Plus eight

Between Thursday morning and Thursday evening the local gasoline hopped up eight cents a gallon. I think this is mirroring the jump in wholesale gasoline prices triggered by shutdowns as industrial workers evacuate from the coastal refineries.

Inflection point

In my opinion, we could be looking at a temporary bottom in gasoline prices right now. Prices came down twelve cents a gallon off the weekend but have been holding now for the past two days. Don't count on the price stepping down again this late in the week, and of course the big threat for the following week is Hurricane Rita. That storm is menacing a whole different batch of refining capacity on the Texas coastline. We've all just experienced the sort of price spike a temporary, regional refinery shutdown can cause. If two of those events occur within a month of one another, the second could wind up being worse because the slack in manpower and supplies for repairs was already taken up by the first storm.

So I filled my tank and replenished my Strategic Premium Reserve last night. (I drive an older car that really appreciates the 93 octane). As an aside, I'm probably breaking one of Wisconsin's laws when I'm filling my five gallon gas cans. How can this possibly be? Well to begin with, I just don't like those plastic gasoline cans. I don't much trust them, don't care for them. They seem cheap. To my way of thinking, gasoline should be in a metal can. On the other hand, do you know what a quality five gallon gas can costs? Usually around forty bucks! Unless you're inclined to buy the NATO-style gas cans, which can be had from sporting catalogs for around fifteen bucks. Big savings -- but the cans are green, and there's the rub. Wisconsin statutes section 168.11 says I'm only supposed to dispense into a red container. It's the law, dadgummit! So if you wonder why I'm parking at the furthest pump, at night, lurking behind my big car to fill the gas cans -- now you know.

But back to the blasted hurricane. You'd have to be living under a rock to not notice that Rita has been leading the news all freakin' week, plus part of last week as well. I'd just like to make the point that Rita is not all that different from Katrina. Katrina also originated in the Atlantic, also passed over Florida, and also spent days lazily building strength over the balmy waters of the Gulf. And yet Katrina, which was about as swift as stealthy as an arthritic bull elephant, caught about a hundred thousand people (and three levels of government) with their trousers around their ankles. It just seems so silly and negligent -- more and more so as we trudge through this week's news of Rita approaching. And still approaching. And oh, look! Still approaching.

Gas prices in rapid decline

I must have missed the blaring headlines about this, but the local price of gasoline has fallen ten cents a gallon in just the last two days, and is 35 cents off the post-Katrina peak. The price is still historically lofty, of course, even above the 1980 levels in inflation-adjusted terms. But "lofty" is a substantial improvement over "crazy."

As a driver of an old, fuel-inefficient vehicle, I have tried to be cagey in my fuel purchases. Even before that though came simple conservation efforts: fewer side trips, combining errands and the like. But a guy still has to get to work and back. When the price of gasoline is rising quickly, day after day, the proper strategy for purchasing is to fill up as often as possible. Better to buy all the fuel I can at today's lower price than at the new elevated rate of tomorrow. One just has to watch for the inflection point, noting when the runup has peaked.

The present, declining price environment calls for the reverse strategy. Don't fill up. Put in only a half tank today, because tomorrow's price will be lower. Go back to the usual fuel purchase patterns only when the price stabilizes for about a week. Furthermore, if you have five or ten gallons in cans as reserve, consider using that fuel now. It'll save you from buying at $2.75, and you can refill your reserve later when the price has bottomed.

This whole episode has been an interesting demonstration of the market at work; proof, I would think, that it is possible to endure a supply shock without running out of product as long as you allow the price to rise. I had to argue this with my coworkers a couple weeks ago as gas hit $3. One coworker, surprisingly, was alleging gouging and conspiracy. My case was straightforward. I first got my coworker to agree that a supply disruption existed. I then pointed out, "If you hold the price the same, you'll run out. Nixon tried that, and you had lines and shortages. Why would it be any different now?" The coworker was obliged to concede, at minimum, that some price increase had to occur to curtail demand.

That's when the other coworker jumped on me. "But people aren't going to drive less. They still have to get to work. They still have to go to the store." I replied that it's true that people will still do those things, and yet they will drive less all the same. For example, I switched around a visit with my extended family. Instead of the original plan of having them driving one or two large vehicles to visit me in my home over the weekend, my wife and I instead went to visit them, driving only my wife's compact car. As another example, this time of year I often have league sports events at seven in the evening. It's tempting to leave work at five, have some time at home and then go to the game, but that's more driving. So instead I have been staying late at work, saving on the driving. It's true that people are just trimming consumption on the margins, but you only need 4% trimming to get through a 4% supply shock. That's all it takes.

What the second coworker's statement is really about though is the inelasticity of American gasoline demand in the short run. People "need" to do a certain amount of driving, and those habits don't change easily. That's why it took about a fifty cent per gallon increase to result in the necessary curtailment of demand. But "inelastic" is different from "no elasticity at all," which is an exaggeration that my coworker was alleging.

Furthermore, over medium periods, we find more demand elasticity. The longer price pressure is applied, the more people will make long-term adjustments in their consumption. I know of two coworkers already this month who have purchased small used cars for the express purpose of saving on fuel costs, particularly in commuting. Behold, the free market at work!

Word verification ON

This blog is a backwater. I like it that way. So when I realized this week that my private pond had been sullied by a comment spammer, I went virtual-ballistic. As though any reader who would encounter the spammer's meaningless word salad would have the slightest interest in following the links. Ridiculous. But I am told, "Oh, no. They just want the link planted on your page to raise a page ranking in the search engines." Feh. They'll get no unearned benefits, metaphysical or otherwise, from the Jujj's virtual court.

I quickly expunged the spam and activated one of Blogger's newer features, the "word verification." Should you wish to post a comment here, you will be shown a graphic of a word and asked to type that word in as verification that you are a human being with eyeballs and a brain, and not some automated spam-planting engine.

Nay, if a spammer expects to profit in this venue, he'll need to be like the rest of us and actually read the blogs. Read, smile, and nod quietly as the bloggy essence sinks in. Enjoy.

When the levees are down

When things are at their worst, the maxim goes, that's when you find out who your real friends are. If that's the case, who were the better friends to beleaguered folks on the Gulf coast, post-Katrina? Mayor Ray Nagin, who wouldn't follow his own city's disaster plan? Or Wal Mart, which has managed to improvise relief distribution both before and after the storm? Would you be better off aided by director Brown's FEMA, or the Southern Baptists?

I admit to indulging in more than my share of hissing and spitting over which layer of government has exhibited the most incompetence during the disaster. A big problem with this line of argument though is that it implicitly assumes that government should be entrusted with all these responsibilities. If I paid my garbage man, my barber, and my neighbor's kid to team up and perform heart bypass surgery on me, it'd sound silly to complain afterward that it didn't go perfectly well. That would be true even if I gave them a lot of my money to do it.

You want a mountain of water and food somewhere at a certain time? You want transport? Yes, I know that you gave the government a lot of your money, but what if they don't deliver? It's almost impossible to sue them. It's equally hard to hold an actual government worker accountable -- whether criminally, civilly, or even to impede his prospects for advancement. You're much better off using your money (or pooling group money) to contract with private organizations for such things.

If you want government to do something well, then for heaven's sake give it less to do. Besides affording the government fewer meaningless distractions, it also costs less in taxes, leaving more for people to use in taking care of themselves.

That said, there will always be the infirm, and especially the poor. Lower taxes mean little to those who aren't paying in the first place. What becomes of them when the government is not tasked with their sheltering, feeding, evacuation, and so on? I say give this a try: have government concentrate on maintaining order. Just do that! Where there is order, then volunteers, charities, and even business can work to bring food, shelter, and transport. Bus drivers and Red Cross workers will not come when they are being shot at. This is understandable and already amply demonstrated.

Obviously, such devolution of government duties is a counterintuitive notion to many, but what else is on the table? The government failed to meet expectations, and American government is already the most humongous, most lavishly-funded the world has ever known. Is it wise to give it more money, to make it bigger?

Even if people refuse to rein in government, at the very least could we refrain from calling upon the government to hobble the companies that invariably come through as benefactors in times of crisis? In a similar spirit of tolerance, how about cutting the Southern Baptists a little slack when they ask permission to put up a nativity scene in the middle of town this Christmas? They're feeding tens of thousands of people on their own initiative right now. That should be worth something, even when it's not government doing it.

EPA fuel waiver

If you wish, follow this link to read about the fuel waiver issued Wednesday. Of note:

These waivers only apply to volatility standards - the rate at which fuel evaporates - and the amount of sulfur in fuel.

If I understand this correctly, this sounds like a half-ass measure that fails to do anything for the so-called ozone non-attainment areas like southeast Wisconsin. The special formulation in these areas has to do with fuel oxygenation, not volatility or sulfur content.

Silly to even get my hopes up, really.

Uncle!

All righty. The price of gasoline is now, officially, crazy-high. I have so decreed.

Perhaps you recall from May that I wrote about gasoline prices then, and said that they weren't at record levels (in the inflation-adjusted sense) and that we weren't in any kind of crisis. At the time I wrote, the price was $2.236 / gal. What a windfall such a price would seem today! With the price spiking up from the refinery shutdowns (a la Katrina), I am seeing non-reformulated area stations demanding $2.99 / gal. In Milwaukee, still mandated to use an extra-special reformulation, it's even worse with prices at least another 30 cents higher.

So I'm willing to declare some sort of crisis state now, albeit a low-grade one (excepting Louisiana and Mississippi, who have a real crisis going on). I think that the smartest mitigation measure that could be taken now is for the president to sign off on a waiver so that the EPA "non-attainment areas" can use whatever fuel formulations are at hand. This would get rid of the entirely artificial local price spikes that are due to sudden glitches in the supply and delivery of specialty gasolines. It would also simplify logistics, which is a good thing to do in a time of disruption.

I would also get behind a limited suspension of the Wisconsin state taxes, say for a three week period. This would further mitigate local economic disruption caused by the national price spike. Note that this only works if other states don't try the same thing en masse. The benefits here only accrue to the bold.

Of course the chance of these things happening don't seem great. For one thing, I don't expect George Dubya to recognize that there's actually a beneficial "small government" thing he can do (EPA waiver) when there's so many higher-profile, "big government" things (FEMA, federal troops, etc.) in play at the same time. He may surprise me though. There was a representative for the American Petroleum Institute on the news with Jim Lehrer Wednesday who seemed to imply that Bush had already won a waiver through September 15, but I can't confirm this. As for any form of state tax reduction, Wisconsin's governor has made it abundantly clear that whether things are affordable to the government takes top priority. If things become markedly less affordable for the taxpayer, they just have to muddle through somehow. This is true of most government, most of the time. If you doubt it, please listen carefully when elected officials talk about (a) tax cuts and (b) government programs. Only (b) actually "costs" the government money, but in spite of this (a) is routinely labeled as a cost as well.

Again, I don't mean to imply in any way that my tribulations with my wallet compare in magnitude to the destruction and displacement on the Gulf coast. They don't. It's just that you can read your fill about that elsewhere. I'm just writin' here.

But on the topic of destruction, let me bring up a couple observations. The Wall Street Journal noted Wednesday that the New Orleans levee system was supposedly designed to withstand a direct hit from a category three hurricane. What New Orleans got Monday was a flyby to the east from a category four, and the levee system broke down anyway.

Besides noting that the system didn't live up to its advertised strength, I have to ask: When the very existence of the entire city is at stake, does prudence demand setting the bar a little higher than category three? I ask this sincerely from a risk-reward standpoint, understanding that I might be off-base here. Maybe a category four or five hasn't passed that close to New Orleans in 200 years, and will not again for another 200. If that's the case, I'd concede the folly of spending five billion dollars beefing up a hundred miles of levees. Otherwise, I'm left wondering how it is the people down there have been content with their annual game of russian roulette. Bang, you lose fifty billion dollars.