Monday, March 12, 2012

Obama's War On Prosperity (Part 2)

In part one of this series, I talked about how Obama's foreign policy coupled with his hostility to the oil industry have succeeded in driving oil prices, and consequently the price of gasoline, up to record highs, with more pain at the pump coming this summer.  Today, let's look at what his proposed solutions are.

What is the solution?

Obama's answer is for us to 'embrace cleaner fuel technology.'  Let play along and do the math.

I drive a midsize SUV.  It's eight years old, and has been paid for for seven years so my only operating expenses are gasoline, insurance, registration and routine maintenance (oil changes, new tires, new brakes, etc).  It runs well, looks good, is clean inside and out and I have zero need to replace it.

Over the last two years (per my iPad's Pocket Garage app) I know that I've averaged 16 MPG* and gas has cost me $3.00 per gallon (Colorado has had relatively low gas prices compared to the rest of the nation). If, as Energy Secretary Stephen Chu and Obama would like, gas went to $9 per gallon and I didn't change my driving habits, I would spend about $4,000 more on gas over the next year than if gas remained at historical norms.  Ouch!

So lets say I decide to be a good little boy and do like Obama says - I buy a Chevy Volt.  After trade in (Kelley Blue Book Value) and sales tax, the Volt would cost me just over $30,000 to buy (since I tend to keep my vehicles for a long time I don't lease them).  I have excellent credit so let's assume I get 0% financing.  Between registration and car payments (I'm assuming my insurance rates stay the same), my first year costs are going to be about $7,500.  I'm also assuming that about 4500 miles of my annual 11,000 will not use any gasoline because my drive to and from work is within the Volt's 40 mile electric range.  Of the remaining 6500 miles, I am assuming that 60% will require gas, so add another $900 to the operating costs.  What you find is that by buying the Volt I would spend $4,400 (110%!!!) more than if I just paid the $9 for gas and kept my SUV (which, again, I have no need to replace).

If you look at gas prices alone, the savings over my existing car would take more than 6 years to provide a return on the investment.  Not I said, I tend to keep my cars for a long time.  But, that's at $9 per gallon gas.  The more realistic price will be somewhere in the $4-5 range (unless Iran shuts off Hormuz or nukes Israel) in which case the payback would be in the 10-12 year range.  If gas prices drop in the fall, as they normally do, the payoff could extend as far as 20 years.  In any case, buying a new car specifically to avoid paying higher gas prices is a case that just doesn't close.  If you're going to buy a car anyway, maybe it works for you.  The more likely scenario is that people will just drive less, carpool more and reduced demand will eventually drive the prices back down. 

A couple points to consider - electric cars use batteries that operate well within a specific temperature.  In Colorado, where I live, the temperature in the winter routinely drops below zero.  It often gets cold enough to turn diesel fuel into gel.  Any hybrid vehicle's electric range is going to reduced somewhat by temperature fluctuations.  And - since the usable live of the batteries in these cars is around 7 years - good luck on your trade in!

Maybe this helps explain why the Volt needs a $7500 subsidy to sell, and even then the market has been sluggish.  Proof that 'If you build it, they will come" may work in Hollywood, but not in the real world.

The President's Irony: His War Against The Oil Companies Lines Their Pockets At The Expense Of the Working Class Poor

Obama often talks about the oil companies like their executives all sit in a room in giant black leather chairs, petting their white cats and drinking the blood of children while their minions round up baby seals and make sealburgers for them, all the while going "MWA-HA HA HA HA!" in their best impression of cartoonish villainy.  "They" are making record profits off of the backs of the people, he'll say.  He wants to level the playing field, he says.  Well, taking money away from the oil companies is a shitty way to help the people.

The average person uses 1000 gallons of gas per year.  At Chu's target price, that's $9000 per year, an increase of about 300 percent.  That's an additional $6000 the average American will spend on gas that could have been spent, contraception, college tuition - you know, all those things that Obama says people can't pay for to begin with.  So his solution is to make people pay more money he claims they don't have to get where they need to go, which, in effect, puts more money...into...the pockets of....the evil...oil companies.  Who wants a sealburger?!

It's a double whammy on the poor, though.  At my place of business, there are a lot of people making $10 per hour, and a few that make more.  I some cases, much more.  Many of those $10 per hour workers cannot afford to live in Boulder, which is about 5 miles away.  Rent in Boulder is simply too high, so many of these people live as far away as Aurora or Greeley to be able to afford a decent apartment, both of which are about 45 miles away from our site.  This means they spend up to an hour on the road EACH WAY to get to and from work.  They make the least, live the farthest away, and as a consequence they will get crushed by the kinds of gas prices that Chu and Obama are talking about.

Here's the thing about tech parks; they have a high concentration of jobs, great potential for upward mobility, and very expensive real estate the closer you get to them.  Check real estate prices in San Jose, California for a glimpse into this reality.  For these young people in entry level positions, a $10 per hour call center job can lead to a $12 per hour supervisor role, which can lead to a $15 per hour job as a manager.  $20 per hour once they get an industry certification.  And so on.  But if they can't afford the drive to this job, they're going to have to get a job close to where they live, which in all likelihood doesn't have the same concentration or types of opportunities, or they would have worked there in the first place.  People who already have money, on the other hand, can afford to live closer to the work site and therefore feel the pain of gas prices at a much lower rate.  I average about 680 gallons of gas per year because I live closer to the work site than many of my peers.  That's a 32% reduction against the average fuel usage in America, or about $2900 dollars in my pocket and not in the gas tank.  If I put that money in a ROTH IRA instead of my tank, I am going to be WAY better off down the line than someone who had to spend that money.  And after all this, Obama laments the fact that the gap between the poor and the wealthy is widening - when it is his policies that are driving it!!  To that end, I expect to see the Government Assisted Supplemental Relief Extended to Lower Income Earners, Finally! (GAS RELIEF) act pushed by Democrats where in addition to welfare and food stamp cards, poor people are given gas cards to help ease their (government created) problems.  It is an election year, after all - so if it becomes a reality, you heard it here first.

Tomorrow's conclusion: the free market saves the day - and maybe makes green technology work?  It can't be!!!

*For ease of explanation, I've rounded slightly

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