Gas and Government

When Republicans in Congress first broached the idea of repealing the Clinton administration’s 4.3 cent gas tax, passed by a Democratic Congress in 1993, many of us were appalled at their caution. Why stop at 4.3 cents? Taxes on gasoline average 41 cents per gallon, which also happens to be the average total increase over the past year. Repealing just half that would go a long way toward bringing back sanity to the price of gas.

There’s another downside to limiting the repeal only to Clinton’s increases: it makes the Republican Congress look partisan, as if the only aim is not to help consumers but to needle the Clinton administration. I’m all for sticking it to the White House, but that can’t be the only goal. You also have to do something for the American people’s household finances as wellif you really care about doing good as versus scoring political points.

Alas, the Republicans backed out of even that tiny cutback in gas prices, on grounds that doing so would take away an issue during the campaign ("let’s make the people suffer longer so we can win an election") and because, after all, that revenue pays for much-needed highway repairs (prediction: spending the entire GNP on roads wouldn’t do the trick since these are government bureaucracies repairing government roads).

Richard Armey, whom the media treat as a free-market leader in the House, had this to say: "Let’s not get bogged down on only one dimension of the problema short-term dimension that offers scant relief." But, hey Dick, scant relief is better than none! This is political sellout masquerading as prudent public policy, and it makes the GOP just as morally culpable for the looting of American drivers as the Clintonites. These people all have an aversion to lessening the burden of government.

Besides, there’s no way of knowing just how far prices would fall. A quick repeal of 4.3 cents might lead to a much larger drop. Why is that? Contrary to myth, taxes are not "passed on" to the consumer in a neutral fashion. The tax is placed on consumption but the costs are paid backwards through the structure of production. Service stations sell less oil, reducing their profits, causing increased costs and fewer purchases from oil companies, whose profits are reduced so that they cannot invest in drilling, and finally drillers themselves lose profits. In the end, consumers have the choice to reduce their consumption, but it is the producers who pay the tax.

Now, anyone who has been in business knows that all production decisions are taken on the margin. That means that a business considering expansion looks not at total costs or total profits but at the opportunity costs and profits connected with adding or subtracting a particular aspect of the production process. New, mandatory expenses, even small ones, may or may not make the difference between opening and closing an oil well, for example. Hence, a reduction in taxes may unleash a vast wave of new production, reducing the price 20 cents or more. There’s no way to know for sure.

Thus, we can see the absurdity of the factoid doled out by the media that "a motorist driving 12,000 miles a year at 20 miles per gallon would realize savings of only $26." It could be much more. It could even be less. The relationship between taxes and production is not mechanistic. All we can know for sure is that taxes discourage production, and the higher the tax, the more production is discouraged. It is here where a bit of economic logic is worth more than all the bogus studies pouring out of DC right now.

But when looking at the present problem of oil and gas prices, taxes only tell part of the story. The Clinton administration acts as if these high prices are an unexpected change due to the sudden success of OPEC in reducing the oil supply. In fact, it has been the goal of the Clinton administration, and their statist predecessors dating back to the Nixon era, to reduce the availability of oil in order to change the consumption habits of Americans. These people want higher prices, and their policies, from high taxes to land lock ups, are designed to bring about exactly that.

But the responsibility also rests with Republicans because more than domestic politics is at work here. Think back more than a decade ago, when the Bush administration was in a scramble to find a justification for invading Iraq. There was a problem. The State Department had given Iraq the thumbs up to take Kuwait, the rich neighbor next door that had once belonged to Iraq and that had been stealing oil sub rosa. But when Saddam Hussein made his move, the US inexplicably wanted to go to war.

The excuse that we were "punishing aggression" didn’t quite fly since the US had given a green light on the supposed aggression, and, besides, the world is filled with border disputes of this nature that the US never bothers with. What followed was weeks of manufactured reasons for the bombing campaign, and they seemed to change by the hour.

As Joe Sobran said at the time, the multiplicity of rationales was alone cause for suspicion. If a country has one good reason for going to war, fine, tell us what it is and then we’ll decide. But when the government throws out a dozen or two reasons, you have reason to think there isn’t really one good reason; what you are getting, instead, is sand thrown in your face.

The very last excuse given by the Bush administration was "jobs, jobs, jobs," in the eloquent words of Treasury Secretary James A. Baker. The idea was that Iraq would gobble up Kuwait and then be in a position to restrict US access to the vast oil reserves made available in the new compound country. The price of oil would zoom and cause the US to tumble into recession, so they said.

Now, this fear-mongering was obviously ridiculous at the outset. There is no money to be made from restricting sales so long as other countries are competing with you for customers. This was a ruse from the beginning. Perhaps, then, the fear was that Iraq would lead another attempt by OPEC to restrict sales as a cartel and increase prices for Americans? If that was the fear, consider the bitterly ironic result. Our wonderful friend and ally, the great and rich state of Kuwait, is a member of OPEC and an enthusiastic backer of the cutbacks in sales. Far from preventing a cartelization of Persian Gulf oil producers, the Bush-Baker war resulted in precisely that!

The reason comes down to the great taboo topic of the current oil mess: the sanctions against Iraq. The Bush administration claimed its war came down to keeping the oil pumping for you and for me. Then, in total contradiction in a policy driven by spite, the US prevented Iraq from selling oil. Why? The official reason was that Iraq, now reduced to rubble, was manufacturing chemical weapons. However, not a scrap of proof of that contention was ever turned up by UN investigators. And yet the sanctions remain.

Truly, we suffer from high gas prices. But our suffering is nothing compared with the suffering that has been inflicted on Iraq, where millions have died from every manner of disease. This country, once among the most liberal in the region and thriving with enterprise, has been beaten into submission from repeated and non-stop aggressions by the US. It’s no wonder that neither political party wants to talk about it: both have blood on their hands.

How to reduce the price of oil and gas? Forget pleading with OPEC and especially forget the destructive price controls now being batted about in White House strategy meetings. Repeal taxes, unlock oil-rich lands and put them into private hands, and trade with Iraq for both humanitarian and economic reasons. The high price of oil and gas is a government-made problem. But the mess that government made can be cleaned up through free enterprise.

Llewellyn H. Rockwell, Jr., is president of the Ludwig von Mises Institute in Auburn, Alabama, and editor of a daily news site,