With crude oil prices hovering around $75 per barrel, big oil companies once again announced record profits yesterday. Congressional inquiries into price fixing went nowhere, primarily because oil companies don’t need to fix prices. They have a U.S. population addicted to driving (never mind what makes the car go), high switching costs, and fuel standards that make China look progressive.

How did this happen? After the record oil prices in the late 1970s - prices that produced the 1981 U.S. historical high of $3.01 per gallon (in 2006 dollars) - Corporate Average Fuel Economy (CAFE) standards were made more stringent. From 1978 to 1981, U.S. car and truck fuel efficiency standards rose by 24%.

Then came the cheap oil of the 1990s and the SUV revolution. As a percentage of income, the average American was able to buy three times more gas in 1998 than they could in 1980. Fuel standards reflected the cheaper oil. CAFE standards in 1983 were 24.8; in 2004 the average was 24.7 miles per gallon (MPG). The U.S. has long lagged behind Europe in fuel efficiency standards, but more surprisingly, even the developing world makes us look bad.

China’s red-hot economy has meant a rapid shift from bicycles to cars, and the government is taking stern measures to increase fuel efficiency. One major difference with the U.S. CAFE standards is that Chinese standards are based on weight rather than class of vehicles. The lightest vehicles in China were required to get 38 MPG in 2005, increasing to 43 MPG by 2008. Contrast that with the U.S. CAFE standard of 27.5 MPG for cars.

The United States fuel efficiency peaked nearly two decades ago, and today the oil companies are posting record profits. But don’t blame the oil companies. They’re just small-brained, carnivorous, profit-making sharks that swim and devour money. It’s the bloated American, SUV-loving consumer that we should blame for willingly wading into these shark-infested waters. Chomp!

Notes & Sources: # Historical Real GDP per capita is in 2006 dollars. 2006 GDP estimated by statastic.com using latest Economist forecasts. Gas prices are the annual average gas price and were adjusted to 2006 dollars.
^CAFE fleet standards for cars and trucks. 2005 and 2006 data unavailable, so 2004 standards of 24.7 MPG were used.

Yesterday marked the first-ever launch of the Space Shuttle on Independence Day.  NASA’s manned space program continues to slowly emerge from the shadow of the Columbia disaster.  While newspaper headlines focused somewhat warily on the Shuttle launch, the $700 million Mission to Mars program was under attack by cost-cutting democrats in Congress. The measure failed by a wide margin, but it highlights the constantly-embattled NASA budget.

Although NASA’s recent manned space missions lack the scientific rigor of their unmanned deep space research, manned space flight captures the public’s imagination – and political support for NASA.  The NASA budget is surprisingly small – only $16.7 billion in 2006 – paltry by Pentagon standards. In real terms, NASA’s budget has been declining since 1991, and that’s likely to continue in the near future.

Less that half of NASA’s 2006 budget (about $7 billion) is applied for space operations such as the Shuttle and the International Space Station. The rest goes toward earth science, deep space exploration, research and development.  To give a point of comparison, the annual budget for NASA is about the same as the cost of 2 months of Iraqi occupation, 167 brand new F-22s, 2 more years of failed research for missile defense systems, or about 2 quarts of Tang for every person on earth.

¹$100 million per fighter
²Based on Cost of Estate Tax repeal of 2007-2016 is $369 billion
³2001-2006 Missile Defense spending was $43 billion
⁴Based on 2006 Budget of $101.8 billion
⁵ Only $4.19 for enough Tang to make 4 quarts
⁶http://www.washingtonpost.com/wp-dyn/content/article/2006/06/28/AR2006062800247.html
⁷Based on 2006 Peace Corps Budget of $317,440,000
⁸http://en.wikipedia.org/wiki/Corporation_for_Public_Broadcasting
⁹Based on 2006 EPA Budget