Based on the drivel emanating from our country’s political class as at-pump prices hit $3.00 a gallon, the answer is emphatically “yes”. The Wall Street Journal is trying to introduce economic rationality to the discussion:
So how do the sages on Capitol Hill propose to reduce gas prices? They want to slap a profits tax on Big Oil because of alleged price gouging. Here we have another head-scratcher that seems to defy even junior-high-school economics. Usually when you tax something, like tobacco, you get less of it. But somehow a tax on oil will magically lead to more oil.
As a Harvard study has shown, when the U.S. imposed a windfall profits tax in 1980, prices rose to an inflation-adjusted range even higher than today, and domestic production fell. As for claims of “gouging,” the price of gasoline at the pump in the U.S. has risen 25% less than the rise in the global price of crude oil since 2003, according to Wall Street economist Michael Darda.
But that is not the sort of thing that one hears from the representatives of the people. Here is Democratic House leader Nancy Pelosi:
If you want to reduce our dependence on foreign oil and therefore improve our national security situation, you can’t do it if you’re a Republican because you’re too wedded to the oil companies.
We have two oilmen in the White House. The logical follow-up from that is $3-a-gallon gasoline. It is no accident. It is a cause and effect. A cause and effect.
If Rep. Pelosi really believes that, perhaps she thinks that the oil magnates got together to incite violence in Nigeria and urge Hugo Chávez to threaten to expropriate their wells in Venezuela, so that they could get $75 a barrel for the oil that they were still able to pump. Or that they are the ones who have blocked oil exploration in Alaska and the outer continental shelf, and have prevented the construction of a single new U.S. oil refinery during the last 30 years.
In truth, I doubt that she has given any thought to how the purported cause produces the observed effect. Nor has she considered that oil producers are not the only people who like high prices. As the Journal also observes,
Scan the Web sites of the major environmental groups and you will find long tracts on the evils of fossil fuels and how wonderful it would be if only selfish Americans were more like the enlightened and eco-friendly Europeans. You will find plenty of articles with titles such as: “More Taxes Please: Why the Price of Gas Is too Low”. Just last weekend Tia Nelson, the daughter of the founder of Earth Day, declared that even at $3 a gallon she wants gas prices to go higher.
Throughout Europe, the taxes on gasoline are, all by themselves, substantially higher than the total prices that American pay.
At least Ms. Nelson is honest about wanting European-level gas taxes. We doubt that many American voters would be as enthusiastic. If you think $3 a gallon is pinching your pocketbook, fill up in Paris or Amsterdam, where motorists have the high privilege of paying nearly $6 a gallon thanks to these nations’ “progressive” energy policies. (See nearby chart.)
However, you can be sure you won't hear that from Democrats or Northeastern Republicans on Capitol Hill – at least not in public. Far from it. They’re suddenly all for cutting gasoline prices, just as long as that doesn’t require producing a single additional barrel of oil.
So both oilmen and environmentalists have reasons to think that the trend in gasoline prices is just fine. The difference is that it is the environmentalists’ anti-production agenda that has by and large prevailed for thirty-some years. If blame is to be assigned, why not
We have a blocking minority of enviros in Congress, backed up by sympathetic judges in the courts. The logical follow-up from that is $3-a-gallon gasoline. It is no accident. It is a cause and effect. A cause and effect.
Republicans in D.C. have shown a vague awareness of the reasons for the gas price run-up, at least to the extent of a press release highlighting Democratic opposition to oil drilling in Alaska, which, if begun ten years ago (when President Clinton vetoed legislation to allow it), would have added a million or so barrels a day to our oil supply. Alas, the GOP seems to recall this history mainly for partisan point scoring. Its Congressional leadership’s own proposals are not much more economically literate than Nancy Pelosi’s.
Their stated goal is to “shift the cost” of higher gasoline prices from consumers to oil producers and automobile manufacturers. The relief for the former is to come through a $100 a person handout and, in some versions, suspension of the federal gasoline tax (18.4¢/gallon). The former is risible; the latter is fine by me, but not if a six-month holiday is offset by permanent tax increases, as is evidently contemplated. The logical offset is highway construction projects, which gasoline taxes are supposed to fund.
Meanwhile, faceless corporations are to be made to “suffer”, through the repeal of tax breaks for exploring for oil(!), “price gouging” investigations (that is, the churning of vast quantities of paperwork in search of proof that the law of supply and demand is a criminal conspiracy) and tighter auto fuel standards (just what the money-losing U.S. automobile industry needs right now).
Not everything in the package is silly or bad. It includes another try at breaking the Democrats’ ANWR blockade and some incentives for refinery construction. But these palliatives dilute the poison only slightly. The unmistakable effect, whether or not any of these proposals become law, is to increase the political risk of oil exploration and production. The industry now knows that Republican control of the executive and legislative branches of the American government is no shield against demagogic assaults on profits. As a result, rational investors will in the future demand a higher return from oil relative to other uses of their funds, which means that the world can look forward to less exploration, less production and still higher prices.
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