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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?
Tags: gas, investments, milk, oil, So Oil