Today we’re talking petroleum.
Or, in the words of old Jed Clampett, Black Gold. Texas Tea. Oil. Or as it is known where you and I use it, gas. Gas for our cars, lawn mowers, boats, ATV’s, snowmobiles, weed whackers and just about everything else that runs on the humble combustion engine.
I grew up in the era when gas was forty nine cents a gallon. A buck filled our lawn mowers, go-carts and mini-bikes a couple of times a week. Then came OPEC and life changed forever.
No longer was gas cheap. Or easy.
We waited in lines, bought on odd or even days, depending on our license plates, and looked for the flags that said whether gas was even available. Prices sky rocketed. Then almost inexplicably, during the Reagan administration, the bottom dropped out and once again we were treated to prices under a buck.
Alas, it was not to be.
Now we live in a world of constantly changing prices, based mostly on market conditions. Somedays the price goes up, others it drifts down. If there’s a crisis in the world, prices go up. If it’s calm, prices go down.
Unless you live in Mexico. Then prices always go up. And up. And up. At least that’s how it was last year. Now they go up even more.
Mexico has subsidized the price of gasoline at Pemex, the nationalized supplier of gas, for generations. However this year, that subsidy was removed. Overnight, gas prices surged. Which is exactly what you’d expect when you remove a decades long subsidy. Protests erupted across the country as people used to somewhat cheaper gas, took a major hit in their pocketbooks.
For many, the choice became one of tortillas, or gas. Food or transportation. This in a world where people already struggling with such brutally difficult choices.
Let me explain by making a comparison.
In the US, the federal minimum wage is $7.25 an hour, but I think based on some state minimums, we can say it is effectively $8.00 and hour. That works out to $64.00 for a full days work.
In Mexico, the minimum wage is $4.00 a day, or $24.00 a week, based on the standard 6 day work week. But few people actually work for that. A better comparison would be the young person working for Starbucks. He or she will work 6 hours a day, for 6 days and earn about $1300 pesos, or $65.00 for a weeks pay. That makes his daily rate about $11.00.
With gas now at $3.10 a gallon here in Mexico, the Starbucks Barista making that average daily rate of $11.00 spends 28% of his hard earned daily salary on one gallon of gas. Not a tank. Not a half a tank. But rather one gallon!
By comparison, if someone in the states making $8.00 an hour was under the same system, he or she would be shelling out $18.00 for a gallon of gas, just to keep the car running.
Are you getting it?
When we make this gas cost comparison between the US and Mexico about apples to apples, and work on percentages, it gets scary. Imagine if you had to pay $18.00 a gallon for gas. What would that do to your family budget? Would you choose the chicken the family wants for dinner, or would you tell them there was no food that night because you had to get gas, or lose your job?
That’s the choice the average Mexican makes each and everyday if they have to use a car to get back and forth to work.
Without thinking how this will affect the average Mexican, economists from around the world are applauding Mexico for finally putting an end to the subsidies. For the people in Mexico with an ability to pay higher prices, the subsidies were an added bonus to their already somewhat lofty economic positions. It would be better economists argued, for the rich in Mexico to pay more because of the loss of the subsidy.
Now the poor would also pay more, but the argument is that Mexico would actually save money by killing the subsidy and letting prices rise. The government would get more income from the rich and then they could give direct cash grants to the poor. it’s a win win situation for everyone.
Except it will never happen.
There is no way on earth the government of Mexico is giving any direct subsidies to the poor. No matter what the leading economists around the world say. The government will just keep all of the money it gains from the new higher prices. All that is except for the portion that will be personally siphoned off for their own families and friends, once again, giving the poor the short end of the stick.
That’s why if you Google Gasolinazo, you’ll see lots of articles and pictures of people protesting throughout Mexico the recent rise in the cost of gas. Because they know they are going to tighten their proverbial belt buckle once again as the Mexican economy continues to stumble.
And the poor fall farther behind.