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By Robert Rapier on Apr 14, 2006 with no responses

Who’s to Blame for High Gas Prices?

I just ran across this article yesterday at CNNMoney.com. The original article can be found here:

Who’s to blame for high gas prices?

There are a number of statements that the article makes that touch on some important issues. Specifically, the article highlights the irresponsibility of some politicians when it comes to energy issues. It is an election year, and instead of discussing ideas that could actually help us deal with the difficult energy issues in front of us, we get a bunch of finger-pointing and posturing. Below I will quote various portions of the article, and comment:

Last week, Wisconsin Democratic Sen. Herb Kohl and Pennsylvania Republican Sen. Arlen Specter proposed legislation that would increase regulatory scrutiny of Big Oil, which Kohl says “has unquestionably enriched itself during this period of high prices.”

The last time I checked, it was not against the law to make money. Of course Big Oil has made money during this “period of high prices”. High prices are exactly why they made money, but they didn’t raise prices simply to make more money. It’s called supply and demand. The supply is becoming limited, yet the demand has not yet been stemmed. Prices are raised to stem demand and bring supply back in line. That means Big Oil makes money. I explained this in an earlier essay A Primer on Gasoline Pricing .

Taking on Big Oil six months before November’s election is a can’t miss proposition for politicians, of course. Besides calling on the federal government to make OPEC liable under U.S. anti-trust laws, Kohl’s Oil and Gas Industry Antitrust Act of 2006 would mandate the creation of a joint state-federal task force to investigate whether producers, refiners and marketers are sharing information in a bid to keep prices high.

Right. Can’t be supply and demand. It must be collusion, even though the FTC has investigated these charges again and again and found nothing. They really should force these legislators to take Economics 101 before allowing them to make laws.

There’s no harm in having the government keep a closer watch on the energy industry, and Kohl’s sympathy for consumers is commendable, but blaming Big Oil for high gas prices is a little like blaming McDonald’s for obesity. (Yes, I know that also makes for effective politics.)

Exactly. Where is the personal responsibility here? People make choices that determine how much they contribute to Big Oil’s coffers. But people don’t want to be held accountable for their choices. They want government to do something about Big Oil so they can continue to use energy at the current wasteful rates. It is time people woke up to the fact that the National Bank of Petroleum is starting to notice that their assets are being withdrawn at an alarming rate, and changes are inevitable. The government is not going to help matters by trying to keep prices low. That will only increase the rate at which we use up our remaining fossil fuels.

The idea that prices are set by Big Oil, not the traders at the NYMEX and other global bourses, is a misconception that seems to come into vogue whenever energy prices start making new highs.

Yet it’s an idea that seems to be held by >90% of the population. Oil is a global commodity. If China wants to expand their use of oil, it’s going to mean that we pay more due to tight supplies. As one little old lady said to me once after a presentation I made “It’s not fair that I have to pay more for gasoline because of China”. I just had to shake my head at the self-centered nature of her comment. I asked her if she would rather go to war with China to ensure that she could pay $1.50 for gasoline for a little while longer. Or maybe we could convince China that they must continue to ride bicycles, so we can continue to drive gas hogs.

Kohl’s bill, alas, won’t do much to lower gas prices. The real problem here is the reluctance of Washington to make more than modest improvements in fuel-efficiency standards for cars and trucks. At the same time, politicians and other leaders seem unwilling to at least jawbone more Americans into giving up their SUVs and Hummers in favor of more fuel-efficient cars. Suing OPEC under U.S. anti-trust laws may be smart politics, but what about actually telling voters that they, too, have to take some responsibility for the problem?

There is the crux of the issue. Too many politicians are gutless. They pander, but they don’t have the courage to propose real solutions to the problem. Passing windfall profits legislation may show the public that they will “stand up to Big Oil”, but it does absolutely nothing to address the real issues. Do they think windfall profits taxes are going to cause Big Oil to lower gas prices? Who are they kidding? Gas prices are escalating to stem demand. This ensures that gas is available. Lowering prices in this tight market would have the effect of ensuring that there would be gasoline shortages.

Last month, I spent a day on Capitol Hill watching Kohl, Specter and other members of Congress grill the CEOs of Exxon, Chevron, Conoco, and several other giants. It made for great theater but I was amazed that the Senators, including liberal Democrats, barely mentioned fuel efficiency and conservation in their public remarks.

That last line is the real money quote. Aren’t liberal Democrats supposed to care about the environment? Do they think lowering gas prices is going to help out there? Do they not understand that increased fuel efficiency and conservation are our best options at the present for extending our fuel supplies and sparing the environment?

Perhaps haranguing CEOs makes for better soundbites back home. But when oil CEOs like Chevron’s Dave O’Reilly spend more time talking about conservation than our elected officials, you know we’ve got a real problem on our hands – one that will last well beyond the summer driving season.

I love our democratic system, but pandering politicians may be our downfall. We do have a real problem on our hands. For the sake of all of us, we need more politicians to have the guts to propose some real solutions. These solutions will not be painless, and that’s why politicians avoid them. But if they don’t step up to the plate, we are going to pay a terrible price in the not too distant future.