The View From 1776

Gasoline Prices and Short-sighted Liberals

      http://www.thomasbrewton.com/index.php/weblog/gasoline_prices_and_shortsighted_liberals/

Liberals focus on instant gratification, whatever the longer-term costs.

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A Reuters news article dated May 18, 2004, begins:

“PORTLAND, Ore. (Reuters) - With the retail price of gasoline topping $2 a gallon for the first time, Democratic White House hopeful John Kerry on Tuesday chided President Bush for failing to offer hard-hit consumers any help.

The Massachusetts senator’s Democratic colleagues plan to pressure the Bush administration to lower gas costs by demanding that up to 60 million barrels of crude oil be released from the nation’s emergency stockpile, but Kerry said last week he would not tap the Strategic Petroleum Reserve (SPR).

In remarks prepared for delivery to a roundtable discussion on economic opportunity in Portland, Kerry promised to provide relief by suspending filling the SPR, working more effectively with oil-producing nations and enacting simpler and cleaner national fuel strategies. “

Several things, none of them favorable, can be said about these proposals.

First, adjusted for inflation, gasoline was about $3 a gallon during the liberal-socialist administration of President Jimmy Carter, i.e., roughly 50 percent higher than today’s price.

Second, ANYTHING that ANY President does to control gasoline prices will be harmful to the economy.  Doing anything to fix prices at a lower level would just limit or reduce the available supply of gasoline. 

What our forebears understood in 1776 was that the public welfare is maximized when individuals are as free as possible to pursue their own goals, without arbitrary government interference.  Maximizing the public welfare means living in a moral society where people try to deal fairly with each other and work hard to produce useful goods and services, saving as much as possible to provide for the future of their families.  Before the imposition of the socialist welfare-state by the New Deal, more people worked for a living and there were more goods and services available at lower prices.  Socialism has ballooned the portion of the work force employed by the government, which produces very little that could be called useful goods and services.

Liberals turn their backs on our founding traditions and look to socialist France for guidance.  They implicitly assume that the economy is like a chess board on which people and resources are passive pieces that they can move around any way they choose.  Under the sort of socialist state-planning advocated by Senator Kerry, Big Brother will take care of you, but you have to do what Big Brother says, or else.

We got into a similar situation in the late 1960s and early 1970s, when the inflationary effects of President Johnson’s Great Society explosion of entitlement benefits led to hyper-inflation.  President Nixon nearly wrecked the economy with price controls.  When price controls could no longer be maintained, prices shot up even faster.

That’s what happened when President Carter tried the same approach.  The result was hours-long waiting in lines at service stations, which often had no gasoline at all.  When President Reagan took office, he immediately removed President Carter’s restrictions; production boomed, gasoline became readily available, and prices dropped.

We depend upon the rest of the world to supply a major part of our petroleum.  Nothing that John Kerry or his socialist economic counsellors might devise can force the rest of the world to sell to us at less than world market prices.  World petroleum prices are set by the intersection of production volume, world oil demand, and available transportation and storage.

In that real-world market, China and other nations are growing rapidly and absorbing ever more of the world’s petroleum output, driving up world oil prices. Moreover, there is very little, if any, additional production capacity in the short run anywhere outside Saudi Arabia.  And their additional capacity, even if opened full bore, would have little impact on world oil prices and no effect at all on prices at the gasoline pumps in the U.S.  Our oil refineries have no additional production capacity and couldn’t use the added supplies quickly enough to reduce gasoline pump prices during the peak-demand summer months.

Third, taking oil supplies out of the nation’s emergency storage in Texas and Louisiana would be the equivalent, in the middle of a war, to taking ammunition from troops in Iraq to make it more readily available to hunters at home.  Those reserves may become critical to the nation’s survival if terrorists should inflict major damage to oil fields in Saudi Arabia or some other major producer.  Even to suggest that they be used for temporary reductions in the price of gasoline makes the liberal-socialists look like whiny children on a grocery shopping trip demanding that mommy buy them more candy.

Fourth, none of the liberals’ remedies deals with underlying realities.  Gasoline prices are rising for several reasons, of which three of the biggest domestically are caused by liberal-socialist state-planning of the sort that Senator Kerry is now urging upon us. 

The first big reason is that gasoline refineries in the U.S. are operating already at capacity, and something like a fire or other disruption at any one refinery immediately cuts supplies and levers up gasoline prices.  And why are refineries operating at capacity and, in fact, have insufficient capacity to meet growing market demand?  Look no farther than years of liberal-socialist opposition to building new refineries for environmental reasons.  Maybe the liberals prefer to cut down every tree in the U.S. to use as fire wood to produce electricity, replacing all the trees with towering and howling wind generators (any birds that survive the loss of trees will be chopped up by the wind generator propellers).

The second big reason is that liberals, again for environmental reasons, have pushed state legislatures to mandate different blends of gasoline.  Thus, if Indiana and Illinois were to have different blending mandates, a shortage in Illinois couldn’t be satisfied with surplus supplies from Indiana.  In addition, prices at the gas pump have to go up, because there are added costs to blend smaller batches of gasoline tailored to many different and smaller markets, and because smaller, separate storage facilities for each state market are less efficient than larger, centrally located distribution facilities for a single formulation of gasoline.

A third big reason comes to us from liberal-socialist Senators Tom Daschle and Tom Harkin, who were in the forefront of the move to require blending ethanol into gasoline.  According to the Wall Street Journal, every gallon of ethanol produced requires using roughly 1.7 gallons of gasoline.  So using ethanol inescapably increases the demand for imported oil and drives up the price of gasoline at the pump.  This is presumably what Senator Kerry and his socialist economic counsellors have in mind with regard to “enacting simpler and cleaner national fuel strategies” mentioned in the Reuters news article.

The real problem with liberal-socialists like Senator Kerry, however, is more fundamental.  They believe in a command-and-control economy in which Federal regulators call all the shots.  Nothing to it.  If voters are unhappy, just pass a regulation.

But put yourself in the position of the oil field or refinery worker.  Would you simply follow orders and work longer hours for less pay, so that gasoline prices could be cut?  Businesses are in the same position.  The Feds can force price reductions, but costs to produce remain at the same level.

But despair not.  Do as the New York Times editors advise: stop using your automobiles, especially your SUVs, and take mass transit.