Sen. John Kerry has pounced on another trendy campaign theme. First he was blasting what he called “Benedict Arnold CEOs” outsourcing American jobs. Kerry came under pressure on that point when it was revealed that the source of his family’s fortune, the Heinz ketchup company, had outsourced jobs to 57 plants it operates overseas–the Heinz 57.
Now Sen. Kerry is getting pumped up over gas prices, saying they’re too high. In a speech Tuesday in San Diego, Sen. Kerry said “gasoline prices are at an all-time high.” This would be alarming, except it’s not true.
Mike Myers, the economics correspondent for the Minneapolis Star-Tribune recently pointed out, “Once inflation is taken into account, today’s gas prices are not even close to the highest in U.S. history. What’s more, the share of consumer income required to keep tanks filled is lower today than for most of the 20th century. By that yardstick, gas is cheaper than it was in the 1920s, the ’30s, the ’40s, the ’50s, the ’60s, the ’70s and much of the ’80s.”
GAS VS. KETCHUP
Despite his error, maybe Sen. Kerry has a point. Even if they’re not the highest in history, maybe gas prices are too high.
One way to determine if gas is too expensive is to compare it to other products to see how much bang you get for your buck. Sen. Kerry chose to speak in San Diego in part because that city has, according to Reuters, the highest gas prices in the country at $2.12 a gallon. So how does that compare with other consumer products like, say, the source of the Heinz-Kerry fortune: ketchup?
At the big-box retail outlets Sam’s Club and Costco, ketchup sells for about $0.04 an ounce or $5.12 a gallon–a little more than twice the price of gas.
But that’s not the best comparison. Americans typically don’t buy gas in bulk the way they buy foodstuffs at Costco. Ketchup at a retail grocery store is $0.16 an ounce meaning it rings in at an impressive $20.48 a gallon, almost ten times what gas costs.
Gas is also cheaper than orange juice ($6.64 a gallon), Snapple ($10.32 a gallon); olive oil ($51.04 a gallon), eye drops ($995.84 a gallon) and nasal spray ($2,615.28 a gallon) according to figures from the Department of Labor, Consumer Price Index.
WHY ARE PRICES RISING?
But even if gas seems cheap by comparison with these products, Sen. Kerry is correct that prices have been rising. What’s behind the latest spike?
Economist Lynne Kiesling of Northwestern University who studies energy markets points to three factors. First, world crude prices are high, thanks in part to OPEC and tumult in Venezuela. Second, she points out that “existing environmental regulations”–such as those limiting flexibility at refineries; market-distorting state environmental regulations; mandates for ethanol additives and the like–”are making supply more inelastic.” Lastly, new clean air regulations are taking effect in 2004 leading to higher short-term prices.
So what does Sen. Kerry propose to do about these problems? While some of his suggestions are sensible, others are unrealistic. Mostly they won’t do any good.
In his speech Tuesday, Sen. Kerry says he would “pressure” OPEC to lower prices. That’s a sensible step and one all presidential candidates since the advent of OPEC have advocated. But such “pressure” is like a UN resolution: it does no good unless backed up by credible threats of some kind.
He also says he would “simplify the patchwork of rules on gas all over this country so that we can reduce costs and make fuel supplies while keeping our air clean.” That sounds good too, except, as Ben Lieberman of the Competitive Enterprise Institute and an expert on energy markets points out, any substantive efforts by Kerry to address the problem are likely to be stifled by his base. “Streamlining the regulations could do some good,” Lieberman says, “but is politically difficult, as the necessary changes to the Clean Air Act’s gasoline requirements would spark loud environmentalist opposition.”
Sen. Kerry also says he would “stop diverting oil to the Strategic Petroleum Reserve until gas prices get back to normal.” But the effect of this step will be miniscule since the reserve is a drop in the bucket, an inconsequential part of the global energy marketplace. And he also said he would propose jobs programs for renewable energy industry workers. But renewables are a long way from being a significant part of the nation’s energy mix–they currently account for about three percent–so this, too, will have no effect on gas prices anytime soon.
As the debate over gas prices continues and both the Bush and Kerry camps throw tomatoes at one another, it’s useful to remember the regulatory apparatus at work that’s driving the current spike in gas prices. Unless something substantive is done about that, gas prices will be stuck at a level Sen. Kerry now deems too high. In the meantime, buck up; things could be worse. You should be thankful your car doesn’t run on ketchup.
–Nick Schulz is editor of TechCentralStation.com.