consumer, the price of their commodity has gone up beyond inflation. In 1970, it was extremely unlikely the consumer COULD dispense his own gas; now, it is nearly a requirement. And guess what, the major gas companies are posting record profits.
Let's take gasoline directly. In 1970, the price of a gallon was $.30. In 2008, it is $3.20. My minimum wage job in 1970 was $1.85. In 2008, it's $5.85. It doesn't take a pocket calculator to see a problem.
The HMO of the consumer has gone beyond gas. It was reported that most major retail chains will convert their checkouts to selfserve within 5 years. Baggers are out; cashiers are out; companies are outsourcing stocking. When does it end.
Click to expand...

when we all have chips in our arms? kidding, kind of.
 
woodstock said:
when we all have chips in our arms? kidding, kind of.
Click to expand...

...and kind-of not, if you ask me. We are easing down the sheeple path.

###

As for the price of gas, if your base year is (say) 1978, then gas prices are higher, but up to the 1979 "crisis" (adventures in federal intervention in markets, read about it if you want the feds to "fix" anything....), the real price of gasoline had been declining for decades, something which in all honesty could never have been considered sustainable when you are depleting a finite resource.

The real price of gas has just now caught up with where it was in 1982- but in 1982, I was paying $0.09/gallon in taxes, and now (in Texas) it is $0.384/gallon. In other states, it is a great deal more with the increase in the last couple of decades very substantial, so if you want to keep your eye on the ball, folks, don't forget to subtract the increase in taxes (fed and state) before you do your "then and now" comparison.

In addition, we now have mandated additive contaminants- principally, ethanol- the addition of which drive the cost of gasoline a lot, because of (1) higher cost of the stuff itself, and (2) much more burdensome handling costs (cannot be pipelined in the mix, but instead has to be batched at the truck level).

Then, of course, there is the inherently lower energy content of ethanol and resultant reduction in gas mileage, while burning a fuel which as it is produced here from corn is woefully inefficient. And it corrodes fuel system components in most older cars...

...all of which sounds a lot like a digression, but it needs to be remembered that what we buy now is not all that meaningfully more costly than what we used to buy.

---

As for oil company profits, while I am no apologist for the oil industry, I still note that the return on invested capital in that business is not that great, so while the numbers sound really big, remember, the money spent and risked to get there is absolutely staggering.
 
Good point on taxes, Spike. Most complain about the oil company profits but completely ignore the margin being pretty much the same as gasoline was selling at 79 cents a gallon a few years ago and oil was $11 per barrel.

Those same people also completely ignore the ever-increasing taxes on fuel. Ignorance runs wild.
 
KennyFlys said:
Good point on taxes, Spike. Most complain about the oil company profits but completely ignore the margin being pretty much the same as gasoline was selling at 79 cents a gallon a few years ago and oil was $11 per barrel.

Those same people also completely ignore the ever-increasing taxes on fuel. Ignorance runs wild.
Click to expand...

Let us also not forget that those $40 Billion in profits that certain people want to just confiscate actually belong mostly to everyday investors like you and me who own the vast majority of shares in those companies.

The price of gasoline can go up and down with the markets, but it is a very good point that taxes have gone way up since back then. You know how the saying goes: "What goes up, must come down, except for taxes"
 
ehidle said:
Let us also not forget that those $40 Billion in profits that certain people want to just confiscate actually belong mostly to everyday investors like you and me who own the vast majority of shares in those companies.
Click to expand...


Exactly! Corporations are made up of investors. Who gets the benefits of profitability? The investor/stockholder. Who takes the hit when times are tough? The investor/stockholder. All business owners, including stockholders which own all corporations take the risk of doing business and losing their investment. Nobody offered a subsidy to Exxon when oil wasw $10 per barrel, why should they be penalized now that oil is $100/barrel?
 
Anthony said:
Exactly! Corporations are made up of investors. Who gets the benefits of profitability? The investor/stockholder. Who takes the hit when times are tough? The investor/stockholder. All business owners, including stockholders which own all corporations take the risk of doing business and losing their investment. Nobody offered a subsidy to Exxon when oil wasw $10 per barrel, why should they be penalized now that oil is $100/barrel?
Click to expand...
Many of the people who complain ought to go check out the holdings of their 401K plans or of whatever mutual fund they may be holding for retirement.

I know mine don't include oil companies. I only have small cap funds. :)
 
Anthony said:
Exactly! Corporations are made up of investors. Who gets the benefits of profitability? The investor/stockholder. Who takes the hit when times are tough? The investor/stockholder. All business owners, including stockholders which own all corporations take the risk of doing business and losing their investment. Nobody offered a subsidy to Exxon when oil wasw $10 per barrel, why should they be penalized now that oil is $100/barrel?
Click to expand...

Well, the problem is that we have built a society so dependent on gas that while the oil companies are posting record profits, the remainder of the economy is in the crapper.

I do not know the solution, but the status quo bothers me.
 
flyingcheesehead said:
Well, the problem is that we have built a society so dependent on gas that while the oil companies are posting record profits, the remainder of the economy is in the crapper.

I do not know the solution, but the status quo bothers me.
Click to expand...
What's the difference between a profit amount versus a profit margin?

Has the latter increased or changed much over the last couple decades?
 
Yeah, 10% profit margins is really gouging the consumer. :rolleyes:
 
RotaryWingBob said:
Not to mention that the feds and states make a much larger profit than the oil companies.
Click to expand...

....while creating no value, producing nothing and assuming no risk of any kind.
 
SCCutler said:
....while creating no value, producing nothing and assuming no risk of any kind.
Click to expand...
You just described the ideal business plan! Ya can't get much better than maximum profit and zero capital investment.
 
that's gotta be a misprint. doesn't it?
 
The AVGAS price is probably for the deployed forces overseas.....a rare commodity in those places with high transportation costs and handling. The price is not much higher than the AVGAS prices in western europe right now.
 
Economics 101: The Price of Gas

Daily Article | Posted on 4/22/2008 by Sterling T. Terrell

Gas prices are up and oil executives are once again testifying before Congress. Clearly, many politicians, pundits, and consumers lament the rising cost of gas. Before we join them in their chorus, let us take a step back and ask this question: Are gas prices really all that high?

A change in price can be a result of inflation, taxes, changes in supply and demand, or any combination of the three.

First, we need to take into account inflation. The result of the Federal Reserve printing too much money is a loss of purchasing power of the dollar: something that cost $1.00 in 1950 would cost about $8.78 today. As for gas prices, in 1950 the price of gas was approximately 30 cents per gallon. Adjusted for inflation, a gallon of gas today should cost right at $2.64, assuming taxes are the same.

But taxes have not stayed the same. The tax per gallon of gas in 1950 was roughly 1.5% of the price. Today, federal, state, and local taxes account for approximately 20% of gas's posted price. Taking inflation and the increase in taxes into account (assuming no change in supply or demand) the same gallon of gas that cost 30 cents in 1950 should today cost about $3.13.

Neither have supply or demand remained constant. The world economy is growing. China and India are obvious examples. At the same time, Americans continue to love driving SUVs and trucks. As for supply, we are prohibited (whatever the reasons may be) from using many of the known oil reserves in our own country. Furthermore, due to government regulation, the last oil refinery built in the United States was completed in 1976. In addition, the Middle East is politically unstable which leads to a risk premium on the world's major source of oil. It is obvious that the demand for oil has grown while supplies have been restricted.

The average price of gas in the United States today is approximately $3.25. The question is, why are gas prices not higher than they are?

Blaming greedy oil companies on the rising price of gas is simply irresponsible. The profit margins of a few selected industries are as follows:
http://mises.org/store/Foundations-of-the-Market-Price-System-P400C0.aspx

Periodical Publishing 24.9%
Shipping 18.8%
Application Software 22.5%
Tobacco 19%
Water Utilities 10.2%
Major Integrated Oil and Gas 9.5%
Hospitals 1.4%
Drugstores 2.8%

The water utility industry has higher profit margins than major oil and gas firms! Why isn't every CEO with profit margins above that of the oil companies made to testify before Congress for "price gouging"? Clearly, greedy corporate profits are not the issue.

Again, while just over nine percent of the price of a gallon of gas goes to oil company profits, approximately twenty percent of the price of a gallon of gas is composed of federal, state, and local taxes.

Those who want the government to step in and do something about the high price of gas are either forgetful of recent history or too young to remember the oil crisis of 1979. During that time, restrictions on the price of gasoline led to the inability of some to find gas at all. Price ceilings always lead to shortages. The only thing worse than having to pay "too much" for gas is not being able to find gas at any price.

Let us not be swayed by politicians out for power or by reporters out to create news where none exists. Facts and economic logic should prevail rather than rhetoric.

[VIEW THIS ARTICLE ONLINE]

____________________________

Sterling T. Terrell is a Ph.D. candidate in the department of agricultural and applied economics at Texas Tech University. Send him mail. Comment on the blog.
 
You must log in or register to reply here.
Back
Top