For any modern economy, energy is part of the cost structure of pretty much everything. Depending on the specific product, direct energy costs are often the second largest cost of doing business for many industries. As an example, in electrolytic refining of metals, energy cost can be 10% or more of the final cost for the product. So a significant increase in energy cost can result in immediate increases in product costs.
This is a very important consideration that is often not a part of public policy. The cost of electricity is currently going up because alternative energy technology is driving the cost of electricity up. The impact of pubic policy on industry, and on the consumer, is having a negative effect on all parties concerned. Utility companies, consumers and industrial users are all experiencing increasing costs. Utility companies are forced to lay off employees, consumers have less disposable income and industrial users are forced to raise prices. All bad for the economy.
When gasoline goes up by 25% a couple of things happen that are fundamental to the economy.
One is that consumers pay more money for gasoline and less money for other things. Contrary to how the government seems to operate, consumers can’t arbitrarily increase their spending when a major cost goes up.
At the rate we use gasoline, approximately 137 millions gallons per day, the mainstream economy is losing $137 million per day from the consumer sector. That calculates out to about $50 Billion a year that isn’t getting spent on other goods and services. Not a good thing for employment.
The other thing about increased cost of gasoline is that transportation costs for agricultural goods and consumer goods. So another hit to the disposable income side of the economic equation.
The DOE annual budget has risen from $7B to $27B in 2010. Since the inception of the DOE as proposed by Jimmy Carter in 1977, the mission statement has been to ensure the energy independence of the United States. Only at the time we were only 25% dependent on oil products from foreign sources. Now we are 75% dependent on oil products from foreign sources.
The dependence on foreign oil might be acceptable if it were in response to market conditions. But we have spent $357 billion dollars from 1990 to 2010 (not including the money spent from 1977 to 1990), and we are now more dependent on foreign oil sources.
This situation is also partly in response to the oil industry shift during the 1980’s in which it was considered more cost effective to import than to produce domestically. At the time, this may have been true, but the situation has changed.
The real problem at the root of this is the permission to drill for oil or natural gas. Since the Federal government regulates land leases through the Bureau of Land Management, the government has final authority to determine if oil or natural gas will be pumped from the ground or in the ocean.
So talk to your congressman. He (or she) has the power to directly impact the price of gasoline. Not the oil and gas company.
Tell Us What You Think!