KSL Radio’s Doug Wright says more government intervention is the answer to high gasoline prices. I rarely tune into Doug Wright’s show. It doesn’t work with my schedule and I don’t feel that I get that much out of it. But this morning I had some business to attend to, so I drove to work late and caught part of Doug’s segment on the outrageously high gasoline prices we are currently paying.
It’s no secret that retail gasoline prices have gone through the roof, jumping some 30% since the beginning of the year. We’re paying four cents more today than we were in the knee-jerk gouge-a-thon following Hurricane Katrina. Gasoline prices are at an all-time record high. And we haven’t even hit the annual Memorial Day price bump yet.
The job of a talk show host is to make everything they talk about sound very important while filling the allotted block of time every day. And it doesn’t matter if it’s a slow news day. If it doesn’t sound important, the ratings will drop and so will advertising revenue. Effective talk show hosts use all kinds of tricks of the trade (emotionalism, absurdity, partial truths, twisting facts, minimizing complexity, etc.) to make the issues they talk about sound significant.
Gasoline prices affect everyone and they are getting on everyone’s nerves right now. Since it’s a hot topic, expect talk show hosts to talk about it. Mr. Wright has apparently devoted several segments to this issue over the past several weeks.
Wright’s approach today was to suggest that the conglomerating of U.S. oil companies over the years has resulted in an environment where gasoline distribution is now more like a public utility than a free market. Wright repeatedly made the point that the free flow of gasoline through the economy is essential to our national security. At least he seemed to stop short of calling for a government takeover of the oil industry, a la Venezuela’s beloved dictator, Hugo Chavez. Rather, he suggested that we need something more along the lines of public oversight of the industry, similar to our state’s Public Service Commission that regulates electrical and natural gas suppliers.
Government can certainly take steps to help foster fairness and freedom in markets. Occasionally government has a role to play in enforcing morality upon amoral free markets. But usually when government meddles in the market, it ends up causing more significant problems than the ones it assays to solve.
Whenever people clamor for government intervention, I think it is wise to take a step back and look at what is really happening and how things really work. With that understanding in mind, we should then ask whether the desired intervention is likely to actually produce the desired outcome. And then we should ask what other effects will likely result from the desired intervention.
Fact #1 is that our economy is completely dependent on oil. We have found no viable alternative to oil. Wright was right (pun) when he said that biofuels are not a viable alternative. The amount of land mass required to grow the crops, the amount of fuel required to develop and harvest the crops, and the amount of energy expended in converting the crops to usable fuel are problematic issues. I wrote about various alternative fuels last May, when gas prices were making their annual spike.
Fact #2 is that the oil market is highly volatile. It is interesting to note that the $3.15 we pay for a gallon of gas today is roughly equivalent to $0.47 in 1960 Dollars. Back in 1960, gas cost only $0.25/gallon. So gas today costs about 188% of what it cost in 1960. But let’s take an expanded view using inflation adjusted Dollars. Just a few months ago gas cost 132% of 1960 prices, last fall it cost about the same as it does today, in 1980 gas cost 200% of 1960 prices (even more than today), and in 1998 gas cost only 56% of 1960 prices. Oil prices fluctuate wildly. So do gasoline prices. For a more detailed handling of the factors that go into gasoline prices, see this post. No amount of government intervention is going to prevent the market from fluctuating.
Fact #3 is that oil operates in a global economy. Becoming oil isolationists might improve national self reliance, but experience shows that both economic and political isolationism have proven to be disastrous courses of action. Even if our nation produced the amount of oil it consumed, that does not guarantee that domestic oil would not be sold to foreign buyers or that we would purchase no foreign oil unless we passed laws that forced it to be so. Such laws have almost universally resulted in bad news.
Part of the reason gas station boycotts never work is that oil functions in a global economy. The price you see on the marquee at your local gas station is determined as much by how much gasoline is being purchased in China and India today as it is by how much gas people in the U.S. are buying. But another reason that gas station boycotts don’t work refers back to fact #1. You might be able to keep from buying gas for a few days, but no business can do that. You might not drive to the store to buy a product, but by golly, you are waiting for UPS or FedEx to deliver products to you, and their trucks and airplanes aren’t fueled by nothing.
The answer, some say, is to create self sustaining walk-able communities. The libertarian-minded economists at the Café Hayek blog frequently take pleasure in poking holes in these kinds of proposals. They love to demonstrate that achieving this kind of self sufficiency either requires living in poverty or maintaining a very expensive illusion where the fuel expended by others to sustain your lifestyle is ignored.
Fact #4 is that, as Pete du Pont says in this article, “[O]ur country's political establishment, from Congress to the press and the presidency, has worked for a quarter century to prevent increases in our energy supply.” Not only has the political establishment put the kybosh on oil production, but du Pont discusses how they have effectively stifled the development of all of the most reasonable alternative fuels as well.
Doug Wright suggests that the oil conglomerates have such a strong monopoly that they collude with each other in their dirty smoke filled rooms to figure out how to stick it to hapless consumers and even the government, which is just as dependent on oil as are you and I. (Remember the Enron tapes?) Wright says that the industry is so powerful that it owns enough politicians on both sides of the aisle to stifle effective reform. He says it is high time for the government to regulate the industry. Please note that the oil industry is already one of the most highly regulated industries in our nation.
Wright also suggests that oil is more like a public utility, since it is a commodity that is so essential to our welfare, our national security, and our economy. Wright seems to be saying that the government needs to take control because we simply can’t stop ourselves from using oil. (Stop me before I drive again!)
I would just like to point out that these same arguments could be said of food staples. Should we also, for example, bring the bread industry under the auspices of a Public Service Commission? Would adding the kind of regulation Wright suggests improve the free flow of the commodity and bring prices down? It certainly hasn’t worked that way in any other country that has tried it. How is it that we are suddenly going to make it work?
Most calls for government intervention are founded in frustration and/or a desire to protect one’s turf. Turf protection is why you can’t legally pump your own gas in Oregon, for example. That’s not where Wright is coming from. Many consumers are frustrated with gasoline prices right now. That is understandable.
But most frustrated calls for government intervention are also founded in ignorance of how things really work. I suggest that except for emergency cases, any call for government intervention should be approached calmly and deliberately with an eye on getting a firm grasp on how the matter actually works and what effects intervention is likely to cause. I’m no libertarian purist. I am not saying that there is never a place for government intervention. I’m simply saying that there is a right way to approach such questions.