How may of you ever heard of the "Free Body Diagram"? All you engineers did, I am sure. It is a simple concept that allows some problems that look very complex to be seen as simple. How the concept works is that you draw a circle around the system and analyse the items inside of the circle as one set and the things that go in and out of the circle as another. Sir Issac Newton used this concept when he came up with the rules of motion. Think of this simple example. You have glass jar filled with water and some fish. You put the jar on a scale and determine the weight while the fish are swimming around. Next, you weigh the jar after the fish have died and are laying on the bottom. The weight of the jar did "not" change. With me so far?
Now, how does this affect the price of gas? Draw a circle around the USA just like the jar with the fish. What happens inside the USA, as in the jar, does not change the net cost inside the USA. If the cost of gas goes up, someone else earned more. That extra earning is then re spent and put back into the economy. It is true that some people are richer and some are poorer. This is the "zero sum game" concept and it is part of the economic system, but it is not the whole thing.
The other major factor in the economy is the "creation" of wealth. These are the actions that make the "pot" bigger. The more people who are working and the more productive they are, the bigger the "pot" is going to get. Technology and technical education are the big drivers that make the "pot" bigger and these are the very areas where the rest of the world is moving faster than we are. I remind you that the USA hit its peak in terms of engineering graduates back in 1986 and has be going down ever since. I just heard that over 60% of all technical Masters and Doctorate degrees in the USA are being earned by students who were not born here. In some majors it is 95%. Even 50% of our doctors are from outside the USA and it is growing. When was the last time you saw a doctor who was born in Iowa? Don't hold your breath. Even if some of these well educated people stay here and work, they will be sending checks home every week and bleeding us even more. Getting off the track.
Back to gas. When we import very crude tar sand oil from Canada, we buy it for much less than prime crude. Let's say that prime imported crude sells for $100 per barrel and the tar sand crude sells for only $75 a barrel. Refined gas sells for $125 a barrel. Now let's switch back to the circle around the USA and look at those items that "cross" in and out of our borders. If we were importing refined gas form $125 a barrel and switched to prime crude oil, we would bring and equal amount of fuel in at $100 per barrel. This would mean we would end up with $25 more for each barrel than before. We would be "richer" by that amount. Inside the USA we would do "value added" of the $25. See how this works? Next, let's look at tar sand oil from Canada. It is only worth $75 a barrel so we get to do "value added" and add $25 per barrel right here. With that earnings we are "richer" and more able to pay the high price for gas. Getting the idea?
Finally, how about this one? We import tar sand oil from Canada for $75 per barrel and refine it into gas that we "export" for $125 per barrel. By doing this, inside the USA, we are $50 per barrel richer. None of this made the price of gas go down, but we are now much richer and more able to pay for the higher cost of gas. Think about a country who did not have their own crude oil or who do not have enough refining capacity? We have reduced the number of refineries, but we still have excess capacity and the most modern refineries in the world.
When you hear someone complaining that we are making the price of gas worse by "exporting" gas or diesel, think about how this is making the USA "richer". As I said in a prior blog, if it is your bull that is getting gored, you complain. Get used to the fact that the world is always changing and that you have to change with it if you don't want to fall behind. Did you ever hear the expression that, "you have to run to stand still". Hey, that's life. Get used to it and stop complaining and get to work and make sure your kids do their homework and don't just take the easy classes in school. It is all up to you and me. Look in the mirror.
