Would you like your ethanol to depend on the Indian monsoon season? From the BBC:

The price of raw sugar has increased to its highest level since 1981, as supply concerns grow.

Raw sugar futures added 3% on Monday, to finish the day at 22 cents a pound.

"The main problem is a deficit in sugar supplies," said Nick Penney, a trader with Sucden Financial, a firm that focuses on sugar trading.

Growing demand in Brazil for sugar to be turned into ethanol, coupled with a sharp fall in Indian production, have both prompted worries, he explained.

Sugar production in India for 2008-09 fell 45% year-on-year, according to a report by Sucden.

And a "drastic fall" is expected for the coming Indian crop, it said.

India had less rain in the monsoon season and it was also uneven, damaging a number of agricultural crops.

The price was under thirteen cents in April. Note that both a change in supply and in demand happened here (see the italicized paragraph) which means we have much higher prices without anyone really getting more fuel or sugary products.

Labels: economics, Energy, gas

Mrs. S was taken over by a stomach flu Monday and stayed in bed. She often turns down the heat when in bed, so Tuesday morning when I woke it was -24 outside and only 53 inside. That shower I took reminded me of being in Ukraine, where we had no apartment thermostat (all heat and hot water was centralized by the city unless you installed an emergency hot water system.) In the winter I took many such showers. (Hint: take all your clothes in the bathroom with you, including shoes. I did that this morning.)

It'll be cold here all week. But I can't complain about the cold because in Eastern Europe it's much, much colder. -49C/-56F in Slovenia on Saturday colder. All of which is really annoying them with the Russians and Ukrainians fighting over gas.

Hungarian Prime Minister Ferenc Gyurcs�ny said this week it was unacceptable that �the bullets Ukraine and Russia shoot at each other hit Hungary.� Like other affected countries, it has set up gas-usage limits for consumers.

Eastern Europe has not seen such rationing since communist times. In Hungary schools were closed down during the week. Officials say they will compensate by sending children to school on weekends.

The Hungarian Ministry of Agriculture has handed out a list of food companies producing essential goods such as meat, milk and bread, and asked the government to ensure uninterrupted gas supplies.

Hungary has capacity to sustain some two months of heating public institutions and houses, 90 percent of which use gas, but only if it abandons all economic activity.

VOA News is also reporting on Hungarian gas shortages.

The Ukrainians understand this. They are in a very good strategic position, holding most of the gas lines than run to the EU as well as to the Caucasus. So it is trying to leverage that to get a good deal on its gas from the Russian firm Gazprom. It appears that Tuesday morning the Russians began to ship gas but were blocked by the Ukrainian side, even with international monitors supposedly present. (The Ukrainians blame Gazprom, naturally.) But as Stratfor points out the Russians have built a good buffer. I have noted that the January calendar normally contains a Russian-Ukrainian gas spat. This time, however, Stratfor thinks the Russians brought better weaponry to the fight.

...before 2004, the Russian-Ukrainian natural gas spat was simply part of business as usual. But now, Russia feels that its life is on the line, and that it has the financial room to maneuver to push hard � and so, the annual ritual of natural gas renegotiations has become a key Russian tool in bringing Kiev to heel.

And a powerful tool it is. Fully two-thirds of Ukraine�s natural gas demand is sourced from Russia, and the income from Russian natural gas transiting to Europe forms the backbone of the Ukrainian budget. Ukraine is a bit of an economic basket case in the best of times, but the global recession has essentially shut down the country�s steel industry, Ukraine�s largest sector. Russian allies in Ukraine, which for the time being include Yushchenko�s one-time Orange ally Yulia Timoshenko, have done a thorough job of ensuring that the blame for the mass power cuts falls to Yushchenko. Facing enervated income, an economy in the doldrums and a hostile Russia, along with all blame being directed at him, Yushchenko�s days appear to be numbered. The most recent poll taken to gauge public sentiment ahead of presidential elections, which are anticipated later this year, put Yushchenko�s support level below the survey�s margin of error. (h/t: Eclectecon by email.)

See also this analysis by Der Speigel, which finds that the EU was nevertheless caught flatfooted by this. My wager is that the Europeans are faced with enough trouble to help Ukraine solve this problem. The difference last we looked was about $49 per unit for the gas ($201 vs $250 per cubic meter.) When it only takes money to solve a problem, someone's money solves the problem. Whose, is the question. Russia's got a cash reserve, but the weather favors the Ukrainians.

Labels: economics, gas, Russia, Ukraine

You know, that Andy sure has some power.

When a nation manipulates a market, like energy it gives them an advantage over other nations, or imposes mandates that increase prices domestically, it harms their economy.

Less than 24 hours later, China caves in.

China will raise domestic gasoline and diesel prices by 17%-18% from midnight, the government said Thursday, as it responds to near-record crude oil futures and criticism of its fuel subsidies.

The surprise move raises prices by 1,000 yuan ($145.30) per metric ton and will be the largest increase in over four years although local prices will still be below the international market.

In a statement, the government's National Development and Reform Commission said the decision was aimed at ensuring domestic supply, noting that refiners were suffering "heavy losses."

It's the first oil product price increase since Nov. 1 and comes at a time of widespread fuel shortages in China as filling stations run out of diesel to sell or ration purchases by truckers. China is also increasing jet kerosene and jet fuel prices and from July 1 is raising retail electricity prices.

China's stock market has fallen 50% since late last year; it may be that the engine that is the Olympic Games is about to run its course. Mark Perry has a great graph of construction in China, proxied by its cement output. This supply shock won't help. Along with India and Malaysia, higher net prices to consumers could signal a decrease in quantity demanded as it already has in the US, and a peak in oil prices. As Asia last time led oil prices down in the late 1990s, could that happen again?

UPDATE: See also this from Ironman.

Labels: economics, gas, MOB

Via BusinessPundit, a list of the ten most expensive and ten cheapest states in which to buy gasoline. Did you know Minnesota was 7th cheapest? So let's take that ten cheapest list and add on the current rate of gas taxes (combined state and federal) in parentheses, data as of 1/08 via API. National average is 47.0 cents.

Wyoming����.$3.776 (32.4)
Iowa�������.3.813 (40.1)
Missouri�����.3.815 (36.0)
Oklahoma����.3.825 (35.4)
South Carolina�.3.828 (35.2)
Kansas������3.855 (43.4)
Minnesota����3.860 (40.4 42.4 on April 1)
Tennessee���..3.863 (39.8)
Mississippi����3.876 (37.2)
Alabama�����3.900 (38.6)

Obviously taxes aren't the only thing -- transportation costs make Alaska's gasoline price quite high even when it has the lowest state excise tax on gas -- but is Minnesota's place relative to Iowa a function of the transportation bill? Or is all the money coming from gas companies?

Don't know if our rank will change, but Georgia might soon appear on this list.

Labels: gas, Minnesota

Two nights ago Mrs. S started shouting to me down the stairs (where I was in NBA playoff bliss) "we need to buy more gasoline." I realized she meant to bank more gasoline. We keep an account at First Fuel, where we have approximately $1500 socked away, purchased at $2.699. The newspaper blared yesterday morning that we had struck a record. Mrs. S, I've concluded, is a momentum investor.

Humor aside, it's worth wondering what is going on right now. We know that records should be corrected for inflation and for changes in taxes, but that won't explain everything. The recent state tax increase should have added only $0.02 so far, and Federal taxes haven't changed. The tax proposals of some (including John McCain) to have a Federal tax holiday doesn't help that much, as Menzie Chinn points out. Half of that shifts back towards oil companies. I'm not looking to tax windfall profits, but there's little sense boosting their profits further at this time. And Chinn notes "to the extent the lower price spurs gasoline consumption, this should increase the petroleum and petroleum products component of U.S. imports, and thence putting further upward pressure on the price of oil..."

Another issue is that these reports come out every spring. Last year we were talking about gas boycotts around this time. Two years ago it was ethanol, another pitch of the tax holiday etc. Three years ago it was evidence of stagflation. Like first pitch, it happens every spring. Here's a chart to show what I mean:
The technical term for this graph is that it is the Census X-12 seasonal factor for the price of a gallon of regular unleaded gas (all formulations, source.) If it matters to you, I estimated it with EViews 5.0 and estimated it over 1980-2007. I'm only showing you the last three-plus years. For the layman, the vertical scale is the multiplicative factor set to equal 1 when the month is normal. 1.04 says the month on average has prices 4% higher due to the season it is; a 0.92 says the price is 8% below a normal month. As you can see, the high months begin every April, tending to peak in May and then coast to the fall, where they fall to a nadir in December and January. Naturally, that's when I put money in the fuel bank. Most of my friends know this by observation; I of course have to use an econometric package to get the same answer, proving I'm not smart, just methodical.

That same analysis also generates an underlying pattern of the trend and cyclical movements of the gas price. Now this picture should scare you if you're worried about gas prices, but it also puts the emphasis back into mid-2007, where I think it really belongs.
The vertical axis is cents per gallon. This process takes the noise out of series and the seasonality to look for shorter trends, and no doubt the trend is straight up lately. If you extrapolate that trend, even with the decreasing seasonality, a $4 gas price is just slightly less than a 50-50 proposition. I get $3.976 for a July forecast using this very crude estimate. The drop in late fall and winter will only have the price slide back to about $3.65 by December. Why that upsurge is happening isn't really so clear, though Jim Hamilton's contention that it's Fed policy feels pretty right to me. Not that I'm a gold bug, but the price of gold on a monthly chart has about the same pattern.I think that if you took the prices of all commodities -- which may or may not be simply a representation of a weak dollar -- and combined it with the gas seasonal factor, you go a long way to explaining the price of gas. And if you do believe this, you should take Mrs. S's advice. You're not likely to see a price at this level again until December at the earliest. And maybe not even then.

Labels: economics, gas

The Student Senate at St. John's University has issued a condemnation of the Minnesota Legislature for its override of Governor Pawlenty's veto of the gas tax.

WHEREAS: The Minnesota Legislature raised the Minnesota tax on gasoline and diesel fuels; and,
WHEREAS: This increase has an enormous financial impact on people with fixed and low income; and,
WHEREAS: Students are a major demographic of people living on limited budgets; and,
WHEREAS: This tax will only affect students negatively when they are traveling within the state for internships and trips home; and,
WHEREAS: This will place an additional, undue burden on families who are scrapping to make tuition payments; and,
WHEREAS: This is a wholly avoidable tax levied against the students of the state; and,
WHEREAS: If the Minnesota Legislature is going to make claims that it will stand in support of its student constituents, it must understand that this tax is contradictory to any such notion; and,
WHEREAS: Saint John�s University and the College of Saint Benedict rely on diesel fuel for inter-campus transportation; and,
WHEREAS: This transportation fee is paid for by student dollars
NOW, THEREFORE, BE IT RESOLVED, THAT WE, THE SAINT JOHN�S UNIVERSITY STUDENT SENATE, do hereby condemn the Minnesota Legislature for raising the gas tax to levels so high that student mobility is threatened.

Will other student governments follow suit?

Labels: gas, legislature, Minnesota, taxes

My own representative, Larry Haws, is quoted in the local paper (not online, and my copy is at home so I'll do this from memory) saying he voted for the transit tax bill and its override based on thinking the gas tax was a better way of getting that money than getting it from grandma through property or income taxes. Again, not exactly those words, but that was the gist of what he was saying. And that's an argument worth having, a basis for voting that I can respect because that's the real choice that was made yesterday. I disagree with it vigorously, though.

I received a prepared email assailing yesterday's vote sent to a group of individuals mostly living in the Twin Cities directed against DFL Sen. Linda Berglin. I'm not sure how I ended up on this list, but it contains a number of prominent private citizens who I know to be conservative. One such individual sent back a message.

I agree that our overall tax structure is too high, but we need the roads and we need money to fund them.

I never thought that I'd support anything that Linda Berglin supported, but here it is. Thank you Linda.

I believe the description of my reaction would be 'gobsmacked', if you were British. I am admittedly one to respond to people who write things to me that leave me in such a state, and this was no exception.

I notice your address is in Minneapolis. I live in St. Cloud. Approximately 13,000 St. Cloud residents (out of the 105,000 workers in our area) drive outside our metro area to work each day, and most of those drive to some place in the seven-county metro. It�s about a 75-mile one-way trip. Assuming they get the average fuel efficiency of American cars, your �need� just cost my friends an extra $172 just to commute to work and back. They�d buy a more fuel-efficient car, but your �need� just hit them with an extra $200 for their tabs.

So as you enjoy the new roads and bridges you �need� � which will be not many, since a big chunk of this money will go for the half-empty trains you�ll watch while waiting at a crossing (but you�ll be waiting on new roads! O joy!) � thank a St. Cloud resident.

Using our benefit principle discussion from yesterday, I assume you to say that the commuters are paying for roads they benefit from so are properly charged. But the point is that all taxation and expenditure involves a reallocation, and the extra $172 is not going to improve I-94 or US 10. It's not going to be used to build a connector in Clearwater between those two highways. Rep. Haws chose to have his own residents who work outside of St. Cloud, who are likely to be wage earners with families, bear a larger burden instead of grandmothers. Even if we accept the premise of our interlocutor, that we "need" roads and bridges and even if we assume that we actually will get roads and bridges and not just more transit projects, what makes Grandma more deserving of protection from government taxation than the family trying to better themselves, provide for their children, and producing goods and services people want to buy?

As the old saying goes, those who rob Peter to pay Paul can always count on Paul�s support. If you're Grandma, Rep. Haws is your hero. If you're a worker commuting from St. Cloud to Hennepin County, or from Randall to Waite Park to work in our manufacturing plants, Rep. Haws decided you are Peter.

Here's Peter's friend. I don't know if he would tax Grandma more; he might just decide to make some real budget choices.

Labels: gas, Minneapolis, Minnesota, St. Cloud, taxes, trains

As we continue the discussion of the transportation budget today -- liveblogging going on at Let Freedom Ring and Ladies Logic capturing everyone's attention (UPDATE: The override passes) -- it's worth pondering some points that have bothered me. I find as I go through this debate to find confusion on the terms public provision and public financing, about transportation versus transit, and over whether some people have plans. Let's pose this as a series of directed questions.

1. Does Minnesota need more money spent on transportation? Now it is popular for many to focus on where the money we already budgeted was spent: "MVST was supposed to be a fix, but it isn't." "The Legislative Auditor tells us we built too many new roads and maintained too few existing ones." "Our bridges are falling down." "You should have spent less on bike trails." None of these points is now relevant. They are sunk costs. The question before us is simply, should we budget for building new roads and bridges? Since Gov. Pawlenty proposed bonding for bridges, he certainly wants more spent. The House caucus has repeatedly said there's a compromise available, which surely means more to be spent. So the argument isn't over whether to build more roads and bridges. That's been agreed to by all parties. You want to punish for past decisions on bike trails or MVST? There's an election for that. As Mitch pointed out, you had a chance last time.
2. Are we buying the right roads, bridges, etc., or is this another transit boondoggle? The MnGOP has been labeling this the transit tax. Probably so, but how many of the legislators live in the seven county area? If you wanted to stop the transit boondoggle, the only way would be to stop awarding Senate seats by population, and switch to one vote per county or some other geographic division. The next apportionment in 2010 will probably move more legislative districts into the second ring suburbs -- what do you suppose that does to demand for rail projects? So my point is that outstate will always be in the minority on transit; the governor's veto only requires the Legislature to hold party ranks together and to bribe a few legislators -- which they've done. That's not extortion or coercion, that's plain old logrolling. Some payment is already in HF 2800, and others will be forthcoming in the bonding bill that the Legislature will now re-write; after all, there's money to spend!
3. No, but really, are they in the right place? But that doesn't mean we bought the package of roads and bridges that we should have bought. The problem with government provision of public services is that it provides goods in return for political support, not for places where benefits exceed costs. If you want the latter, don't expect government to do it for you. Governments have no profit motive and thus no assurance that what they spend will have the value provided for. Jim Fedako writes at the Mises blog:

   The difference between government and business is the chain of taxation versus the dollar vote. The public school district taxes regardless of value produced. Once the bond issue passes the voters, the bill must be paid, to be enforced by the long, strong arm of government. On the other hand, the entrepreneur must face the consumer every day, product in hand, hoping to make a sale. The consumer can as easily bypass as enter his store, based on a whim if he so chooses. The taxpayer? Well, just try to hide.

   Did we build bike trails that provide too few benefits for their cost? Are we paying for trains that have low ridership? When private firms do this, they fail. Government passes another tax.
4. How would we prefer to pay? Public finance students are given a set of lectures on the benefit versus ability-to-pay principle. I have argued before that since many people will use the roads a generation from now it made sense via the benefit principle to bond for those roads and bridges. The Legislature, seeing the bonding bill as an opportunity for other transfers of public money to political constituencies, chose instead to use something closer to a current benefit principle rather than future benefit. The gas tax is preferred by some for roads because people who buy gas use roads, so they are the ones benefiting from their construction. But when goods are shipped to us in Minnesota we now either pay for transporting them from out-of-state or we get fewer goods. And sales and excise taxes are usually seen as being regressive both on firms and on households (any wonder why the big hitters in the Chamber of Commerce like this bill? It's anti-competitive.) Indeed, the three most regressive taxes in Minnesota are the cigarette tax, the gambling tax, and the motor fuels excise tax. At least one might make the argument for the first two as reducing bad behavior. Does the DFL think driving is a bad?

The argument was not about past decisions. It was not about whether to build roads, and it was not really even about transit versus roads and bridges. Those decisions were already baked in the cake. The decision was over who will pay. Now we know. The question will be whether anyone has enough votes to demonstrate this was not the politically optimal solution.

Labels: gas, legislature, Minnesota, taxes, trains

The battle over the budget deficit -- with a revenue forecast still ten days away -- is heating up and before we even get to that the Minnesota Legislature is trying to salt away some money for transportation. I talked a little below about a corner of that debate, but let's get some additional information together.

The big news today is that the Legislative Auditor produced a report on transportation that said several things. I'm reading the report in bits, so don't consider this a thorough review, but what I have gleaned is this:

1. "After 2003, inflation-adjusted revenues from Minnesota motor vehicle and fuel taxes declined, and the state made substantial use of debt financing to support the state trunk highway system." According to the last Tax Handbook, Minnesota collected $650 million on the gas tax in 2005 and $646 million in 2006. Which will of course lead people to think we aren't taxing enough, but consider the reasons offered: people are driving no more miles than before, in no small part because of more efficient vehicles and rising gas prices causing a reduction in the amount of gas used. Now I doubt we've raised the price of gas to the point where it's elastic in demand -- which would mean the gas tax revenues would fall for an increase in gas tax rates -- but it's almost certainly true that it's more elastic than previously estimated, so that a proposed 42.5% increase in the gas tax rate will not increase the amount of gas tax revenue raised by anything close to 42.5%. Yet it appears from reading the research summaries on the transportation bills that the DFL intends to spend more than $300 million per year on transportation, immediately freeing up that amount from the bridges to make pork.
2. "Since 2002, the ride quality of state trunk highways has generally declined. The structural condition of bridges has generally improved." Call me paranoid if you must, but I think that second sentence isn't going to appear in news reports. MnDOT uses some qualitative measure of ride quality and for principal highways aims for 70% of them in good or very good condition. It looks like we're at 66-67% rather than 70%: Not very good, but we seem to be exerting a lot of effort for 3% improvement. Expected remaining years of useful life of the roads has indeed declined, but this was not enough of an emergency for the Legislature to pass anything more than a lights-on transportation bill. If the highways are in such dire condition, why is the Legislature this year threatening to not fund transportation unless their one bill is passed?
3. We've spent more on highway expansion than on highway preservation. OK, that one looks real, though in a state where population is moving so dramatically away from the west to the east, do we really want to spend money preserving roads in places the people have left? 21.5 per 100 in-migration to Sherburne County, with large gains also in Isanti and Morrison counties. Name a western county, and you will see population decline. I find the LA's analysis, though correct, a little too macro-oriented. But because the Legislative Auditor isn't thinking that way, the office is arguing for much greater spending on highways.

So with that in mind, look at where we are. The DFL leadership came out with a press release today decrying the lack of money and that we need the tax increase. Not that it will do a thing for the deficit if it comes forward -- indeed, my argument is that the DFL is hurrying this bill along because they fear the revenue forecast will suck all the air out of this plan, forcing them either to pass more tax increases for that or cut spending, in which case nobody will be able to support both a tax increase for a budget deficit AND THEN a tax increase for transportation. But if they can pass the transportation tax increase first, they can pretend that didn't happen while fixing the budget.

Meanwhile, Governor Pawlenty continues to say he's going to veto the transportation bill.

Brian McClung released a statement in response to the DFL news conference. In his statement, McClung said:

"We appreciate the legislative auditor's report. It contains many helpful suggestions that we expect MnDOT to implement. Regarding the DFL press conference this afternoon - it appears DFL legislators are determined to pass a massive and overreaching $8 billion tax increase that the Governor has said he would veto. Just recently, DFLers increased the overall amount of their gas tax hike to 8.5 cents, in addition to license tab tax and sales tax increases. They are essentially disregarding the Governor's concerns and appear to believe they have the votes to override a veto. We'll soon find out the answer to that."

The governor's red veto pen is going to be challenged early, and while I am not sure this is more than a wild goose chase, the DFL is undoubtedly trying to buy some votes somewhere. (At least AAA's girlfriend got a good meal.) It's easy to have it both ways as Drew Emmer suggests -- you could have six GOPers vote for the bill but then vote to uphold the veto (they'd've voted for it before they voted against it.)

The Governor is taking an ax to the state payroll, implementing a hiring freeze. Now, there are some folks who are trying to make an argument that savings by budget cuts are just as harmful as tax increases. The logic is pure Keynesianism: if you cut spending by a dollar there's a dollar less of aggregate demand, but if you increases taxes by a dollar some taxes are paid out of savings, so aggregate demand only falls by the part that is funded by reduced consumption. It's part of those bad principles of macro courses where the instructor teaches the students government spending and tax multipliers. But, the story is always told using lump-sum taxes. For it to be right, the taxes must be taken from the public in some way that doesn't change the return on labor, capital, land or entrepreneurship, or alter the relative prices of goods purchased. (A head tax would be one example.) If the tax change DOES change the return on any productive resource, then the tax increase will decrease the supply of output and has an effect that could be more harmful than a spending cut. Increasing income taxes would be one example of a tax that changes the return on productive resources. It's an empirical question, as I often say, and the devil is in the details. Don't be fooled by simplistic explanations.

Still working on some other items so this post tonight might have to substitute for more over the next couple of days. We'll see. 80 days down for the Legislature (including the one in Special Session), 40 to go.

Labels: gas, legislature, Minnesota, Pawlenty, taxes

Michael noted a comment by state Senator Steve Murphy that raised an eyebrow:

Minnesotans would pay more for gasoline with the DFL bill, Murphy said, but they will see transportation improvements.

�They�re definitely going to notice a difference because their roads are going to get fixed,� he said. �That�s the bottom line here, fixing roads and lowering the (vehicle crash) fatality rate.�

The state�s gas tax is 20 cents a gallon. Indexing would have resulted in a rate of 31.4 cents a gallon in 10 years, nonpartisan legislative experts said. By removing the inflation provision, the tax should be 28.5 cents a gallon by 2018.

Two thoughts: First, if I am driving on a better road, don't I drive faster? Potholes tend to slow me down. What part of building new roads leads to lower fatality rates? Certainly not during construction. If more and better roads leads to increased driving, will this increase or decrease the number of fatalities of vehicle occupants? I realize he said fatality rate, but as a matter of public policy do I care more about rates or about the number of fatalities?

Sounds like another job for cost-benefit analysis.

Meanwhile, did anyone notice how 7.5 cents of increase plus indexing became 8.5 cents? It appears the rate goes up five cents in September and then a half-cent a year after next if I read this right. I need to run off to something now, but I'll update this if I can draw a comparison between this and the old bill. The headline figures show a decrease in the total dollars spent, but they always sum 2015 dollars and 2008 dollars at the same value, ignoring discounting.

Labels: gas, Minnesota, taxes

The StarTribune is trumpeting a new poll run by the Minnesota House at the State Fair that says 58% of voters support a dime increase in the gas tax. The question is worded:

Would you be willing to pay an extra 10 cents per gallon for gas if all the money goes toward state road and bridge improvements?

Well, 97% of it goes to the Highway Users Tax Distribution Fund, which distributes the money between the Trunk Highway Fund (62%) and county and municipal street aid funds. A majority of the THF funds go to construction; maintenance only gets about 15 cents of each dollar spent. (THF also relies MVST and license/tab revenues. See this.) About 8% of state and federal dollars go to transit, most of that Metro, which receives 20.5% of MVST revenues since 2001.

One can expect some of those places, plus road research, administration, and various reserve funds, to lead to less than a dime of the gas tax getting to roads.

Of course, a good majority of people voting at the Fair live in the Cities. They get the transit money, and even a disproportionate share of county state aid money relative to the share of metro roads designated as CSAH roads. Likewise, 69% of municipal dollars go to metro cities.

A government that robs Peter to pay Paul can always depend on the support of Paul." -- George Bernard Shaw

Labels: gas, Minnesota, taxes

I am a huge fan of Lileks' money site. I've given him some notes to use for the site (I think I've spotted one.) I now know what to get him for Christmas: a gas coupon.

From Time, December 17, 1979:

Last week the Administration disclosed the details of its proposed emergency rationing plan. Each registered vehicle would be limited to a fixed number of gallons per week, and any driver who did not use his quota could sell his ration coupons on a "white market" for whatever the traffic would bear. Congress rejected a similar scheme last May, and adoption of almost any rationing plan is not expected before next autumn�unless Middle East oil is cut off.

Compounding the sense of drift, Energy Secretary Charles Duncan made public a confusing state-by-state conservation plan that calls for holding 1980 gasoline consumption to about 7 million bbl. per day, just about where economists expect it to be anyway. In an embarrassingly typical DOE bungle, the targets set for New York, New Jersey and Connecticut during the first three months of next year would allow drivers in those states to increase their auto usage.

Almost in desperation, the White House for the past month has been examining a consumption-cutting tax on gasoline. In late October, an Administration task force headed by Deputy Energy Secretary John Sawhill began looking at what the U.S. could do in event of a major supply interruption. From a list of 28 options, the task force came down to two: rationing or a gasoline tax.

I'd be fascinated to know what the other 26 were. There are only two things you can control in a market, price or quantity. It's unusual to control quantity in peacetime, which might be why we had to hear about MEOW.

Labels: economics, gas

Mike Gravel, as Bryan Caplan explains, is the only one who figures out that a carbon tax increases the price of gas and is willing to tell that to voters. The rest want a combination of jawboning, reducing subsidies, a witch-hunt against anyone making a profit on gas, and forcing people into smaller, more fuel-efficient cars. (Which as noted before will reduce gas tax revenues and cause the junkies to suffer withdrawal. But at least that might reduce push gas prices down.)

Of course, Mr. Gravel will be on the Tommy Thompson bus in short order.

Labels: economics, gas, politics

There is a relic of the Depression era in Wisconsin, called the Wisconsin Unfair Sales Act. Passed in 1930 it put a minimum on prices for goods and services in the state; you can't sell below cost. There are specific provisions for gasoline, however, which says you have to sell your gas at a markup over wholesale cost that can be 9.18%. In 2003 the Federal Trade Commission offered an opinion that this law is harming consumers by keeping prices high.

Unlike federal antitrust law, the Act protects individual competitors, not competition, and discourages pro-competitive price cutting. In particular, the Act subjects vendors to civil liability - including treble damages and a substantial fine per violation - for cutting prices even if there is no likelihood of harm to competition, and even if the vendors have no intent to engage in anticompetitive conduct.

If you need much more proof that it's protecting competitors, look at a position paper of the Wisconsin Grocers Association. they argue that minimum prices are good for consumers, without any explanation for why.

The Institute for Justice is now seeking to help Raj Bhandari, who is being fined $2,500 per gallon of gas he sells below cost. IJ is arguing that retailers like Bhandari are being denied their due process rights in two ways, first by singling out a good for disparate treatment (namely, gas) and second by blocking people engaging in a common commercial practice.

Our friend David Strom from the Taxpayers League will have Lee McGrath and Bob McNamara on their show, Taxpayers League Live, at 10am tomorrow to discuss the case. I suggest you tune in. If you are in Wisconsin, write to your legislators and get them to repeal this law. It would be a good example for us in Minnesota to follow, where there is also a minimum gas price law.

Labels: economics, gas, Minnesota, Wisconsin

The price of gas is too high because stations don't lower prices fast enough.

Despite popular misconceptions, price gouging almost never occurs as prices rise. Instead, price gouging occurs when dealers keep prices artificially high in order to gain a little extra profit or recoup costs, even though the DTW price has declined.

...Most people never notice true price gouging. They will complain that the price went too high, but that's the fault of the oil companies, not the dealers. Prices that stay high for too long go unnoticed. Just because the price of gas stays high does not mean that a dealer is price gouging. The price may actually be higher. That's why it's almost impossible to prove, let alone prosecute, price gouging.

In Minnesota you can't lower the price until you refill your storage tank. That's not gouging, then, that's protecting mom-and-pop gasoline retailers.

But even in the absence of such laws, Michael Giberson argues, price declines are slower because consumers aren't spending as much time searching.

Labels: economics, gas

I guess my interview yesterday is being played on several stations in the Twin Cities, if emailers are correct. The gasoline boycott story in the STrib today has an interesting twist:

At least one local gas station in Ramsey is joining the campaign by refusing to sell gas from 6 a.m. to 6 p.m. today. But the nationwide campaign isn't likely to have an impact on Big Oil, industry analysts say, because motorists simply buy their gas one day before or after the called-for "Gas Out."

Why would the seller choose to participate in the boycott? Probably for publicity.

Some might think that gas stations make a lot of money when they charge $3.16 or more per gallon. It turns out when prices are this high Yamoutpour said he actually loses money.

He showed his bill for Monday's gas delivery. He paid $3.07 a gallon for unleaded, but said after the fee for credit card transactions and the bills to keep his store open, he makes no profit.

Yamoutpour said he makes his money inside the store but when customers spend so much at the pump, his snack sales drop.

Nothing like a TV news story to help move those Fritos! Wonder how he allocates the fixed cost of operating the station between snack and gasoline sales?

Labels: economics, gas

Gary and Andy both report that the push to override what is expected to be a veto of the gas tax plan is very close.

I hear the vote count for override is at 89 right now. And this story says that Tommie (the Commie) Rukavina may not vote for override because of the smoking ban.

Losing on this because of Rukavina's vote would be, well, sweet. You mess with the Iron Range and the Iron Range will mess with you.

One can only imagine the indigestion this is giving Lori Sturdevant. And smile.

Labels: gas, legislature, Minnesota

Larry got this right:

[The DFL Legislature] sent parts of the state budget that didn't need tax increases to Pawlenty first, even stripping them of the more controversial items he'd promised to veto.

They hoped he'd sign them, narrowing down the end-of-session budget debate to the tax bill and education budget to frame Pawlenty's choice as protecting millionaires or helping the kids.

But Pawlenty wouldn't play along, and his veto pen began smoking. Sending back the budget bills gave him a "global" budget negotiation endgame that keeps all his options open.

And so far it's not looking bad. But now comes the latest volley: the nickel 7.5 cent gas tax.

After a two-hour debate, the House voted 90-43, sending the package on to the Senate for an expected endorsement later today. The vote was what will be needed to help override an expected veto from Gov. Tim Pawlenty, who has said he opposes any bill containing a gas-tax increase.

My guess is that will sit at the governor's office to the last moment -- he has only three days to veto it, which is why they are in a hurry to send it to him. Now the question will be, does Pawlenty bet he can veto this and uphold it, or does he hold it to make a deal at the end of the week? Every day that passes makes it likely either a) he wants to deal or b) he's working to buy those two Republican votes that will sustain the veto. If he vetoes it quick, then someone was posturing on their yes vote and will vote to sustain the veto.

I don't have a roll call or copy of the final bill yet; I have some guesses who the two votes are.

Note that this bill also raises registration tabs by killing off the Ventura-era limits on license fees.

UPDATE: (h/t Gary): I think we have the culprits:

One Republican who voted yes - Rep. Jim Abeler of Anoka - said the bill would raise only about half what the state needs to catch up on a backlog of road projects. He said he was leaning toward voting to override a veto, but wasn't firmly committed.

"If you're worried about it's too expensive - it's not even enough," he said.

Abeler predicted that he and other GOP supporters of the bill would be lobbied heavily by both sides.

Rep. Dennis Ozment, R-Rosemount, said he would vote to sustain a veto. Rep. Kathy Tingelstad, R-Andover, said she was leaning toward voting to override, and Rep. Dean Urdahl, R-Grove City, said it was unlikely he would support an override.

Republican Reps. Ron Erhardt of Edina and Neil Peterson of Bloomington were expected to support an override attempt.

DFL Rep. Mary Ellen Otremba of Long Prairie also was considering how she'd go on a veto override, even though she voted against the transportation bill. The other Democrat to vote no was Rep. Tom Rukavina of Virginia.

This will make for an interesting week, and it appears some GOPers are determined to paint a target on themselves while others are willing to sell to the highest bidders. (Bold face added to help your aim.)

Labels: gas, legislature, Minnesota, taxes

Sorry I forgot about this: Supposed to be on WJON in ten minutes (10:15) talking about gas prices and the annual gas boycott.

UPDATE (10:25am): That was fun! Let me suggest readers visit Tim Schilling for information on gas taxes and prices, which I found informative.

Labels: economics, gas