Parable of Gasoline and Milk

Today, the price of gasoline at the pump before taxes is about $2.50 a gallon.  The price of milk per gallon is about $3.50 a gallon, and may rise to $5.00 by the fall

So I will present you with a heresy:  Gasoline is an absolutely screaming deal.  Having worked a brief stint in the oil industry, it is incredible what has to happen and the investments that are in place to get gas into your car.  Offshore oil platforms, dealing with unstable governments, thousand mile long pipelines, fleets of supertankers, huge complex refineries, and massive distribution networks are required to get gas to your car.  And yet, it's a buck cheaper than milk, which in comparison is nearly trivial to produce.  Sure, the milk needs a little processing and transportation, but compare this to oil, where processing involves reforming the very molecules in the oil to perfect the gas, and where transportation is across distances one to two orders of magnitude greater than for milk.  And don't even get me started on production:  a) cow  b) offshore oil platform in 1000 foot deep water.

It is perhaps even more instructive to see how the government regulates these two commodities.  Oil companies are constantly harassed by government as the world's great Satans, with windfall profits taxes and price gouging regulations, all on an industry that barely makes a 10% profit on sales in the best of times.  Milk, on the other hand, gets huge government subsidies and handouts, including a price support system that is both arcane and incredibly costly.  So Oil:  windfall profits taxes.  Milk, which is pricier but easier to produce: price supports.  Does anyone really want to argue that regulation is a result of real market realities rather than just populist pandering for and against favored and unfavored groups?

  • Emergence

    Brilliant!

  • Roy Lofquist

    I worked in my dad's gas stations in the fifties. Gas was twenty cents a gallon, cokes were a nickel and a pack of cigarettes out of the machine for a quarter had two or three pennies taped to the side of the pack. Do the arithmetic.

    Last time I filled up a woman at the register was bitching about the price of gas as she was paying a buck thirty nine for a quart of bottled water.

    Just like the Army. Bitch, bitch, bitch. It's the national sport.

  • http://www.hodakvalue.com/blog M. Hodak

    That was awesome. You are the king of comparisons! (Or joker of juxtapositions--you choose.)

  • ex

    No. The difference between oil and milk is that OIL RUNS OUR NATION. Oil is needed for workers to work and with gas prices rising past $4, (x the amount of gallons pumped) workers cannot work. Workers not working = more poverty and more poverty ultimately = more poverty.

    Also, that 10% profit comes from a massive amount of money so 10% works out quite nicely for the oil industry.