Why do members of Congress and other government officials spend so much time on peripheral issues? I know that many American will not agree with me, but recent increases in gasoline prices do not constitute a national emergency. Moreover, there is nothing particularly constructive that the legislative branch can do to change the situation.
Take this week’s events. The Environmental Protection Agency is jawboning refiners to lower prices, an action for which I can distinguish no environmental linkages. Senators and representatives of both parties are calling for hearings and baying about monopolistic collusion by oil companies.
For what? Even at $2-plus, gasoline prices, adjusted for inflation, are in the mid to low end of the range for the past century and low compared to all other industrialized nations. There is little real evidence of any collusion, and the structure and performance of the oil industry is that of vigorous competition rather than price fixing.
Despite the fact that many people are perpetually convinced of malfeasance by oil firms, the average production or refining firm has much less monopoly power over gasoline than the average big-city newspaper has over display advertising. Several food sectors, such as carbonated beverages or breakfast cereals, are more concentrated than is the petroleum industry.
The best cure for high prices is high prices, not congressional hearings. High prices bring drilling rigs out of fields where they were parked rusting. High prices motivate companies to upgrade obsolescent refineries and build new pipelines. And they tell drivers of mammoth SUVs to combine several errands in one trip and perhaps buy a Geo Metro for the daily trip to work.
Prices of commodities such as oil, the production is of which capital intensive and which experience large shifts in demand with global business cycles, are inevitably going to be volatile. Global experience with oil price booms and busts over the last 30 years clearly shows that nations which let the market operate experience fewer problems than those which resort to populistic political judgements.
Following the first OPEC price rise in 1973, the U.S. implemented price controls, windfall profit taxes, subsidies for synthetic fuels, a lower speed limit, and other measures. Japan let prices rise to gasoline and oil consumers and let them make their own adjustments. There is no evidence that our economy and society adjusted with any less pain than that of Japan. Indeed, there is substantial evidence to the contrary, we prolonged our pain and made it deeper.
I’m not a libertarian nor a conservative who believes that government can never play a positive role in economic activity. It is clear to me that many things the government does in fostering public good—such as health, education, and transportation and in buffering the often harsh effects of market outcomes on individuals—are important. Many of the things that government does could be done better. Many could use greater, rather than less, funding.
But government should not act unless there is a clear market failure and a reasonable expectation that government action also will not fail. Neither of those conditions is true in the case of higher gasoline prices.
A $2 per gallon price posted at a Chicago filling station in the Year 2000 is simply no evidence of market failure. And experience gives us no clear reason to expect that state or federal action will make things better rather than worse. Elected officials should set election-year populism aside and concentrate on matters where there is a clearer need.
© 2000 Edward Lotterman
Chanarambie Consulting, Inc.