Tired Of High Gas Prices? Don’t Ask The Government For Help
By James Baxter, NMA President
I don’t like the idea of $4 gasoline, I doubt that anyone does. However, I like gas lines, closed gas stations, and no gasoline at all, even less. That’s what we are likely to end up with if the government “fixes the problem.”
In 1973 and again in 1979 the federal government, and some states, addressed the fuel shortages (albeit politically caused fuel shortages) and the results included rationing schemes and price controls that squeezed local fuel retailers and discouraged new oil production.
Then there were the gas lines that stretched for blocks, the hoarding of fuel, stretches of highways for hundreds of miles where fuel was not available after 8 PM, and let us not forget the 55 MPH National Maximum Speed Limit.
During all that time, gasoline and diesel remained excruciatingly expensive.
So far Congress has confined its activities to easy targets like “big oil” and speculators in the commodities markets. When this fails to materially reduce fuel costs the political elite will turn to its favorite tool, government regulations.
Short of starting another war somewhere, there is nothing more counterproductive than having our government attempt to regulate, directly or indirectly, the price of motor fuels.
Four dollar gasoline is undoubtedly a major burden for individuals and businesses, but it’s a burden we can bear far more easily then an energy market completely disrupted and distorted by rash government regulations.
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Dan, I like the way you think, but I must disagree with you on this. The government could fix this in a week.
I read an outstanding post about this here:
http://gaspass.wordpress.com/2008/06/21/what-the-frack-is-going-on-with-the-price-of-gas/
It’s called What the Frack Is Going On with the Price of Gas?
No doubt worth a read.
…
Dan writes:
{I appreciate the effort, but I can’t accpet the FDA as an example of government regulation that makes drugs LESS EXPENSIVE. In fact the FDA regulations significantly increase the cost borne by drug companies, and consequently the cost consumers pay for drugs.}
You’re looking at the wrong “product.” The point is not that the drug is less expensive to the company or the consumer but that the cost to society of bad drugs has been decreased. The same goes for environmental regulations: the costs that have been externalized for decades if not centuries – air and water pollution, loss of forests, erosion, lost lives and productivity, etc – are being forced back onto the producer of those harms. It is immoral for US Steel, ExxonMobil or WalMart to increase their profits by passing their costs along to taxpayers.
I’d also like to address the “obscene profits” some elected officials are asserting the oil companies are earning right now. The oil companies are earning about 8% profit, which is in line for a manufacturing industry. If 8% is obscene, what percentage is acceptable? 5%?
I’ll go along with 8% being obscene if we can be consistent with how we apply the concept. The government currently levies a 15% capitol gains tax on investment returns, if an 8% profit by a business who actually produced something is obscene, would you describe 15% as criminal, or just really, really obscene?
I appreciate the effort, but I can’t accpet the FDA as an example of government regulation that makes drugs LESS EXPENSIVE. In fact the FDA regulations significantly increase the cost borne by drug companies, and consequently the cost consumers pay for drugs. As proof I offer the fact that I can purchase 30 days of a generic drug for $4.00, but a patent drug is much more expensive as drug companies must sell the drug at a price that ensures both a profit for it’s shareholders as well as a return on their research and certification costs.
I’ll accept a safety argument, or at least safety as the intent of the FDA, but I think the drug industry should be de-regulated, and consumers would have redress in court for any harm due to negligence by a drug company.
In the same way, environmental regulations designed to mandage emissions, requires refineries to produce many different formulations of gasoline. If we went to a single standard, instead of regional blends, it would lower the cost of production and increase availability since any refinary could sell fuel to any market.
Government oversight, and the inevitable mandates that are issued, never lower the cost of any good or service, it is simply additional cost that is passed onto the consumer. You can’t say “in the past, government intervention has resulted in increased prices, but I think they can get it right with oil (or healthcare).
It would neither surprise me nor bother me. The thalidomide tragedy did reveal the need for greater vigilance and oversight.
Would it bother you greatly to learn that the FDA had regulatory authority over drugs long before thalidomide was sold?
Dan writes: {I’m just curious if anyone can identify for me a program that the government is involved in that makes a good or service less expensive? Ground rule: The proposed program must actually reduce the total cost, not simply shift the cost from one entity to another.}
The Food & Drug Administration lowers the actual cost of drugs by preventing dangerous and ineffective drugs from being marketed. Consider, for example, thalidomide, the sedative used to treat morning sickness but which resulted in thousands of badly malformed children. By preventing such tragedies, the total cost to society is driven down. The concept is simple: On their own, drug companies opt to put out unproven, untested drugs because early entries garner market share and profit. When these early entries lead to such tragedies as the thalidomide babies, the total cost rises. Few companies have shown the ethical fortitude to resist those profits; hence the value of governmental regulation.
{For extra credit,if anyone can identify a genuine example, I’d be curious how you could apply those lessons to controlling the price of fuel.}
The principles are the same for regulation of energy. In this case, there are two culprits: (1) market manipulators controlling supply through restriction of output either at the wellhead or at the refinery (OPEC and integrated oil companies) or (2) speculators and futures traders who produce nothing but can still manipulate the market (Enron’s manipulation of the California electricity market is a classic example of this). Enter the SEC or FTC or FERC, to regulate those who would manipulate the market. Stop futures trading in crude oil and it will still increase in price due to global demand from China and India, but will do so very slowly and without all the spikes that seem to go up but never come down.
Government is a big player, an important play and a necessary player because too many of the other players have indicated much too willing to exert market control, something never envisioned by Adam Smith.
I’m just curious if anyone can identify for me a program that the government is involved in that makes a good or service less expensive? Ground rule: The proposed program must actually reduce the total cost, not simply shift the cost from one entity to another.
How about a government program that makes a good or service more effective regardless of the price?
For extra credit,if anyone can identify a genuine example, I’d be curious how you could apply those lessons to controlling the price of fuel.
RICK, THE CAPS IS ANNOYING. oops, how about just typing all in lower case? that is just as fast SEE??? and switching case helps to add emphasis when needed SEE??? so just try switching it off. anyways, why are we getting all scientific about this, everyone knows that americans are negatively being impacted by the current prices because our lives are built around driving, there is nothing that we do that is realistically within walking or biking distance these days, everyone lives in a bedroom community and has to commute at least an hour to work each way in heavy traffic. even the supermarket, or costco or walmarts are not as close as the old mom and pop stores or general stores used to be back in the days before gas powered cars took over our lives.
but i think the oil companies probably were waiting decades for this day to come. the secret that nobody mentions is they let us develop our addiction to the low price, making it reasonable and economical to the majority of households to drive everywhere and alot. once the user base has developed critical mass, and our lives have become completely wrapped around the gas powered vehicles, we have no choice but to pay the high gas prices when the decide to hike it up. think about all the drug addicts out there, if the price of their drug goes up, they don’t become any less addicted, yes they’ll be more pissed off then ever but they will keep buying that drug day after day just like all the car drivers in america are doing.
notice how SUV’s became very very popular in the last 10 years? funny huh? it almost seems like a setup. believe it or not we go from setup to setup because “they” are always two or three steps ahead of the consumers, the working class. they are prepping for the next hot market, the next big boom. if you want to stay ahead of the game think ahead, way ahead, see where this is all heading next. then exploit it before they do.
Johnson, Young:
As Mr. Young points out, pure capitalism applied without restraint or adjustment is usually not the answer. The U.S. economy is basically capitalist with Keynesian adjustments and influences. And it can certainly be accurately stated that a very long period of prosperity has resulted from this blend of influences.
Moreover, when pure theory on just about anything is applied in the real world it is almost universally true that modifications or adjustments are required. To expect that pure classical economic theory as posited by the Milton Friedmans or Adam Smiths of the world will provide answers in all situations is just not realistic.
With regard to this energy price debacle, its clear that something outside the envelope of classical economics is required. I don’t claim to have the remedies needed. (I do have a few ideas though.) But it’s a cinch that continuation of the current set of conditions is going to dramatically impact this country in so many negative ways.
The U.S. has always been about affordable mobility. Is it going to be the case that corporate bigs will change that paradigm for the worse and take from us that uniquely American and quite liberating element of the American equation simply for the sake of business profit while we all sit around and wait for classical economics to provide a grand leveling ?? Personally, this seems like an absurd posture to adopt. Something needs to be done, and quickly, by the 536 numbskulls who, at least theoretically, are responsible for steering the ship of state.
Noone more than I abhors government meddling. However, it’s clear that consumer power is not adequate to back off the petro bigs of this world. Someone or something with greater power than they possess needs to step to the fore.
Rick Gold
ERC Fuels
HUBCAP, JOHNSON:
HONESTLY, WHAT’S ALL THIS HULLABALLOO ABOUT ALL CAPS ?? I PERSONALLY FIND THEM MORE READABLE AND THEY’RE CERTAINLY FASTER TO TYPE.
HOW’S ABOUT WE JUST FOCUS ON CONTENT. ISN’T THAT WHAT’S REALLY IMPORTANT ??
SHEEEESH !!!
BEST REGARDS.
RICK GOLD
ERC FUELS
Rick, please…
The CAPS may not be rude–although personally I think it makes the writer look a bit silly–and may be faster, but now really are you that fast a typist that the few milliseconds it takes to hit shift at the beginning of a sentance are that important?
The fact is all caps is difficult to read. And you’re a smart guy with a reasoned opinion; so who are you writing that for, you or us?
It is dangerously naïve to believe that the Friedmanesque free market holds, much less will yield, the answer to our energy needs except perhaps in the very very long run. And as John Kenneth Galbraith said, in the long run, we’re all dead.
Global petroleum is an oligopoly, verging on monopoly due to the cartel known as OPEC that provides price guidance. No single integrated oil company need fear that its competitors will step up to take over any production that they withhold, a condition that would obtain under Adam Smith’s assumptions but not in the real world.
Unfettered capitalism was tried by the Friedmanites in Bolivia, Chile and Sri Lanka among others and the results were disastrous. We should have learned from those failed experiments that market players can and do manipulate markets, supplies and prices. Corporations are not our friends and must be controlled by the people. Their goal is not to solve problems but to make money and to externalize as much of their cost as they can.
Scott,
Thanks for the suggestion and the intellectual intercourse.
Best regards.
Rick Gold
Perhaps you should try all lower case then. It’s far easier on the eyes.
SCOTT JOHNSON,
THE CAPS STAY. YOU’RE CITING AN OLD CONVENTION. IT’S NOT RUDE. IT’S FASTER. THAT’S ALL.
YOU OFFER NO EXAMPLES OF THE “BETTERMENT OF SOCIETY” AS RELATES TO THESE OUTRAGEOUS ENERGY PRICES. YOU SEEM TO BE DEFENDING MASSIVE PRICE INCREASES ON THE BASIS OF SOME GRAND EQUALIZATION OR BROAD STROKE UPLIFTING THAT WILL OCCUR AND MYSTERIOUSLY DERIVE TO PROVIDE A BENEFIT TO ALL. THIS,OF COURSE, IS MORE THEORY IN THE FACE OF EXTANT REALITY. YOU ARE FIXATED ON A REVERENCE FOR ELEMENTS OF CLASSICAL ECONOMIC THEORY THAT DO NOT ADDRESS THE “REALITY” THOSE OBJECTING TO THIS RAMPANT MARKET RAPE ARE CLAMORING AGAINST. YOUR VIEW OF REALITY IS IDEOLOGICAL NOT VISCERAL. WE OF THE GREAT UNWASHED MASSES DEAL WITH THE IMMEDIATE, THE EXTANT, AND THE VISCERAL EVERY DAY.
NOTE THAT CLASSICAL THEORISTS ADAM SMITH AND ANNE RAYND DO NOT ADDRESS COLLUSIVE SUPPLY SIDE FORCES WORKING IN CONCERT TO CONTROL PRICING TO THE MASSIVE ADVANTAGE OF AN ENTIRE INDUSTRY AND TO THE ABSOLUTE DETRIMENT OF ALL OTHERS AND ALL ELSE. ADDITIONALLY, THERE ARE THOSE WHO SAY “ATLAS SHRUGGED” BECAUSE HE WASN’T FULLY AWARE OF THE SITUATION.
WE ARE DEALING WITH A UNIQUE CONFLUENCE OF EVENTS AND FACTORS THAT ARE ECONOMICALLY REPRESSING THE AMERICAN INDIVIDUAL, THE AMERICAN ECONOMY, AND BROADER AMERICAN SOCIETY. TO “SHRUG” IT ALL OFF AS MERELY NORMAL ADJUSTMENT OR NATURAL MARKET FORCES AT WORK WHEN, IN FACT, WHAT IS HAPPENING IS A SEA CHANGE IS EITHER SOPHISTRY OR BLINDNESS IN THE FACE OF BROAD SOCIETAL PAIN.
REGARDS.
RICK GOLD
ERC FUELS-OWNER
“MOREOVER, WHEN THE CONSUMER COST OF AN ESSENTIAL CONSUMABLE PRODUCT THREATENS TO CHANGE THE VERY NATURE OF OUR SOCIETY DO WE REMAIN REVERENT TO THE GODS OF CAPITALISM WHEN THE “INTOLERABLE” THRESHOLD IS REACHED ?”
The simple answer: HECK YES. The alternative is to deny reality and remain stuck in the past. The nature of society has changed many times throughout history as the consumer cost of various items have changed.
And it has usually been to the betterment of society.
And finally, turn off your caps lock. It’s considered rude.
FOR SCOTT JOHNSON:
REPLIES:
1)THE ASSUMPTION THAT THIS IS A “FREE” MARKET IS PREPOSTEROUS. ALL THE MAJORS SLEEP TOGETHER ELECTRONICALLY SUCH THAT OPEN COMPETITION AND FREE ENTERPRISE ARE ACADEMIC CONCEPTS ONLY.
MOREOVER, WHEN THE CONSUMER COST OF AN ESSENTIAL CONSUMABLE PRODUCT THREATENS TO CHANGE THE VERY NATURE OF OUR SOCIETY DO WE REMAIN REVERENT TO THE GODS OF CAPITALISM WHEN THE “INTOLERABLE” THRESHOLD IS REACHED ?? AND ARE WE FAR FROM IT ??
2) “HIGH SCHOOL ECONOMICS,REALLY” – REALLY ??
ALL I CAN SEE IS BURDENSOME ENERGY PRICING BEING FOISTED UPON A SOCIETY THAT IS ALREADY OVERLOADED WITH INDIVIDUAL AND SMALL BUSINESS DEBT AND PAINFULLY ABSENT ADEQUATE SAVINGS WHILE RICH AND POWERFUL DEFACTO PETROLEUM CONSORTIUMS AND SPECULATORS POST BILLIONS OF DOLLARS OF PROFITS PER QUARTER AND AT RECORD LEVELS.
MOREOVER, I KNOW OF NO “PEOPLE” ABLE TO “ECONOMICALLY” “FIND”, OR CURRENTLY SEEKING, “OTHER SOURCES OF ENERGY AND THEREBY REDUC(ING)DEMAND”. NICE THEORY BUT IT AIN’T HAPPENING.
3) OIL COMPANIES HAVE HISTORICALLY TAKEN FULL ADVANTAGE OF THE VIRTUALLY CAPTIVE MARKETS THEY SUPPLY. TO SAY THAT, NOW, DURING A PERIOD OF INCREDIBLE PROFITEERING, THEY OWE NOTHING TO THEIR CUSTOMERS IS PURE ECONOMIC SOPHISTRY IN SUPPORT OF CAPITALISM RUN AMOK.
4) YOUR STATEMENT PRESUMES OPEN AND FREE MARKETS ABSENT “PRICE AGGREGATION” AND THE RAMPANT COMMODITY SPECULATION WE’RE SEEING NOW. I BELIEVE YOUR THINKING, THEREFORE, IS INVALID ON, AT LEAST, THOSE GROUNDS ALONE.
5) IF THE EARLY INDICATIONS ARE EVEN REMOTELY TELLING, THE WORD “FREER” WILL NOT APPLY TO THE AMERICAN POPULACE AS A WHOLE. THE EXPRESSION “MORE PROSPEROUS” WILL APPLY ONLY TO THOSE NOW POSTING RECORD PROFITS AND PROVIDING THINGS LIKE $400,000,000 (NOT A MISPRINT)GOLDEN PARACHUTES TO INDIVIDUAL CEO’S (EXXON’S LEE RAYMOND)UPON THEIR RETIREMENT.
6) IF YOU WOULD POSIT THAT THE REACTIONS AND REPURCUSSIONS WE ARE NOW SEEING INDICATE THAT OUR PEOPLE ARE “HANDLING” THE INHERENT ANSWERS WELL, THEN I’LL CERTAINLY GIVE YOU TIME FOR ANOTHER THINK ON THAT ONE. EVERY INDICATION IS THAT THESE HIGH ENERGY PRICES ARE DISASTROUS FOR OUR CONSUMERS AND OUR SOCIETY. TO FAIL TO ACKNOWLEDGE THIS SIMPLY INDICATES AN IDEOLOGY DRIVEN BLINDNESS.
MOREOVER, IT WOULD BE NICE IF WE COULD SIMPLY APPLY ADAM SMITH ACROSS THE BOARD AND JUST WAIT PATIENTLY FOR THE POSITIVE BENEFITS TO ROLL IN. HOWEVER, THIS IS NOT REALITY; AND REALITY IS WHAT WE CONSUMERS ARE DEALING WITH. ABSTRUSE CONCEPTS REGARDING A WONDERFUL LEVELING WHICH MIGHT OCCURR AS THE INVISIBLE HAND WORKS ITS MAGIC ON OUR SOCIETY ARE FOLLY LAID UP AGAINST THE HARSH ECONOMIC REALITIES WE ARE NOW SEEING. TO IGNORE THOSE REALITIES SO AS TO PAY HOMAGE TO ECONOMIC THEORY SMACKS OF A SIMPLISM THAT REFUSES TO RECOGNIZE THE REAL WORLD.
RICK GOLD
ERC FUELS-OWNER
Rick Gold, allow me to answer your questions.
1. There is no threshold, because no price is “intolerable” in a free market.
2. Yes, unfettered capitalism is the answer here. The higher price will induce more R&D investment and increase supplies. It will also make it more economical for people to find other sources of energy and thereby reduce demand. High school economics, really.
3. No, the oil companies do not “owe” anything to their customers. They’ve provided their customers with a valuable product that the customers voluntarily paid for. They have been doing good things for their customers all along.
4. Yes, if by “all the traffic will bear” you mean “market price.”
5. The endgame will be a freer and more prosperous society.
6. Therefore, yes, of course we can handle the answers to your questions.
Finally, if the government starts “cracking down” and instituting more and more regulations to attempt to control fuel prices, don’t you realize that you, as a producer of racing fuels (if I am not mistaken), would be in their crosshairs before long?
Tell the fleet Admiral that he should get on his ship and sail across the Atlantic and stay there.
I think, and I am unanimous in this, is that all these rednecks driving laugh “S” UVS should be shot. You want an SUV? Then get a freakin job that pays you enough to buy a Porsche Cayenne.
As for the rest of society, this problem would be lessened if we bought diesel cars from a country that doesn’t build ISHT like the USofA does. That’s right, I’m talking about GERMAN cars.
Why support the idiot automakers in this country when we should be supporting a country that is on the forefront of alternative fuels and hydrogen powered vehicles? Because the losers wearing the fanbelt around the waist in the US sure aren’t producing anything worth owning or revolutionary.
We should all be so lucky to own a German car that gets 60 MPG, and some 200 MPG.
-
Audi owner
I think that the best thing to do is nothing just let the price of gasoline go up as high as the market will pay for it the price will be high in the near term but will lead to cheaper prices in the longer term.
NMA,
THE THRUST OF YOUR PIECE IS THAT HIGH FUEL PRICES ARE MORE TOLERABLE THAN GOVERNMENT MEDDLING. WELL, BACK WHEN THE GOVERNMENT DID MEDDLE, IT DID SO BECAUSE FUEL PRICES BECAME, IN FACT, INTOLERABLE. I MUST ASK: HOW FAR ARE WE, AT PRESENT, FROM THAT THRESHOLD ??
ADDITIONALLY, I WOULD ASK: IS UNFETTERED CAPITALISM THE ANSWER HERE ?? AND DO THESE OIL COMPANIES POSTING RECORD PROFITS IN THE BILLIONS, OWE SOMETHING TO THE 70+YEAR CUSTOMER BASE THAT HELPED THEM BUILD THEIR HUGE AND OH SO PROFITABLE COMPANIES ?? IS “ALL THE TRAFFIC WILL BEAR” THE OPERATIVE PHILOSOPHY INTO THE FUTURE ?? AND WHAT WILL THE ENDGAME BE IF THIS IS SO ??
CAN WE, INDIVIDUALLY AND AS A SOCIETY, HANDLE THE ANSWERS TO THESE QUESTIONS ?? I’M NOT SO SURE…
RICK GOLD
ERC FUELS-OWNER
Quite right Jim!
The 55 was the most idiotic idea on a energy policy. Speed limits should be based on what most people can drive safely (70 mph to 80mph). Not on making an “enviormental or energy” placebo.
Conservation is not going to solve our problems here. Long term we need alternatives to oil. Not quick fix schemes.
If you want one of those, go to Nigeria.