“…the typical American household will have spent $4,155 filling up this year, a record. That is 8.4 percent of what the median family takes in, the highest share since 1981″ —  At gas pump, 2011 was the year of the big squeeze. The AP / By Jonathan Fahey, December 19, 2011

It wasn’t clear to me who said so, but there was a reference to an outfit called the OPIS (Oil Price Information Service) and the facts seem to be wholly drawn from this item blogs.opisnet.com from their blog.

Here are the facts presented, referring to calendar year 2011, and it notes that this is of course somewhat of a projection since the year isn’t actually over yet but obviously the last couple of weeks aren’t going to change the averages much.

• Total spent on gasoline $481M, at an average price of $3.51/gallon
• average (?or is it? the item actually says “typical household”) amount per household $4,155,
• which represents 8.4% of median family income.

You can compute from these number some simple facts:

• Calculated number of households = 115.8M; and “typical” (median?) household income = $49,464
• Calculated gasoline = 137M gallons;   per household = 1,184 gallons
• Calculated amount of driving (using 20mpg as fleet average; better reference?) = 23,775 miles per year per household

Some of the figures sound slightly askew, but no big deal; while the 1,184 gallon number, along with its implied 24,000 miles of driving seems somewhat alarming. I also wondered if this was meant to be “personal”, as opposed to business, consumption… and where does other fuel (diesel) fit in to the averages?

I’m having trouble reconciling the 137M gallon number from above, according to http://www.infoplease.com/ipa/A0004727.html passenger car (includes light trucks?) was 75M gallons, and all consumption totals 175M gallons per year, and all “includes personal passenger vehicles, buses, and trucks.”. What about Diesel(? is the 175M figure all inclusive equivalent, perhaps?). And annoyingly, the chart’s most recent year is 2006 (before the recession).

Here are some “hard” Census figures, from the 2012 Statistical Abstract:

• Number of households in 2010: 117.5M; and 2.59 persons per household (Table 59)
• Median Household Income 2009: $49,777 (Table 690, Table 690)

…

So in any event — is the $4,155 figure supposed to represent actual, out-of-pocket costs to families? or it is something else, like all fuel consumed in the U.S. divided by the number of households? I can’t quite pin it down, and i am tired of looking, at least for the moment!

Automobile Enslavement?

So, if the median household is spending over $4,000 dollars of their something like $50,000 of income just on gasoline, how much are their cars costing them? Insert some sort of average for insurance, cost of vehicles, and repairs here. It seems to me that is a huge amount, perhaps only second to cost of shelter.

What about fuel and other specific use taxes (like the VLT… for more, see Road Taxes)? They’re simply not enough. Automobility does not generate enough tax revenue to sustain itself, thus these subsidies to drivers paid from general funds. Not to mention any of the litany of externalities caused by driving — free parking, pollution, mayhem, etc.

Some Valley freeway projects will be delayed up to five years by a sharp downturn in revenues prompted in part by the recession, regional transportation officials say.
Proposition 400, approved by Maricopa County voters in 2004, imposed a countywide half-cent sales tax for 20 years to fund regional transit projects – freeways, streets, buses and light rail.
maricopa-county-proposition-400-funds-shortage.html

40 YEARS of sales taxes to build freeways

Here are a few of the ins-and-outs of this tax, as you can see it started in 1985, was renewed for another 20 year run starting in 2005 — in other words it is more or less permanent; see e.g. this AzRepublic article (my emphasis added):

Q: What does Proposition 400 do?

A: It would extend for another 20 years a half-cent transportation sales tax in Maricopa County that was first approved in 1985 to fund freeway construction. Without voter approval for an extension, the tax expires at the end of 2005.

Q: How much would be spent on each type of transportation in the MAG plan?
A: Of the $15.8 billion dedicated to program funding, $9 billion, or 57 percent, would fund freeways; $2.7 billion, or 17 percent, would fund the regional bus system; $2.3 billion, or 15 percent, would fund light-rail expansion; and $1.5 billion, or 9 percent, would fund arterial streets.
The remaining 2 percent would fund air-quality programs, bike and pedestrian routes and planning activities.

The 2010 Five-year update

Apparently there is a mandated audit to be performed every five years by the AZ Auditor General, here is the detailed report. The AZ Republic did a news story timed with its release, though it didn’t say much.

The detailed report has some pie charts that don’t exactly match up with the Q&A; for example it shows, in percentages exactly 3 components: Freeways 56.2, Transit 33.3, and Arterials 10.5% One guesses that the 2 percent catch-all (which includes bike and ped planning) is snuck in somewhere. The report gives no details on the ancillary activities. Oh, and I learned a new acronym: RARF, the Regional Area Road Fund is where the prop 400 sales tax monies go. (the HURF, Highway User Revenue Fund, is where motor fuel taxes and vlt goes).

The light rail came off pretty well; noting the thing was built on schedule and just slightly under-budget. Peer-city comparisons were generally favorable.

Funding for local roads (the roads that both cyclists and motorists use) are paid for heavily through state and local tax general funds — not user fess like gasoline taxes. Cyclists are paying their way, just like everybody else.

Most/much of the direct user fees that motorists pay do go to fund freeways (limited access highways). These roads are used exclusively (with minor exceptions) by motorists — and yet even then the fees are not high enough, and have to be supplemented from other sources, like general sales taxes.

Specifics vary depending on location but the general theme is similar throughout the US.

What follows are specifics as we do things here in Arizona, and specifically Maricopa County and the Phoenix Metro area.

The HURF

Arizona levies two taxes directly upon motorists and the proceeds are termed the “HURF” (Highway User’s something Fund). The two souces are; motor fuel taxes, and VLT (Vehicle License Tax, a fee paid yearly based on the value of a motor vehicle).

Because the rate on gasoline is levied per gallon, 18.5 cents per gallon, and hasn’t changed since 199?, the amounts available to the HURF have been dwindling.

usgovernmentspending.com has some good charts of, e.g. ARizona state spending broken down in categories like education, police, transportation, etc.

Freeway Sales Tax

Maricopa county levies a 0.25% (check that) 20-year SALES tax to build freeways. First approved in 1985, it was set to expire in 2005 but extended for another 20 years by “Proposition 400″. The split was more favorable to public transit, but still heavily favors freeway spending. The most vociferous opposition came from those who specifically thought that not enough of the money would be used for freeways, and in particular hated that any monies would be spent on light-rail. See e.g. Prop. 400 foe wants to stop light rail., Arizona Republic, Sept 23, 2004.

I note that bicyclists do not ride bikes on freeways (in fact, bicycles are banned from freeways in the metro area).

So, the freeway sales tax is just another externality of automobility — drivers not paying their way.

Background on Federal Tax

The federal levy on fuel is much the same story — it is based solely on a per-gallon charge of 18.4 cents per gallon gasoline THAT HASN’T GONE UP SINCE !993! Of course, the price level has gone up a lot since then, so the amount of real dollars keeps falling. If 18.4 was the “right” amount in 1993, the rate should be raised to ~ 28 cents/gal (2011 dollars). These missing dollars of course still get spent, replace from other sources like general funds; funds that everybody pays, not just drivers.

A minority of the fuel tax funds (about 15%) is spent on mass transit, and 0.1 cents of it is spent on cleanup for leaking underground fuel storage tanks.

Historical gasoline fuel tax rates from Table 1 CRS report:

There are also some excise taxes aimed at heavy trucks — based on the obvious theory that heavier vehicles cause more wear and tear on roads and bridges.

The basic gist is that everything you “know” about power, particularly if you are an American, is wrong. His data is no doubt correct, but I think he goes out of his way to sometimes mislead. For example he claims that the United States economy is somehow very energy efficient. To prove his point he gives figures for the change in energy intensity over some period shows that the US is “winning”, beating such countries as France and others. The trouble is, a simple trip to wikipedia shows that actual, and not the percentage change in,  energy intensity (power used per unit of economic output),the US continues to lag behind other industrialized nation, particularly of western europe and the UK. Furthermore, our large houses and large vehicles really drives our per capita energy consumption through the roof where it is around twice as high as countries such as the UK, France, Germany to name a few.

So contrary to what the author would have you believe, the US economy and lifestyle is, in fact, energy-gobbling.

On page 50 he says, referring to his skepticism about anthropogenic global warming, “…I adhere to one of the oldest maxims in science: Correlation does not prove causation”, then right on the next page “increasing energy consumption equals higher living standards. Always. Everywhere”.  I would posit/accuse the author of implying that the higher consumption of the US causes a higher standard of living — but that is nonsense; the typical person could trade in his sedan for an SUV using twice the fuel… and this wouldn’t create any wealth. I wouldn’t argue that Bangladeshis, for example as the lowest per capita energy consumption at fifty times less per capita energy use that Americans, could greatly benefit; just that Americans could stand to use less with no loss in wealth.

The book generally makes no mention of conservation at all, when in fact conservation has the least impact. forget coal vs. natural gas vs. nuclear;

The answer to his complaint that wind power’s variability requires too much backup (usually natural gas) could be addressed by smart-metering, which he doesn’t mention. Smart metering coupled with real-time demand pricing causes (either automatically, or financially) consumers to lower their demand during non-windy times.

He strangely either doesn’t talk at all(? or maybe mentions in passing) direct solar generation of electricity, either PV, Photo Voltaic, or thermal. Here in the desert where i live, it seems like direct generation eliminates the wind-variability problem that he dwelled on with windmills — that is to say that when the sun in out bright and shining is exactly when the highest electric grid loads are. So direct generation is a great for peak loads, the thermal even has a couple of hour lag in it which again matches up well to peak demand loads.

His ultimate solution he dubs N2N: Natural Gas to Nuclear — he wants way more natural gas consumption coupled with eventually way more nuclear. He does mention various problems of all sorts and even mentions that many of these things are externalities; but he doesn’t seem to think that is a problem, or suggest solutions (such as taxing pollution; or taxing mountain-top removal; or fixing coal ash pond problems), he just kind of supposes that we should accept it because that’s the way it is.

—-

What is an externality?

I also just got done reading Superfreakonomics by economist Steven Levitt and journalist Stephen Dubner. (and by the way, lots of good stuff on the Freakonomics blog). It was a worthy follow-on to their earlier bestseller Freakonomics, and is eminently readable. I particularly liked the definition, from page 171:

What’s an externality? It’s what happens when someone takes an action, but someone else, without agreeing, pay some or all of the costs of that action.  An externality is an economic version of taxation without representation.

If you happen to live downwind of fertilizer factory, the ammonium stench is in externality. When your neighbor throws a big party (and you don’t have the courtesy to invite you), their ruckus is in externality.

Secondhand cigarette smoke is an externality, as is the stray gunshot one drug dealer meant for another that instead hit a child on the playground.

The greenhouse gases thought to be responsible for global warming are primarily externalities. When you have a bonfire in your backyard, you’re not just toasting marshmallows. You’re also emitting gases that in a tiny way, help heat the whole planet. Every time you get behind the wheel of a car, eat a hamburger, or fly in an airplane, you’re generating some byproducts that you’re not paying for.

Imagine a fellow named Jack, who lives in a lovely house — he buildt himself — and comes home from work. The first warm day of summer. All he wants is to relax and cool off. So he cranks the air conditioner all the way up. Maybe he thinks for a moment about the extra dollar or two he will pay on his next electricity bill. But the cost isn’t enough to deter him. What he doesn’t think about is the black smoke from the power plant that burns the coal that heats the water that turns the steam fills the turbine spins the generator. That makes the power to cool the house that Jack built. Nobody thinks about the environmental costs associated with mining and trucking away that coal, or the associated dangers. In the United States alone more than 100,000 coal miners died on the job over the past century, with another estimated 200,000 dying later from black lung disease. Now those are externalities. Thankfully coal mining deaths have plummeted in the United States to an average of about 36 per year. But if Jack happened to live in China, local deaf externality would be much steeper; at least 3000 Chinese coal miners died on the job each year. It’s hard to blame Jack for not thinking about externalities. Modern technology is so proficient that often masks the costs associated with our consumption is nothing visibly dirty about the electricity that these checks air conditioner. It just magically appears as if it were out of a fairy tale. If there were only a few Jacks in a world or even a few million noone would care. But as the global population hurtles toward 7 billion, all those externalities add up. So who should be paying for them?

…

Even if you believe saving gasoline is a holy cause, subsidizing electric cars simply is not a substitute for politicians finding the courage to jack up gas prices. Think about it this way: You can double the fuel efficiency of any car by putting a second person in it. You can increase its fuel efficiency to infinity by refraining from frivolous trips.

These are the incentives that flow from a higher gas price. Exactly the opposite incentives flow from mandatory investment in higher-mileage vehicles. You paid a lot for a car that costs very little to operate—so why not operate it? Why bother to car pool? Why not drive across town for a jar of mayonnaise?

Welfare Wagons, WSJ, May 12, 2010

Use taxes are the best way to reflect the externalized costs of an activity.  E.g. in this example taxes on motor fuel. Fuel taxes have been falling for years, this makes the cost of driving less and less — which, as Jenkins points out, tends to make people drive more and more. There are a couple of reasons the tax is falling, one is the simply that taxes are levied on a per gallon basis and the amounts rarely change (Arizona has levied the same tax for around 20 years), this means the real price of the tax is continuously falling. for 20 years. Another is the tendency for vehicles to become more efficient over time, resulting in a lower tax per mile traveled.

This was mainly a polemic against the tar sands (though the industry prefers the term oil sands) industry as practiced in Alberta, Canada, and how it connects to provicial politics there. The problems with the industry are legion: they use enormous amounts of natural gas to extract and upgrade the tar; loads of water is used; this load of water is then collected in highly toxic tailings ponds. Open pit/strip mining uses less natural gas than in situ extraction, but leaves obvious scars. And in any event, only 20% of the bitumen is available through mining — the other 80% requires in situ (referred to as SAGD,  Steam Assisted Gravity Drainage).

The biggest thing that I was surprised at was how far along the industry is: it currently produces (er, I prefer the term extracts) 1.5million barrels a day — and has serious plans to increase to 5million within a decade or so. As Nikiforuk points out, such an increase would wreak all sorts of havok, and may in fact be not feasible.

The EROEI, being quite poor; and as an alternative to natural gas, nuclear energy may be substituted.

“By then (the early 1940′s), the street had slipped a notch in desirability. Detroit’s well-to-do moved to more grandiose housing in Grosse Pointe and other suburbs, their commutes made possible by the very automobiles that had made them rich”

Then, a short-lived economic resurgence, built on the back of cheap gas:

“Starting in the 1990s, American car companies enjoyed a brief interlude of optimism brought on by low gasoline prices and a boom in sports-utility vehicles. Detroit, like the nation as a whole, got caught up in the housing bubble.”

That analogy being as it may; what they are really renewing is their intentional obliviousness to externalities. And the tacit cost-shifting that inevitably results. Combusting fuel is damaging on its face (even if you don’t “believe in” global warming — as the WSJ editorial board clearly does not). Both in environmental damage and the toll it takes on human health.

So, who pays for all the negative externalities arising from automobility? Drivers don’t; the costs are all shifted to “society”.

They firmly support the status-quo; dead-set against cap-and-trade, and dead set against any increase in fuel taxes. Fuel taxes, which are supposed to fund road construction and maintenance have been dwindling in real dollars for years. The gas tax, which is levied per gallon, hasn’t budged in years; and does not adjust for little things like inflation. It has been at the current federal rate of 18.4 cents per gallon as long ago as 1993 (going on 16years! The arizona state gas tax hasn’t changed in even longer). This leaving a gap which is filled from other funds, like income, sales, and property taxes. (sources that have nothing to with driving).

This underpricing inexorably (remember WSJ eds, the laws of economics?) causes a greater demand for driving, and more roads, and more driving…

In response to Ford CEO Alan Mulally’s call for higher gas taxes (which you report in “Tax My Products, Please,” Review & Outlook, March 17), I would like to say that Americans don’t want smaller vehicles. We have great distances to travel, mountains and plains to cross in all seasons of the year. We tow our boats and other contrivances. We haul our children around and travel with them over the continent. Our businessmen drive long distances since they can no longer own corporate jets. What we want is a more efficient internal combustion engine, not a smaller car.

And do not tell us it cannot be done. It can be done, because efficient engines can be created today with off-the-shelf parts bought from General Motors, Ford or Chrysler.

A friend of mine has converted a GMC Vortec V8 gasoline engine for his 2.5 ton pickup truck and the engine delivers more than 30 mpg. Why can’t we buy this type of vehicle at the dealer? Why does individual ingenuity have to point the way to corporations that have the money, skill and engineering brainpower to deliver a more efficient engine? Why do we have to pay more at the pump?

The suggestion that consumers should pay more in gasoline taxes is a cop-out on the part of the auto makers, politicians and everyone else who supports it. This is not Europe. This is the United States of America, a vast country with amazing distances and varieties of geography and climate.

We do not want higher gas prices. We want more efficient engines to power our vehicles. We want the Big Three to use their brains to create something new, not deliver a rehash of junk from a bunch of whiners.

Bernard P. Giroux
Fall River, Mass.

…

This long subtitle serves as a reasonably good summary for this entire relatively small (<300 pages) book. I went out of my way to get it after seeing it referred to with respect to oil prices.

Official policy via then-secret National Security Directives (NSSD’s and NSDD’s, see especially NSDD-75 ) was to wage nothing short of all out economic war against the Soviet economy. All sorts of high-tech goods were under export embargo — weapons of course, but additionally all sorts of computer gear, and even computer software. This directly casued delays in the trans-Siberian natural gas pipeline by years. Anything in an effort to deprive the Soviet economy (especially) of hard currency (i.e. exports, of which energy were by far the majority).

A sweeping claim oft made (but not necessarily in this book) is the collapse in oil prices was engineered and pulled off by the Reagan administration’s policies; and this directly led to the collapse of the Soviet Union by depriving their economy of critical hard currency. I would imagine there is some truth to this, but on the other hand cause and effect aren’t clear, and there were many other things going on outside of the US – Saudi policy.

And on a side note, it’s interesting to read this version of history which was written in 1994 about the era dominated by the Soviet war in Afghanistan, American covert operations in Poland (funding Solidarity) and Afghanistan (funding the mujadeen resistance to the Soviet occupation), and culminating in the collapse of the Soviet Union. Also at the same time the Iran -Iraq war (Revolutionary Kohmeinism versus Bathist, Saddam Hussein) raged, but the US was not very involved other than to supply intelligence to Saddam — the US was “rooting” for Iraq.

Here’s a quote from the book regarding oil prices, p. 217:

Only one track of the economic war against Moscow had yet to be fully implemented. Lower oil prices became a key administration objective in 1985. For many the main advantage was to the United States. “We wanted to lower international oil prices, largely for the benefit of the American economy,” says Edwin Meese, then the White House counsel. “The fact that it meant trouble for Moscow was icing on the cake.” But some individuals recognized the gravity of the subject as it related to Moscow’s precarious economic position. Roger Robinson recalls, “Bill Casey was keeping an eye on oil prices almost daily, and so were we. It was the centerpiece of the Soviet hard currency earnings structure and principal funding source of its military industrial complex.” Some believed that lower oil prices would happen simply by letting the market process run its course. Others, like Casey and Weinberger, thought the world’s larges oil producer, Saudi Arabia, needed some encouragement and support from the United States.

That encouragement and support from the US to Saudi Arabia took a very tangible form in the selling of highly sensitive military hardware to the Saudi’s; first AWACS spyplanes, and later Stinger missiles. These sales were both controversial, see .g. The Stingers raise the most concerns. The Saudis were cooperating in supporting the mujadeen resistance in Afghanistan, and the Royal Family in particular was seen as staunchly anti-Soviet.

Saudi production — presumably at the behest of the US — went from ~2mbd (million barrels / day) to 6mbd in a span of a less than a year, 1985, very much playing the role as swing producer, with barrel prices plummeting.

In Afghanistan, the US supplied stingers to the resistance via Pakistan’s ISI are widely credited with turning the tide of the war, culminating in the Soviet pull-out in 1986.

The cost of SDI (strategic defense initiative, known somewhat derisively as “star wars”) was a major worry for the Kremlin.

In summary, from the epilogue:

“The Soviet Union did not collapse by osmosis, not because time was somehow on our side. Had the Kremlin no faced the cumulative effects of SDI and the defense buildup, geopolitical setbacks in Poland and Afghanistan, the loss of tens of billions of dollars in hard currency earnings from energy exports, and reduced access to technology, it is reasonable to believe that it could have weathered the storm”.  “No singular event or policy pushed the Kremlin over the brink. The power of the Reagan administration’s overall strategy is measured by the cumulative effect of the policies that were adopted”

Here’s another one — newer and  much fringier:

The Oil Card: Global Economic Warfare in the 21st Century

James R. Norman, 2008  (ISBN 097779539X). Publisher is Trine Day — be sure to check out their, ummm, interesting selection of books. The cover is certainly cute, dogs playing poker with a geo-political twist.

By fringy; I mean for example his belief in abiotic petroleum origin, and the conspiracy theory that Vince Foster (“Fostergate“) was murdered or whatever by the Clinton Administration.

Anyway, his main interesting idea it that the true purpose of the American invasion of Iraq in 2003 was to prevent the Chinese from making inroads there in securing oil from Saddam’s government. And further that the enormous run-up in the price of oil, say from 2000 – 2008) was also orchestrated by America (and it’s allies; Saudi Arabia of course but now including Putin’s Russia) to constrain Chinese ecomonic growth.

Of course, he has the misfortune of finishing his book around the time when oil peaked at $140 plus, with no signs of stopping — so his talk about $200 oil seems silly now: “In theory, there is no reason they (oil futures prices) could not be pushed to $200/bbl or beyond”. Yes, in theory, and of course maybe someday but that seems a long long way away with prices now in the mid to low $30′s.

We are also now, as of beginning of 2009, in the curious/atypical position of sweet crude being actually cheaper than sour crudes. According to Norman, and I have no reason to doubt him on this, Chinese refiners are almost totally dependent on (normally more expensive) sweet because their refineries lack the extra stuff to refine sour crudes. So if there were some conspiracy to drive up (sweet) crude prices; that has now backfired.

“…the price runup ($140 and counting, at the time he wrote that) is far from over and could go on for another decade, as did the low-price oil war against the Soviets”.

On the role of commodity futures speculation, by in particular institutional investors such as pension funds (he names Calpers by name, calling it a quasi-government entity): “critics will argue that the government is not smart enough to orchestrate such a price rise in oil”. Call me a critic.

Still he points out some curiosities that even made me skeptical at the time — e.g. the very public begging of President Bush to the Saudis in (early?) 2008, to which he was seemingly publicly humiliated by the Saudis. This seems like too big a political miscalculation, and too theatrical even for me.

“The only real solution is Al Gore’s proposal to offset a carbon tax dollar-for-dollar with either an income or payroll tax reduction. If a carbon tax increase were offset dollar-for-dollar with an income tax rate cut, I for one would strongly support the policy. The economy would benefit because the progressive income tax does far more damage than a carbon tax would, and we’d use less oil. It’s a win-win situation. Yet this perspective appears to be totally outside the Obama team’s ken.”