Welcome to June 2000, the month in which new federal gasoline regulations have come into effect for a third of the country. The mandate that some cities sell reformulated gasoline (RFG) caused market supplies to drop, just at the time when gasoline demand increased for summer travel.
No surprise, gas prices soared to over $2 a gallon in Chicago, where the new regs hit the hardest. Everywhere, prices are reaching above the $1.65 range, a post-Gulf War high. It's the government's way of making sure that this summertime, the livin' won't be easy.
During the winter months the Clinton administration worried more intensely about the high price of oil. A few months back, when prices were last spiraling upward, there was some concern about low-income families in the Northeast not being able to heat their homes. Gas prices also took a jump so Congress began talking about repealing Clinton's 4.3 cents tax on gasoline.
But fortunately for the White House, super-cold weather never materialized, so all talk of reducing artificially inflated prices by any means ceased. More decisively, someone told the Republicans that repealing the Clinton gas tax would mean that Congress would have less money to spend. They thought about that, and quickly changed their minds.
But now that summer is here, and oil prices are up again, there's no more concern about poor people shivering their way through winter; in summer, the only people harmed are middle-class vacationers driving gas-guzzlers — archetypical real Americans — and who cares about them?
And yet, consumers want answers and the government is glad to give them, even when it means telling outrageous lies. "We think the prices that are being charged are unfair and inappropriate," Robert Perciasepe, an assistant EPA administrator, told the press, just before summoning oil producers before the DC Politburo.
We know that no institution is in a better position to discover and punish unfair and inappropriate behavior than the Clinton administration. You merely compare the cost of production of gas to its price. If there's a problem, you conclude, as has the monstrous Energy Secretary Bill Richardson, that there's something wrong with the market. In the tradition of "when did you stop beating your wife," he said in a CNN interview: "Is it collusion or is it price gouging? We need answers to those questions."
Here's your answer, buddy: it's the misnamed Energy Department! (And permit me a small technical point about the relationship between cost and price: accounting costs are historical data, while prices always reflect present forecasts of the future that may or may not be right. There is no fixed relationship between the two in the real world.)
It's all very nice and easy to pick on the working-class folks who go to the trouble of extracting the oil, turning it into gasoline, and delivering it to your neighborhood station for you to buy. When you are looking for someone to blame in these times, it's always easiest to blast the businessman. No calumny, no matter how implausible, is too far-fetched to pin on capitalism. The press plays along, with most reporters failing even to mention the new regulatory mandates, or any of the other impositions that are driving prices sky-high.
Actually, when you consider all the government conspiracy to drive gas prices up, it's a wonder and a credit to free enterprise that they are not up to $5 a gallon by now. Most importantly, there are the taxes, which today account for at least 32 percent of the pump price of gasoline. According to the American Petroleum Institute, gasoline taxes average over 41 cents per gallon. Gas taxes zoomed 100% in the 1980s, and 54% in the 1990s.
Oil producers today are treated very poorly by the government. Besides being among the most heavily regulated sectors, a percentage of all revenue from oil produced on socialized land must be forked over to the federal government in the form of royalty payments. And the Clinton administration is trying to make that payment more egregious by increasing it without regard to the terms of the leasing contract.
This policy is consistent with the restrictions put on drilling and leasing. The US is home to rich oil lands in Alaska and offshore, to which oil producers are denied access. The excuse is the environment, but that can't be the real reason; oil producers long ago learned to make themselves virtually invisible as they work to put nature to man's use. For the government, high prices are their own reward.
Senate Majority leader Trent Lott says he will push for legislation to open up some lands in Alaska for drilling. He might even send out a few fundraising letters on the subject. But we know how this will end. He'll shmooze with a friends-of-the-earth-type lobbyist and table the whole idea in a few weeks' time. Why do they tease us so? And why do we pretend to go along?
The protectionist menace is also a factor in high gas prices, and here is where the Republicans are really bad. It's been ten years since the Gulf War and trade with Iraq is still seriously restricted. Opening full trading relations would not only break the back of OPEC; it would immediately unleash millions of barrels of oil and cause prices to plummet. But for all the talk about the merits of free trade, this is not even being considered.
Repealing any one of these interventions would bring prices down to less than a $1. But what if we repealed all of them? What if taxes were wiped out, crazy regulations repealed, oil lands opened up, and free trade established with Iraq? Gas would be plentiful. What the price would be-75 cents? 25 cents? — would be anyone's guess. Many refineries would go out of business, of course, but new ones would pop up. The market economy would find the right price for gasoline and we'd never worry again about the high price of gas.
But the Clinton administration, and the greens behind all these bad policies, have a different idea in mind. Their model, for now, is Germany, where an "ecology" tax has driven the price of gasoline to $3.85 per gallon. No more joy rides and traveler freedom. Just taking a Sunday drive means spending a week's earnings. And the citizens are in a fury over it, with 60 percent of those polled demanding a repeal of the tax.
What are the effects of policies designed to deliberately drive up the price of gas? Everything that involves transportation has gone up in Germany. Not just air fares, but also the price charged for school trips, locksmith visits, and rent-a-cars. Even the price of having a pizza delivered is up by 25 to 50 cents. Drivers are struggling to provide consumers a great perk of the capitalist economy: having a pizza delivered to your door.
It's crucial to remember that these are not side effects — or unintended consequences — of bad policy. A high price for gas is the policy. Less driving and less consumption generally is the goal. The real ideal is Mao's China, where the entire population crowded the streets with bicycles and gasoline powered only public transportation, the bureaucracy, and the military to enforce the edicts of the commissars. The left reminisces over these scenes and thinks: look at the wondrous conservation of resources that communism made possible.
Toward Germany and Mao's China is where the Clinton administration would like to take us. The response might be: well, it hasn't killed Europe and US prices are still cheap by international standards. But there's a huge difference. With the vast amount of space in this country, efficient travel is essential to prosperity and a high quality of life. But try to explain that to ghouls who have deliberately brought about high prices and then lied about it.
June 16, 2000