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Introduction
All issues are more complex than politicians describe them in their attempts to scare the masses.
On October 11, 2004, Presidential hopeful John Kerry said the following:
"For most middle-class Americans, the Bush gas tax increase is a tax increase they can't afford...The money you're paying at the pump is going directly from your wallets straight into the hands of oil companies and oil producers."
I am not a G.W. Bush supporter. He increased the destructive power of government during his first four years in office by signing every statist scheme that came from a Republican congress.
However, I refuse to fall into the pattern of blaming one person (or party) for the shortages and artificially high prices that result from government intervention in the free market.
One recent example: the Environmental Protection Agency's Tier 2 Vehicle & Gasoline Sulfur Program, that "begun in January 2004, affects every new passenger vehicle and every gallon of gasoline sold in the U.S." Not surprisingly, international refiners are having problems meeting the EPA low-sulfur requirements, says both Bryan Caviness from Fitch Ratings and A.G. Edwards senior analyst Bruce Lanni 1.
This new EPA guideline directly reduces the supply of gasoline in the United States and thus increases the price.
I also blame the average person who participates in the federal election fraud and endorses the politicians who force these programs on the rest of us. They think they are doing their "patriotic duty" by pulling a lever, but they ignore the House hearings on "Reducing Sulfur in Gasoline and Diesel Fuel" by socialist S. William Becker. Maybe they cheer whenever a President gives a heartwarming speech on Cleaner Air for the New Century, but blame the free market (absent in this equation) whenever those feel-good governmental policies directly affect their wallet.
Cost Breakdown
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According the U.S. Department of Energy's own numbers, various government entities are responsible for the artificially high price of gasoline:
Source: U.S. Department of Energy
Taxes - federal, state and local taxes compromise a large percentage of the overall price of gasoline.
Crude Oil - the largest percentage of the cost goes directly to the crude oil suppliers, particularly the statist Organization of the Petroleum Exporting Countries. In fact, governments worldwide control 77% of oil in proven reserves.
Refining - oil refining costs are artificially high because of regulations. The sulfur level restrictions I mentioned above increase refining costs. The 1990 so-called Clean Air Act adds another cost to gasoline production because it forces certain cities to utilize reformulated gasoline.
Distribution and Marketing
Station Markup (not listed) - individual gas stations must markup each gallon of gasoline that they sell. They have to make a profit to pay their employee wages (inflated because of mandatory minimum wages), distributors, etc.)
Some states artificially increase the markup by instituting "markup laws" which prohibit stations from charging less than a certain percentage over invoice from the wholesaler. This legislation rewards inefficient stations and hurts the consumers, who are forced to pay a few cents more on each dollar.
Statist Problems
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- The Giant Gas-Gouging Gaffe
The solution to high oil and gas prices is to get the government out of the way. Ease restrictions on new refineries and oil drilling, get rid of taxes on gasoline, and stop threatening to nuke Iran. That would solve the "crisis" very quickly. - Robert P. Murphy, May 25, 2007 [Mises]
- Gas Prices and Bush's "Appeasenomics"
- Harry Binswanger, April 30, 2006 [Capitalism Magazine]
- Pay Less, Drive More
Auto efficiency standards are the classic case of a bureaucratic program that feels good to politicians and special interest groups, but does nothing for consumers. - John A. Charles, Jr., April 10, 2006 [Capitalism Magazine]
- The Gas-Line Quagmire in Iraq
- Robert Murphy, February 6, 2005 [Mises]
- Gas Prices Fact or Fiction: A Primer on Supply and Demand
- Tom Lehman, October 18, 2005 [Mises]
- What To Do About Gasoline Prices
Some Americans are demanding that the government do something about gasoline prices. Let's think back to 1979 when the government did do something. - Walter Williams, August 31, 2005 [Capitalism Magazine]
- How To Create A Shortage
Hawaiians are about to find out in the near future that the "solutions" they have supported are going to have the opposite effect of what supposedly was intended. - William Anderson, August 29, 2005 [Mises]
- National Oil Firms Take Bigger Role
Governments Hold Most of World's Reserves. - Justin Blum, August 3, 2005 [The Washington Post]
- Maryland Hits Brakes on Fleeting Gasoline Price War
Maryland regulators quickly stepped in and told the stations that their prices were too low. - Justin Blum, May 6, 2005 [The Washington Post]
- Gas-Price Demagoguery
- Arthur E. Foulkes, May 4, 2005 [FEE]
- Are Higher Prices a Blessing?
- Robert P. Murphy, May 3, 2005 [Mises]
- Is Washington Treating Us Like Chumps At The Pumps?
Gasoline is already more than $2.20 per gallon and climbing, and we’re still months away from the high-demand summer vacation season. So why has the U.S. Senate introduced two bills that would raise prices even further? - Ben Lieberman, April 17, 2005 [Capitalism Magazine]
- The Myth of "Peak Oil"
- Charles Featherstone, January 12, 2005 [Mises]
- We’re Running Out of Oil? It Just Ain’t So!
- John Jennrich, September 2004 [FEE]
- Why High Gas Prices?
Harry Reid and his friends in the Senate are the ones gouging customers at the gas pump, not the oil companies. - Doug French, April 2, 2004 [LewRockwell.com]
- A Rite of Spring
In the spring of each leap year, we have a predictable—if tiresome—dog-and-pony show: the candidates for President of the United States denounce the newest gasoline price increases. - William L. Anderson, April 2, 2004 [Mises]
- Minimum Gasoline Prices
Do you suppose that Maryland enacted its gasoline minimum-price law because irate customers complained to the state legislature that gasoline prices were too low? - Walter Williams, March 31, 2004 [Capitalism Magazine]
- Bustamante's Bad Policies: Gasoline Price Controls Would Be a Disaster
If Mr. Bustamante is really concerned about gasoline prices, he should look at California's 50.8 cent per gallon gasoline tax--4th highest in the U.S. - Bruce Bartlett, September 2, 2003 [Capitalism Magazine]
- An Ancient Fallacy: Price Controls
Those old enough to remember the gasoline crisis of 1979 may recall sitting in long lines of cars at filling stations, waiting -- sometimes for hours -- to reach the pump. This was one of the most common consequences of price control throughout history -- a shortage. Yet how many Americans ever made the connection between the price controls of the 1970s and the gasoline shortages of the 1970s? - Thomas Sowell, June 27, 2002 [Capitalism Magazine]
- A Really Bad Case of Gas
After campaigning to restore sound science, reason and responsiveness to the regulatory process, the "Reformer with Results" is now standing by one of the dumbest, top-down environmental edicts on the books. - Michelle Malkin, September 9, 2001 [Capitalism Magazine]
- Greens, not Greed, Fueling Higher Gas Prices
The freedom of the computer industry has led to an explosion of innovation and productivity. The same freedom in the energy industry will lead to the same result. - Chris Wolski, September 21, 2000 [Capitalism Magazine]
- Gas Prices: High and Going Higher?
- Lee Alan Lerner and Tom Randall, August 1, 2000 [The Heartland Institute]
- The Effect of Federal Regulations on Gasoline Prices in the Milwaukee/Chicago Area
- Jerry Taylor, July 7, 2000 [CATO]
- Gas and Government
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., March 21, 2000 [LewRockwell.com]
- Regulation Begets Regulation
The controversy over Methyl tert-Butyl Ether (MTBE) shows once again that government's heavy-handed approach to environmental problems guarantees not solutions, but a continuing mess for which government will again posit itself as a solution-a clear example of Ludwig von Mises's theory of intervention. - Brian Doherty, December 1999 [Mises]
- Behind the Oil Rip-Off
We need to repeal the federal gas tax, all of it and permanently, but we also need to understand how Big Oil manipulated U.S. foreign policy in pursuit of profit. - Justin Raimondo, July 1996 [Mises]
- Pull the Plug
The current plan, as mandated under the 1990 Clean Air Act, will require the electric car to be sold first in California and eventually in the rest of the country. - Eric Peters, July 1995 [Mises]
Price gouging?
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- Thinking About Gas Prices
Amid all the hysteria among politicians and in the media over rising gasoline prices, and all the outraged indignation about oil company profits and their executives' high pay and lavish perks, has anybody bothered to even estimate how much effect any of this actually has on the price we pay at the pump? - Thomas Sowell, May 9, 2006 [Capitalism Magazine]
- Anti-'Price-Gouging' Regulation
- Nicholas Provenzo, May 5, 2006 [Capitalism Magazine]
- Is Price Gouging the New WMD?
- E. Berton Spence, April 27, 2006 [LewRockwell.com]
- Repealing the Laws of Economics
President Bush warned against price-gouging of gasoline Thursday in the aftermath of Hurricane Katrina and said looters should be treated with zero tolerance. - Mike Tennant, September 1, 2005 [Strike the Root]
- On Price Gouging
- Donald J. Boudreaux, April 2005 [FEE]
- Anti-Price-Gouging Laws Harm Consumers
- Sheldon Richman, August 16, 2004 [FEE]
- "Price Gouging" and Oil Prices
What exactly is "price gouging?" No objective definition is ever given. From what I can tell, politicians who use this phrase mean to say that more than a "reasonable price" is being charged for gas and oil. - Michael J. Hurd, March 12, 2003 [Capitalism Magazine]
- War on Gougers?
Just as the script dictates, cries of "gouging" are now heard across the land. - Llewellyn H. Rockwell, Jr., February 24, 2003 [Mises]
- A September 11 Profiteer
Bobbie Jean Harvey had a problem: She was quickly running out of gas. It was September 11, and four airliners had just been hijacked and slammed into the World Trade Center and the Pentagon. Panicked customers were flocking to the two gas stations Ms. Harvey owns near Midland, Mich., to top off their tanks in case the supply of gas was disrupted. - Rob Moody, July 29, 2002 [Mises]
- 'Price Gouging' is not the Reason for Rising Energy Prices
- James K. Glassman, June 1, 2001 [Capitalism Magazine]
- "Big Oil" and The High Cost of Demons
Since it has long been known that the best defense is a good offense, it should not be surprising that politicians who have created an economic mess should begin loudly denouncing somebody else as the cause of the public's problems. Last year, the problem was a sharp increase in gasoline prices in California and in the midwest. Immediately the demonizing of Big Oil began. - Thomas Sowell, May 14, 2001 [Capitalism Magazine]
- Oil or Tax Gouging
Let's try logically to work through the economic forces that translate into the rising oil prices. There are five steps in the gas life cycle from refining to the pump. - Christopher X. Coyne, September 2000 [Mises]
- "Spiraling" Oil Prices and "Obscene" Profits
No business person, operating lawfully, should ever be asked to explain profits. And implicit in the question is the absurd notion that oil executives can charge whatever they want, whenever they want, for as long as they want, without a consumer backlash -- a backlash that may mean buying more fuel-efficient cars, moving closer to work, carpooling or shopping more aggressively for cheaper gas. - Larry Elder, May 7, 1999 [Capitalism Magazine]
- There’s Some Good in Gouging
- Karen Selick, April 1998 [FEE]
Libertarian solutions
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Footnotes
1 - The (new EPA) sulfur rules are expected to limit imports, as foreign refiners consider whether to upgrade their refineries to U.S. standards. In a recent report, A.G. Edwards senior analyst Bruce Lanni says that imports could be curbed by up to 150,000 barrels a day -- 1.7% of U.S. demand -- because marginal suppliers in Eastern Europe, Latin America and Russia may decide not to invest in improved refining equipment. "Even a small impact could have large ramifications, due to the already tight gasoline-inventory situation," Lanni writes.
Barron's. March 29, 2004.
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