Thursday, May 30, 2013

How the Government Keeps Gas Prices High

How the Government Keeps Gas Prices High:
Plan to drive more this summer? Annoyed by the price of gas?
Complaining that oil companies rip you off?
I say, shut up. Even if gas costs $4 per gallon, we
should thank Big Oil. Think what they have to do
to bring us gas.
Oil must be sucked out of the ground, sometimes from war zones
or deep beneath oceans. The drills now bend and dig sideways
through as much as 7 miles of earth. What they discover must be
pumped through billion-dollar pipelines and often put in
monstrously expensive tankers to ship across the ocean.
Then it’s refined into several types of gasoline, transported in
trucks that cost hundreds of thousands of dollars. Finally, your
local gas station must spend a fortune on safety devices to make
sure we don’t blow ourselves up while filling the tank.
And it still costs less per ounce than the bottled water sold at
gas stations. If government sold gas, it would cost $40 per gallon.
And there would be shortages!
Another myth: Big Oil makes “excess” profit. Nonsense. The oil
business is fiercely competitive. If one company charges a penny
too much, other companies steal its business. Apple’s profit margin
is about 24 percent. McDonald’s makes 20 percent. Oil companies
make half that.
Per gallon, ExxonMobil makes about 7 cents. Governments, by
contrast, grab about 27 cents per gallon. That’s the average gas
tax. If anyone takes too much, it’s government.
President Obama says, “Gas costs too much.” So he announced:
“We’ve put in place the toughest fuel economy standards in history.
Over the life of a new car, the average family will save more than
$8,000 at the pump.”
Sounds good. But the magic of fuel economy standards is another
Susan Dudley, who runs the Regulatory Studies Center at George
Washington University, points out that many car buyers care more
about safety, style, power, etc. than mileage.
“The problem with the government’s rule is that they ignore all
those other preferences ... assuming that the only thing we value
is fuel economy.”
Fuel economy sounds appealing when it’s presented as something
created at no cost. But car dealers say it will make cars cost
$3,000 more.
Also, as James Taylor, an energy expert at the Heartland
Institute, pointed out on my TV show, fuel-economy regulations
“In order to make cars more fuel-efficient, auto manufacturers
make them smaller -- using lighter materials, they’re less
crash-worthy … We’re seeing thousands of people dying on the roads
that shouldn’t be.”
You’d think automakers would strongly oppose these regulations
-- but if so, why, when President Obama unveiled the regulations,
did the heads of 13 car companies shake Obama’s hand and smile?
“Even if it is a $60 billion cost to them,” says Dudley, “if
 everyone has to do it, they can pass it on to
In other words, normally companies compete to do things more
efficiently than rivals, in order to charge lower prices and get
the lion’s share of customers. But there’s no need to worry about
jacking up your prices when your rivals must do so, too. Regulation
makes companies lazier, not more efficient.
Republicans at least talk about deregulation. But the
“regulation-killing Republican” is another myth. Despite being
labeled a deregulator, George W. Bush hired 90,000 new regulators.
Dudley, who was their overseer, now says, “The pressure to regulate
is intense.”
Almost no one seems to speak up for a true free market in
energy, with competition, innovation and unfettered consumer
choice. People say regulation is needed to counter industry
But if anyone’s greedy here, it’s government -- and unlike oil
companies, government doesn’t have to work hard and compete to give
you good service at the lowest possible price. Government just sits
there, telling companies to charge less, telling car companies to
make smaller and more dangerous cars, mandating and subsidizing
alternative fuels like ethanol -- and then telling us that we
benefit from the politicians’ efforts.
The truth: We rarely benefit.