Charles Pierce: There Is Only One Way to Defeat ISIS

[happyslug]

104. The US was only importing 10% of our need in 1973

Last edited Mon Nov 16, 2015, 03:39 PM - Edit history (2)

And most of that was from Mexico and Venezuela in 1973, yet the US ended up with gas lines. A 5% drop in world wide oil production would be enough to cause a shortage and that would drive up prices till enough people stop buying oil. The problem is the group of people who will stop buying oil when the price gets to high are US minimun wage workers. That is what happened in 2008, the price of oil reached the point where American minimum wage earners were reaching the point where they choice was food or fuel to get to work. They were reaching the point where they had no money for anything else, except rent and utilites and when rent and utilities are not paid they have no home.

I did the calculation at that time and if someone was earning minimum wage and living in public housing and drove to and from work (which most minimum wage earners do for the jobs are in the suburbs NOT the inner cities and such jobs do not have public transit at the times these workers need it for example janitors who get off work one or two o'clock in the morning) the price of gasoline reaches minimum wage the choice, once rent and utilities are paid is limited to food or fuel. They do not have enough money for both and pay their rent and utilities.

At present that the the "cap" on oil prices. Once that group can no longer afford fuel they stop buying gasoline and demand for oil drops. Most Americans earn more then minimum wage but it is an example of how a mere change in just 5% of demand or supply will lead to change of increasing oil price to a decreasing fuel prices and vica versa.

Please note exporting countries report exporting about 5% more oil then importing counties report being imported. While no one admits it, the difference appears to be fuel used by the US Military. Unless the oil actually enters US territory the US does not report it as an import. At the same time those imports into US bases overseas are NOT reportedvby those nations as imports. Thus that oil is counted by no one as imports.

Most of that "lost" oil is from the mid east to Europe, Japan and other areas with US bases. Thus the US is buying more then the 13% of middle east oil the US is admitting to importing. There is an old saying "figures don't lie, but liars figure" watch certain cited statistics, make sure the stat is saying what you think it is saying. The 13% importing number is accurate but excludes that missing 5%. Worse that 5% is on world wide oil exports while the 13% is on US imports only. That 5% may triple US buying of mid east oil.

I bring up the above for oil can be shipped almost anywhere to the highest bidder. Thus if we cut off mid east oil will Europe, Japan, Korea and China not out bid the US for Mexican, Venezuela, Canadian and Russian oil? I think the answer is a yes. Worse do we want Europe and Japan dependent on Russian oil? I suspect that answer is NO, so the US will agree to export even US oil to Europe, Japan and Korea. Thus the US price for gasoline will hit $10 a gallon for the US will HAVE to adopt whatever is the world wide price of oil will be. Any effort to end the funding of these radicals will require at least a boycott of Persian Gulf oil. Given the subsequent drop in supply from the Middle East, US minimum wage earners will no longer be the price "cap" on the price of oil world wide. Thus I am looking at $10 a gallon and that is just a guess.

Thus my first choice is a five dollar a gallon gasoline tax. It provides the incentive to get Americans to buy less oil and the revenue to fund alternatives to oil base transportation. It would be the first step in any effort to end funding to these radicals, but I suspect a US invasion will also be required, an invasion of the northeast part of Saudi Arabia for that is where the oil is.

Here is the my calculations on Minimum Wage Workers:

1. Minimum wage is $7.15 per hour
2. In a 40 hour work week, 52 weeks in a year, the work year is 2080 hours (40 hours x 52 = 2080).
3. A minimum wage worker thus earns only $14,872 per year (2080 hours x 7.15 per hour).
4. If such a worker is in public housing, he or she MUST pay 30% of total income for rent and utilities (and Utilities are defined as heat, electricity, water, sewerage and garbage disposal only). Thus a Minimum Wage Worker must pay $4461.60 in rent ($14,872 x .30), that leaves $10,401.40 for all other bills).
5. Breakfast can be had for $2 a day, Lunch $3 a day, dinner $5 a day, thus a typical person living inexpensive, but cost effective lifestyle will spend $10 a day for food, which comes to $3650 a year. That reduces money for everything else to $6760,40.
6. Minimum wage earners pay Social Security Taxes, 7% of income and State and local Taxes. In my state that comes to 5.07% (3.07% for the State of Pennsylvania, 2% for the local Government). Thus 12.7% of any minimum wage worker income is reduced by such taxes, even when the Federal Government says such income is 'Tax Free' for federal income tax purposes. Remember this is 12.07 of TOTAL income or the $14,872 above. That taxes paid is $1795.05. That leaves $4965.35 for everything except food, housing and taxes.
7. The typical driver of a car drives about 15,000 miles a year, the Insurance companies say 12,000. I notice I drive about 20,000 miles myself.
8. The average car in the US gets about 20 miles to the gallon. Most low income people end up buying five to ten year old cars, often older. Till the last few years that was the average car for NEW cars, thus today (2015) you are finally seeing some of the better fuel economy car getting to low income people. The problem is people from East Asia and Southern Europe will pay more for a small cars then will Americans so many US small cars end up in those two places when they hit 10 years of age. Thus Low Income Americans end up buying mid size or large cars for those are NOT popular overseas (except in South American and the Mid East, but both are low volume car buyer areas).
9. The typical car of a Minimum Wage American worker gets 20 miles to gallon and he travels 15,000 miles a year. 15,000 miles divided by 20 mile per gallon comes to 750 gallons of gasoline that person uses in a year.
10. $4965.35, the income after rent and food, divided by 750 gallons equals about $6.20 a gallon.
11. If we look at INSURANCE, MAINTENANCE etc of a car that runs at least $1000 a year (minimum coverage). That drop the income available for fuel to $3965.35 or about $5.29 a gallon.

As I mentioned, the above ignores anything else a person may want to buy, like clothing, shoes etc. Such a person gets almost NO food stamps, for at full time minimum wage, food stamps tends to drop to Zero (if Children are involved, continues to higher income, but at reduced rate so at minimum wage Food Stamps for such children do NOT equal what such children eat, all of this is to keep Federal Spending down). Under ACA most minimum wage workers have some health care through welfare, but NO welfare cash benefits.

Please note most of the Vehicles Minimum wage workers are driving are marginal. My father use to call them inspection specials, good from one inspection to the next (At the second inspection something major has to be replaced, brakes, springs etc). Thus such workers end up trading in the old car for one that passes inspection this year OR coming up with the money to get the car repaired enough to pass inspection. That money comes out of the money for fuel.

Thus in 2008, such workers started to drop out of the work force as Gasoline went over $4 a gallon. Those other costs, that I ignored in my calculations, came into play.

Just a comment that when Gasoline starts to go up, the "Cap" on the present price of gasoline are the above minimum wage workers and they stop buying well before gasoline gets to $5 a gallon (they stop buying at about $4 a gallon). Thus the top price for Gasoline is $4 a gallon but only for a brief time period.

Right now, the price of oil has been dropping, but that is about reached its bottom. Many of the marginal producers of oil are capping their wells. They can not make profit at these prices and thus no longer selling. Sooner or later we will hit a point where enough of these marginal producers drop out of selling oil, and the subsequent fall in supply will lead to an increase in price. The demand for oil exceeded supply from about 2002 till 2008 and during that period the price of oil slowly increased but hit its limit as for the first time ever (Since 1859 when oil was first drilled for in Pennsylvania) the US actually had a DROP in oil usage. That drop has continued to this day, increasing the pressure on the price of oil to fall. This up and down in prices is typical of an energy source whose price is NOT controlled and the price of oil is NOT controlled today. Thus expect ups and down in price from $2 a gallon to $5 a gallon. That will be the new normal, the days on a price for gasoline lasting for decades is long gone.