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Monday, August 15, 2005

Price of gas

Inspired by posts by Kate McMillan and Stephen Taylor, I took a crack at the high oil price spin in today's Sun. Let me know what you think.

Posted by Ezra Levant on August 15, 2005 | Permalink

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» Ezra’s a Gas from Grandinite
Mssr. Levant has a pretty decent article in the SUN today and I think you should have a read of it. Levant essentially points out the economic illiteracy of many journalists by stating first hand, with respect to high gasoline prices that: In 198... [Read More]

Tracked on 2005-08-16 5:28:21 PM

Comments

Ezra - I liked your article enough to post a link to it on my blog.

Posted by: Tim | 2005-08-15 4:24:34 PM


As a consumer, I consider the price is increasing to fast. Even if that price is suppose to vary according to the request and the supply. Maybe the oil price was under it’s real cost for to long. Anyway we got use to it. At this speed, I’m afraid the gas price a the pump is going to double from the January 2005 level and 2 or 3 years.

I’d like to be lower.
I know, I’m dreaming.

Posted by: A Quebecer | 2005-08-15 4:41:17 PM


Good article Ezra.
Every gas pump I use has a sticker that says that 43% goes to the government. For the life of me, I can't understand why Canadians can't see the ripoff built into this system.
Instead of say having a .25 cent/liter tax, the government gets a raise every time the gas company has to raise its price. So at .65/liter the government made .28 cents. At 1.01/liter the government makes .43 cents. That's a huge unnecessary hike in taxes. Where's the hue and cry of Canadian taxpayers??

Posted by: jack | 2005-08-15 4:59:27 PM


I remain amazed that we can complain about gasoline being sold at $1/L but then we spend $2/L for bottled water.

In order for gasoline to be available for my car someone first had to explore for it, then it had to be pulled out from the deep subsurface, carefully refined, transported (often thousands of kilometers) and finally dispensed.

The bottled water we drink meanwhile is usually manufactured in the region where it is purchased using a "free" municipal source with minimal treatment, usually in a facility that also prepares other drinks like pop.

Posted by: Blair | 2005-08-15 5:03:23 PM


Oil is just a commodity and like any other commodity it will go up and down in price.

In 1998 the Economist had a cover story suggesting that oil, then just over US$10 per barrel, could be headed for $5. And this is supposedly a magazine that has access to the best economic minds in the world.

The current price probably has a lot of speculation and fear-mongering built into it. There is no real shortage of product in the world and there is not any huge upswing in the E&P costs that would support the current price run-up. Add in the fact that there are new sources, West Africa, Alberta oilsands, Venezuela heavy and Australian oil shales that will come on line in the near to mid-term, with Iraq, Russia and the various 'stans recovering or vastly improving production levels, and it is a safe bet that the current price bubble will burst.

This doesn't even consider a recession or the government grossly taxing or even limiting fossil fuel use in order to meet its unattainable Kyoto goals.

Posted by: Cranky or Just a Crank | 2005-08-15 5:12:52 PM


Added to my list of great quotes: "Next time a politician complains about the price of oil, tell him that if taxes were pegged to the price of crude, we'd be keeping 25% more of our money each April." - Ezra Levant

As David Frum wrote in the National Review on 2004-07-18, "Canadian GDP has risen by 67% since 1993. Average personal disposable income has risen less than half as fast, by 31%. Meanwhile, federal revenues have grown by 45%. In 1993, the average Canadian household had cash income of $44,375 and paid $18,815 in taxes of all kinds. In 2003, the average household had cash income of $58,286 - and paid $28,415 in taxes. In other words, cash incomes rose by about $14,000 per household over the period, while taxes rose by almost exactly $10,000 [71 % went to taxes]."

Posted by: Tony | 2005-08-15 5:48:21 PM


I wish we could see articles like that in our regional news.

How about the prices of houses? It increased 3 or 4 times the wages, since 20 years.

Another aspect not talked about often is why the government does not favor real innovations like motors running on something else than gas.

Posted by: Rémi houle | 2005-08-15 5:48:50 PM


Ezra: A very good article. Two comments:

1) You didn't mention that the GST part of the taxes on gas is calculated on the total of the product cost plus fixed provincial and federal excise taxes. So one has: a) a tax on taxes; and b) a tax that generates more revenue for the feds as the product cost goes up. The increase in oil prices is in fact a windfall for the feds.

2) All those breathless media, especially TV stories, about the poor, suffering consumers are put out by organizations that much of the time devote stories to deploring vehicle use by individuals instead of public transit. Surely these media, to be consistent (!?!) should be hailing gas price increases as an inducement to use public transit. Except they prefer bashing capitalism (but not the government, see 1) above on the GST) to supporting their environmental agenda. Hypocrite, thy name is J-school.

Mark
Ottawa

Posted by: Mark Collins | 2005-08-15 5:50:35 PM


Did anyone see this in today's Calgary Sun?

http://tinyurl.com/b9ytx

The Leftists aren't going to welcome Vice-President Cheney as warmly as they should.

EDMONTON -- Environmental and anti-war groups are planning a hostile welcome for U.S. Vice-President Dick Cheney when he visits Alberta.

Alberta Premier Ralph Klein announced Friday that Cheney is set to tour the province's oilsands in the northeastern part of the province next month.

(Comment: he is more than welcome in my books.)

Louise Swift of Edmonton's Raging Grannies, a group most Canadians associate with demonstrations against cutbacks and privatization, says plans are already being made to protest Cheney's arrival.

"He's not welcome as far as I'm concerned," Swift.

Swift said she is irked by the war in Iraq, as well as the fact that so much Alberta oil is heading to the U.S.

(Comment: awwwww. Ain't that cute)

She said the Grannies are meeting later this month and will decide then what they'll do when Cheney arrives.

(Comment: how about sing some awful songs that make no sense, dress like clowns, you know, the usual.)

Lindsay Telfer, a regional director with the Sierra Club, said the environmental group will decide what to do about Cheney's visit when more details about the trip become available.

Telfer called the visit "a sign that Alberta is becoming America's gas tank."

(Comment: and this is bad how? Most of us are able to have homes, jobs and food on the table because of it. If you don't like it, leave.)

Michael Kalmanovitch, with the Edmonton Coalition Against War and Racism, agreed Cheney's visit bodes badly for Canada.

"I'd rather not sell (oil) to the Americans because they don't have respect for it," he said.

(Comment: well too f-ing bad, sweetheart. The powers that be will never close off the taps, so get used to it. If you don't like it, leave. Go to Toronto instead.)

Posted by: Scott | 2005-08-15 6:43:07 PM


Good article Ezra. I was listining (briefly) to CTV today and this was their headline over and over again. No mention of the HUGE free profits the Liberanos are getting for the rising profits from GST on the TOTAL. Of course not.
I also checked out the SES poll gleefully reporting the Liberano popularity. I hope the car cos pack their bags and move out of Ont. The Liberanos out in la la land could then try to exist on UIC and still pay huge GST on every gallon of gas/oil they burn. I think we should be encouraging those Liberanos to keep up the heat so we can do something else with our tax money. In the near future.

Posted by: Jema54 | 2005-08-15 7:14:56 PM


There is no exemption for the auto industry from Kyoto if they pay the same high energy costs as the rest of us, and if the people who are supposed to buy their cars are half-broke from taxes. It may sell papers in Calgary to say, "look what they're doing to Alberta", but the real issue is, "Oh my god, watch the socialist politicians flush the whole country down the crapper as they line their pockets!"

And if taxes hurt the oil patch, which ends up hurting Albertans, then shouldn't the Province cut its rakeoff from oil revenues? That would boost profits, which would boost investment, which would boost jobs, which would make all Albertans even richer. Assuming that this isn't just a struggle over which region's politicians get to skim the money off in order to buy votes with pork and welfare.

Posted by: Justzumgai | 2005-08-15 7:46:54 PM


Right. Now even reports of gas increasing to over twice the ten year average for crude is also a sign of "Alberta bashing" by the media??? I can't wait for your next column, Ezra, on the media's bias against Western Canada as evidenced by its coverage of the sun rising in the East.

It's news because the price has shot up more than two-thirds in less than a year. It's news because people, ordinary working Canadian people, are concerned about what that does to their family budgets because salaries are not keeping pace.

~TB

Posted by: TB | 2005-08-15 7:51:47 PM


Gas is expensive and will only become more expensive.

We are not replacing reserves as fast as we are using them.

China and India are demanding more and more oil as their economies develope and this will continue to accelerate at an increasing (exponential) rate. China used to export oil 5 years ago. It's now the second largest importer of oil.

This means that Alberta can rely on being rich for a long time. It also means ever increasing prices at the pumps (how long before that means a political headache for Alberta's premier as the average Albertan is paying 3 bucks a littre while the province gets rich off the royalties?)

As for those who whine about high gas prices, how many of those drive those little golf cart size smart cars? How many drive hybrid cars? It may be that those who whine about gas prices drive Hummers and Suburbans. Pay or take the bus. Gas is a non-renewable, polluting commodity. We've been paying less than it's worth for generations.

I've pointed out elsewhere, the way we have used our resources is idiotic. It's like you recieved your whole life's income all at once, spent it like a drunken sailer and then wondered how you were going to make ends meat now that you've reached the ripe old age of 21 and you're almost out of money. The rest of your life will be lean.

The right should be as concerned about energy consumption as the greens. Our economy, our society and our standard of living all run on energy. Energy is in our national security interest. Our world competitiveness will depend on producing at a lower cost than our competitor nations. Those nations that can produce with the least energy inputs win. We have to sink the investment dollars into R&D. We don't.

When the costs of energy rises, our economy will suffer. Since energy is a commodity, individual governments have little control over cost. Managing demand will be the only way to ensure that we don't deplete the supply.

And I haven't even mentioned electricity yet! That's another huge problem. We haven't expanded the supply of energy to meet the growth in supply. That too will cost us.

In fact, just about every infrastructure you care to mention has been neglected in favour of paying welfare to deadbeats and maintaing Castro-style Cuban health care (or more to the point, not providing healthcare - but at great public expense.)

Posted by: Warwick | 2005-08-15 8:58:19 PM


Take my energy commissar - please!

"Energy is in our national security interest. Our world competitiveness will depend on producing at a lower cost than our competitor nations. Those nations that can produce with the least energy inputs win. We have to sink the investment dollars into R&D. We don't."

Enough of the "we" and "our" stuff. You take care of your investments, and I'll take care of mine. Deal? To presume that you know better than me what "we" should drive and where "we" should invest "our" money is nothing but communism.

If you think you know what our energy needs are, then go right ahead and buy as many oil shares as you can afford, then sit on them and wait for the world to recognize what a valuable resource you have. Start your own company and convince as many investors as you can find to help you buy up oilfields so you can save them from over-exploitation. You'll make a killing in the end, and every barrel of oil you "save" from our drunken exploitation in this decade will help save the country from starvation in a later decade. If you're right.

Also, I think you'll find that the nations who win aren't the ones with the least energy inputs. Try these on for size, while you're waiting for your energy stock purchases to go through:

USA - Energy inputs high - wealth high
Cuba - Energy inputs low - wealth low

Clearly, the high cost of energy has not sparked a high tech boom in Cuba. But some places, like Singapore, South Korea and Switzerland became quite wealthy compared to their neighbors, despite a lack of oil. The secret sauce is pretty obvious: freedom. Not least of which are freedom from taxes and freedom from government meddling.

Posted by: Justzumgai | 2005-08-15 9:35:44 PM


I read your column, Ezra, and thoroughly enjoyed it. I'd like to add that crude prices are rising for reasons other than the product we get at our filling station pumps. Plastics, for instance.

Posted by: Speller | 2005-08-15 11:19:49 PM


I have a question about the article.

Oil prices are 25% lower than in 1980 (after adjusting for inflation). Gas taxes have gone up. How does the consumer price, the price at the pump, compare to 1980?

Posted by: Pete E | 2005-08-16 12:57:56 AM


Justzumgai,
Um, wrt the auto industry's exemption from the Kyoto implementation plan, see this CBC story (it's pulled from their server so it's through a Google cache):
http://66.102.9.104/search?q=cache:n7Aer3Rfd0oJ:cbc.ca/storyview/CBC/2003/01/03/kyotocars030103+auto+industry+kyoto+agreement&hl=en
Also, see the terms of the MOU between the industry and the government: http://www.nrcan-rncan.gc.ca/media/mous/2005/20050405_e.htm

Essentially, the auto industry agreed to limit GHG emissions of cars and light duty trucks by 5.3MT by 2010. Given that Canada's overall goal is to reduce GHG emissions by 240MT, and, from federal documents, that "transport" accounts for 25% of Canada's GHG emissions, the auto industry then is only agreeing to reduce emissions by 2.2% -- a much lower level than they actually produce. Since the federal government also signed a MOU with the steel industry, a large emitter, to the effect that it won't be made "uncompetitive" by Kyoto, that leaves the oil, gas, and coal industry (particularly coal used to generate electricity) to bear the largest burden of meeting Canada's Kyoto commitments, even though they produce less than half of Canada's emissions.

Please explain how this is not discriminatory.

Posted by: CanRev | 2005-08-16 2:54:28 AM


Actually Justzumgai, I do this for a living. I manage money. Where do think I have a lot of it invested?

My clients have made a great deal of money of the Oil and Gas sector in the last few years (and other commodities.)

If you would like a right-winger (other than myself) to explain to you how energy will dominate the future, I suggest reading Don Coxe's Basic Points:
http://corporate.bmo.com/publications/basicPoints/default.asp

There is lots here to enlighten you with.

Last I checked, "Our" and "We" are appropriate usage when describing policy on how we stay competitive as a nation (you do realize we are part of a nation which has interests don't you?) "We" as a nation have to plan for the future.

California is a perfect example of how not to do that. W is increasing the number of electrical generating plants but California should have been thinking of this 15 years ago. Brown-outs and black-outs are common. What do you think this does to their economy? I suppose your brilliant idea is to "take care of your own investments." Good luck building that hydro-electric damn in your back yard then. For my part, I'd like to figure things out a little more effectively than that.

As for freedom, the government planning ahead for our future should keep that in mind. You however should keep in mind that right now the government is all over our energy. Most electrical generation is either owned by the governments or so heavily regulated they may as well be. Maybe as "we" look at ways to improve "our" economy, "we" may come to a decision to lobby government for more competition in these areas. That my friend is planning for the future. Not all planning expands government (although most Liberal government planning does which is why I've never voted for them - how that makes me a commie you'll have to explain to me some time.)

Next, I didn't tell you what to drive. I mentioned that if you CHOSE to drive a hummer (which is your right,) you look like an intellectually stunted idiot to complain about gas prices.

Oh, and comparing the economies of the US and Cuba and thinking energy has anything to do with it is laughably dim. No one but you thinks that planning ahead and evolving the economy for the future is communism. The communists have proven themselves incapable of planning for next week.

Also, if you don't think energy and resources are national security interests, may I introduce you to a few history books? Japan's WWII expansionism was in a large part to gain access to the resources of their neighbours. As China and India (both huge nuclear states) increase their demand for resources, and as they buy up our resources and compete for what's left, national security will most certainly come into play. Wars start over money and resources. This is not a communist notion. Planning for it is common sense.

Posted by: Warwick | 2005-08-16 9:48:58 AM


Actually Justzumgai, I do this for a living. I manage money. Where do think I have a lot of it invested?

My clients have made a great deal of money of the Oil and Gas sector in the last few years (and other commodities.)

If you would like a right-winger (other than myself) to explain to you how energy will dominate the future, I suggest reading Don Coxe's Basic Points:
http://corporate.bmo.com/publications/basicPoints/default.asp

There is lots here to enlighten you with.

Last I checked, "Our" and "We" are appropriate usage when describing policy on how we stay competitive as a nation (you do realize we are part of a nation which has interests don't you?) "We" as a nation have to plan for the future.

California is a perfect example of how not to do that. W is increasing the number of electrical generating plants but California should have been thinking of this 15 years ago. Brown-outs and black-outs are common. What do you think this does to their economy? I suppose your brilliant idea is to "take care of your own investments." Good luck building that hydro-electric damn in your back yard then. For my part, I'd like to figure things out a little more effectively than that.

As for freedom, the government planning ahead for our future should keep that in mind. You however should keep in mind that right now the government is all over our energy. Most electrical generation is either owned by the governments or so heavily regulated they may as well be. Maybe as "we" look at ways to improve "our" economy, "we" may come to a decision to lobby government for more competition in these areas. That my friend is planning for the future. Not all planning expands government (although most Liberal government planning does which is why I've never voted for them - how that makes me a commie you'll have to explain to me some time.)

Next, I didn't tell you what to drive. I mentioned that if you CHOSE to drive a hummer (which is your right,) you look like an intellectually stunted idiot to complain about gas prices.

Oh, and comparing the economies of the US and Cuba and thinking energy has anything to do with it is laughably dim. No one but you thinks that planning ahead and evolving the economy for the future is communism. The communists have proven themselves incapable of planning for next week.

Also, if you don't think energy and resources are national security interests, may I introduce you to a few history books? Japan's WWII expansionism was in a large part to gain access to the resources of their neighbours. As China and India (both huge nuclear states) increase their demand for resources, and as they buy up our resources and compete for what's left, national security will most certainly come into play. Wars start over money and resources. This is not a communist notion. Planning for it is common sense.

Posted by: Warwick | 2005-08-16 9:50:41 AM


Application by Warwick to manage my money and my energy usage ... rejected.

But with your knack for arguing from authority, your outspoken zeal, and your expert scaremongering, you have an excellent chance of success in your quest to become energy Czar for all of Canada. Canadians love that kind of stuff. It's what Kyoto is all about.

Communists didn't fail at planning their economies because their communists - their economies failed because they were planned.

Trying to plan the lives of other people without their consent is the essence of communism.

Posted by: Justzumgai | 2005-08-16 11:01:35 AM


Justzumgai,

Did you not read what I wrote or did you not understand what I wrote?

Posted by: Warwick | 2005-08-16 1:04:05 PM


No, actually I have no idea what you mean when you connect freedom to government planning. Sorry.

Posted by: Justzumgai | 2005-08-16 1:24:45 PM


Well, you start from the premise that the government should not control stuff. Fair enough. In general that is good first principle.

What I was pointing out is that the government controls all kind of stuff already. When the government goes to make decisions on the future of the stuff they already control, one option for them is to stop controlling it and allow more freedom. In other words, the government can eliminate its control in favour of the market.

This debate depends on your starting point. My starting point is that the government is already big. That it controls large parts of the economy through taxes, regulation and ownership. Your starting point seems to be from a void. If we were going to start from scratch, the debate would be a much different animal.

My last point was that not all planning leads to more control, more government.

So, how do you plan for more freedom?

You make collective decisions on what you want in society. Its referred to as voting. Voters determine the kind of government we have and with it, the policies we live under. That could mean less government instead of more. But there are a lot of things that are larger than the individual - even Adam Smith (no commie) figured that out. That's not communism, that's democracy and economic reality.

The government has a place correcting market failures. The environment is one of those failures. Does that mean I advocate Kyoto? Not a chance in hell. Kyoto is one of the dumbest excuses for policy the UN crowd could have come up with. That doesn't mean I think there is no place for a rational discussion about an issue that effects more than just you and your "freedom."

Suppose your chosen outlet to excersise your "freedom" was effecting someone else negatively? Do you claim the right to do what you please at their expense? How is that different from the socialist who taxes your earnings to pay for their own pet project? That effects you negatively. If you have the right to harm someone else, you can't very well claim the right not to be harmed yourself.

Society is a balance of competing interests. No freedoms are absolute. Any activety that effects others negatively can't be claimed as a right.

All that said, the government making a plan doesn't necessarily mean less freedom. You're just too used to the Liberals being in power. Listen to Preston Manning and Mike Harris' recent thoughts on the conservative way to manage the environment. Are you going to call them commies too? If so, I question where you sit on the political fence.

Posted by: Warwick | 2005-08-16 3:16:54 PM


Jack said:

Good article Ezra.
Every gas pump I use has a sticker that says that 43% goes to the government. For the life of me, I can't understand why Canadians can't see the ripoff built into this system.
Instead of say having a .25 cent/liter tax, the government gets a raise every time the gas company has to raise its price. So at .65/liter the government made .28 cents. At 1.01/liter the government makes .43 cents. That's a huge unnecessary hike in taxes. Where's the hue and cry of Canadian taxpayers??

The government(s), at least in Alberta, get 43% of the pump price and more as long as the price of gas is below 55 cents per litre.

At a dollar per litre in ALberta, the government(s) get 26% of the pump price as tax.

You pay more in absolute terms only because of the GST, which is tagged on top of the Federal and Provincial flat rates.

But the government's take as a percentage of the revenues accruing to the producer will decrease as the price goes up.

Based on my calculations assuming a dynamic demand,

A 100% increase in price will:
- imply that the wholesale revenues have increased by 198%
- imply that the federal and provincial revenues decrease by 26%.
- imply that the GST revenues will increase by 47%

It's pretty much like you paying 20% tax on a 10,000 dollar car ($2,000) versus a 5% tax on a 100,000 dollar car ($5,000). It all depends on how you look at it.

Another way to look at it is like this:

Suppose the government charged a $5 tax on CDs and the retailer wanted to sell them for $20. He gets $15, the government $5.

Now, suppose CDs were going for $40 dollars, a 100% price increase. The guy gets $35, the government its $5.

The price increases by 100%, but the seller sees a 233% increase in revenues per CD.

Who's goughing whom?

At a lower price you are paying a greater percentage as tax because of the flat-rate tax. If your income tax behaved the same way gasoline taxes do, you would pay more tax in absolute terms, but at each income bracket, the percentage the government takes is less. (like the car example).

In percentage terms, the tax percentage increases at lower gasoline prices in order to curb consumption at lower prices. Its corrolary is that the tax burden decreases as the price rises.

Posted by: Aaron | 2005-08-17 1:10:58 AM


Ezra: in your article you state that: "What has grown over 25 years are government taxes, which in Canada make up about 38% of the cost of a litre of fuel. For comparison, the price of crude makes up about 43%. So as much money goes to, oh, Quebec ad agencies and the gun registry every time you fill up as to those who actually brought you the oil."

I think this was from Stephen Taylor, who got it from taxpayer.ca or some such website.

I think those figures are quite old. With an excise tax on gasoline, the tax burden is greater when the price of gas is lower. The tax eases up as prices climb to free up (reltively speaking) income for consumption on other goods.

Posted by: Aaron | 2005-08-18 12:04:16 AM


Does the GST 'ease up' when the price goes up, milque -toast Aaron??

Posted by: Jema54 | 2005-08-18 3:22:58 PM


Aaron - How do you explain the huge "advertised" surpluses at both the Fed and Prov level due to energy profits? ... tax maybe? .. where is that energy tax revenue coming from?

Sorry, I fail to buy your argument due to the "advertisied" gov energy surplus. It's not like when the price goes up, people are going to by more fuel.

Posted by: rob | 2005-08-18 6:55:21 PM



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