The American Spectator

It has been years since construction of a new refinery. Moreover, environmental rules segment the domestic gasoline market. A shortage in one area cannot be remedied with supplies from another. The Environmental Protection Agency requires different blends for summer, which are more expensive to produce. Lucian Pugliaresi of the Energy Policy Research Foundation points to “[r]ising gasoline demand in the U.S., combined with unscheduled refinery closings, looming strikes, limited spare replacement capacity, longer turnaround times for scheduled maintenance, and refining factors.”

AFTER HURRICANE KATRINA the Federal Trade Commission investigated the oil industry and found no price gouging. Indeed, the FTC and Department of Energy have repeatedly reviewed gasoline prices and discovered nothing amiss. Reports W. David Montgomery, author of a new study for the American Council for Capital Formation: “Their conclusions in every case have been that gasoline price increases were due to the operation of supply and demand in light of an interruption of supply, and that the magnitutde of price increases was consistent with the magnitude of the loss in supply. There has never been a finding that gasoline price increases were caused by any manipulation of the markets.”

Crude oil prices are set in distant, impersonal, global markets. The most important local price determinant is station competition, but city and county zoning departments have more influence than international oil companies over who sells gasoline where. Moreover, unusual crises, such as a natural disaster destroying infrastructure and disrupting supplies, have enormous price impacts.

The contrary theory that energy behemoths run the world raises the interesting question, why have gas prices been relatively low so often? If Big Oil could run prices up at the click of a gas pump, then why did prices fall so dramatically in 1981? No self-respecting profiteer would have left money in consumers’ pockets during the 1990s if domestic companies could manipulate the market. Surely the sneaky monopolists wouldn’t have chosen Hurricane Katrina as the moment to start mulcting the public, since they could predict heightened public scrutiny. In short, if the price-gouging story is true, the energy concerns are remarkably stupid, incompetent, or both, utterly incapable of taking advantage of their supposedly unique ability to enrich themselves.

Unfortunately, the truth, though clear, is complicated, offers no easy solutions, and doesn’t help legislators win votes. So many people and most politicians prefer to believe that the oil companies have conspired to raise consumer costs. Thus, Congress should just prohibit price gouging. Hence Rep. Stupak’s “Federal Price Gouging Prevention Act.”

When challenged last month to justify what would end up as de facto price controls, Rep. Stupak professed innocence: “There is nothing in the legislation that would restrict the supply of oil to this country. All we’re saying is: Just justify your costs…if you can justify your costs, you have no fear of this legislation.”

That is, go before jurors angered by high prices and trust them to objectively judge your conduct based on such undefined terms as “unreasonably,” “gross disparity,” “unconscionably excessive,” “reasonably reflects,” and “unfair advantage.” Risk serious fines and even prison time hoping that people would understand the vagaries of the international energy market.

WE HAVE CENTURIES OF DISASTROUS experience with direct price controls, in which politicians decide who pays what to whom. Federal energy price controls were no better. Observed William Simon, who administered the system in the mid-1970s: “As for the centralized allocation process itself, the kindest thing I can say about it is that it was a disaster. Even with a stack of sensible-sounding plans for evenhanded allocation all over the country, the system kept falling apart, and chunks of the populace suddenly found themselves without gas.”

The more indirect controls that would arise from the Stupak legislation would be little better. W. David Montgomery warns that the bill would dissipate any consumer savings from lower prices “by the costs of non-market allocation mechanisms such as gas lines,” exacerbate shortages “because of diminished or eliminated incentives for producers to find replacement supplies and for consumers’ efforts to conserve,” and direct limited supplies to those “who have the lowest cost of waiting” rather than to those who would most value the gasoline.

As a result, the people who would most suffer would be those supposedly protected from higher prices. Gasoline would be cheap … if you could find it. But few individuals or companies would want to risk prosecution when attempting to locate, acquire, and transport additional supplies to areas suffering from shortages. Why go to the extra effort and expense if the government might not only sue but imprison you?

Most people prefer cheap to expensive gasoline. When costs rise, most people prefer to believe simple charges of corporate conspiracy rather than sophisticated explanations of market complexity. As a result, politicians profit, companies suffer, and people lose.

But there is no magic elixir to bring down high gasoline prices. Indeed, asking politicians to do something, anything, to make us pay less is the best way to make us pay more.