IS A PRICE CAP WHAT'S NEEDED FOR HIGH GAS PRICES?
The government will enslave you in the name of serving you.
Never forget that.
No matter how appealing the chains.
Like Louise Slaughter’s call yesterday for federal gasoline price caps.
She’s a liberal Democratic congresswoman from upstate New York and yesterday she bemoaned the high price of gasoline. It’s too high, she said, and the federal government has to do something about it.
Her suggestion is a year-long federal cap of $2.50 a gallon. The government would pass some sort of law and force the gas stations and the oil companies to charge no more than $2.50 a gallon.
Presto chango. Congress waves its magic wand and the principles of economics, and supply and demand, go out the window.
This is, of course, an insane idea.
And it was not offered in sincerity. It was nothing but a ploy to get headlines and jab the administration. It was politics, the politics of deception.
But back to the idea.
Louise says that people pay too much at the pump. And to change that she wants to order the gasoline-supply system to operate at a loss.
Instead of removing the taxes.
Instead of calling on the federal government – and New York, her state – to temporarily suspend the tax on gasoline and allow purchasers a significant cost savings, she wants to mess with the oil companies.
The federal tax per gallon of gasoline is 18.4 cents. The New York tax per gallon of gasoline is 31.9 cents – the second highest in the country, behind Wisconsin’s 32.1 cents per gallon.
If the point-of-purchase tax on gasoline sold in Louise Slaughter’s district was suspended, there would be an instant price reduction of 50 cents a gallon. There would be additional savings if federal taxes imposed earlier in the importation, refining and transportation process were also eliminated.
But Louise doesn’t call for an end to the government’s take. Instead, she calls for an increase of government power.
She calls for government price fixing.
Right now, the price of gasoline – beyond taxes – is determined by market forces. Supply and demand. The price is high now because, while demand has remained constant, supply has decreased.
More dollars chasing fewer gallons.
Supply is decreased because of disruption to oil supplies and refining capacity because of Hurricane Katrina.
That’s partly the blame of the hurricane and partly the blame of politicians like Louise Slaughter. For decades, Democrats and environmentalists have fought oil drilling in America and American waters, and they have stonewalled the construction of new refineries.
They also have pushed a variety of blending standards across the nation, driven by state or federal regulation, which have made gasoline more expensive and limited refining capacity.
The impact of this has been to make the margin of surplus in our gasoline system razor thin and the margin for imbalance equally thin. We are in this bind not because of the hurricane, but because a generation of needless meddling in the name of the environment – overwhelmingly by Democrats – has taken the flexibility and cushion out of our gas supply.
This imbalance has caused the recent price spike.
And Louise wants to fix that by government order.
She and others point to a similar stunt pulled by President Gerald Ford. He put a cap on gasoline prices.
It was a fundamental error that violated every principle of the free market. It short-circuited economic freedom and expanded government power in an undemocratic and immoral fashion.
And it didn’t work.
Capping the retail price of gasoline below the market price reduces incentive to make and market gasoline. Capping it at such a low price that it is produced and sold at a loss kills the oil companies’ desire to make it completely.
Which leads to exactly what came from Ford’s price cap – shortages.
Remember the alternate-day purchases of the late 1970s? The long gas lines? The lack of availability to meet demand?
That came about because the federal government’s price cap tilted the gasoline market further out of balance. It punished producers and incentivized consumers, pushing demand to outstrip supply.
Which is exactly what would happen now if Louise Slaughter’s proposal was approved. The issue would not be the price of gasoline, it would be the availability of gasoline. She would make things worse.
Her approach is exactly backwards.
Instead of increasing personal freedom by cutting taxes, she is increasing government control by allowing it to cheat the free market. Which one of us could survive economically if the government could set the price of the products we make at artificially low levels?
None of us could.
We would see any such effort as a direct violation of our economic rights.
But apparently such dictatorial powers are OK if directed against oil companies. Apparently in Louise Slaughter’s world it’s fine to hate big corporations.
But who are big corporations?
They are nothing more than their shareholders – who now include everyone with a 401k. And by making oil companies sell gasoline at unsustainably low prices the ones who lose will be those whose 401ks include petroleum stocks.
So, in the name of helping the common people, Louise Slaughter will end up screwing them. She will do that by increasing the likelihood of gasoline shortages, by decreasing the value of their 401ks and by infringing the basic economic freedom of our country.
We are a free country, and you can’t do the right thing the wrong way. You can’t help the people by taking away their freedom. You don’t serve the people by enslaving them.
Price controls aren’t the American way.
And it’s a shame a senior member of the House of Representatives doesn’t know that.
- by Bob Lonsberry © 2005
