More Price Gouging

Right. The other thing about demagogic attacks on "price gouging" at the pump is that it serves to further re-enforce the view that providing consumers with cheap gasoline ought to be a major policy aim of the US government. If you care at all about the environment, of course, this is precisely wrong.

Liberals like to meld various different energy policy questions into a seamless blend of saving money at the pump, reducing dependence on the dread Middle Eastern oil, and fighting global warming, but to a significant extent these things all pull in different directions. Fossil fuels are really, really useful -- that's why we burn so much of them. Insofar as they're cheap, they'll be burned in great quantity. If you want to burn less of them, they have to be made more expensive.

Comments

And making them more expensive will by definition be "regressive".

Cranky

Posted by Cranky Observer | May 25, 2007 1:21 PM

Cranky: not with a rebated gas tax (based on, e.g., income).

Posted by Dan Miller | May 25, 2007 1:30 PM

Are these morons getting dumber or just louder?

Posted by David | May 25, 2007 1:35 PM

Power plants account for the largest single portion of c02 emissions in America (over 40%), and worldwide cows are responsible for more c02 emissions than cars.

What certain beltway and east coast types don't seem to understand is that in most of America public transit is not an option. Biking to work is not an option. Carpooling is in many cases not an option.

And for the majority of Americans living paycheck to paycheck higher gas prices put them closer and closer to the precipice.

Industry - including power plants and factories - account for the majority of c02 emissions in this country. They have the resources to effect big changes in that output in a relatively short time frame, and in the real world they're far more likely to get government aid than the tens of millions of Americans who depend on cars for basic needs every day.

Posted by Linus | May 25, 2007 1:42 PM

Except I think the actual price gouging we're talking about in terms of the price gouging bill is the kind of stuff we saw after 9/11 where, for instance, my dad paid $6/gal in Ohio as he drove cross-country back home to Denver. I really don't think "price gouging" means (or should mean) long-term high gas prices, but rather those cases when gas stations and/or oil companies take advantage of a disaster to screw consumers for short-term gain.

Posted by Michael Ditto | May 25, 2007 1:50 PM

Probably someone should raise the fact that many geologists think that world oil production has peaked. Production is declining at the four leading sites, and there don't seem to be any candidates to replace them that can be developed relatively cheaply.

U.S. oil production peaked in 1971. So, yes, federal, state, and local governments decided to base its land use and transportation policies around a resource which is getting more expensive to produce because, well, its a fossil fuel and there is only so much of it. Most of these decisions were made before people knew that U.S. peak production was imminent, and are excusable, but the fact that the policies remained in place after the oil shocks of the 70s isn't. Instead, the policy option selected was to go out and find new sources of supply.

Most Americans live in places where the only realistic way to get around is to drive a car and are paying a price for these decisions. Bad government decisions mean that ordinary people pay a price. That is why what the government does is important. But lets not get people into the habit of thinking there is some secret resevoir of oil and the greedy companies are holding it back so they can raise prices. Note that if they had this power they could have prevented the price declines we saw in the 80s.

Posted by Ed | May 25, 2007 1:55 PM

I would add too that in the age of blogs some of these environmental organizations in elite Washington peddling particular policies (especially those wanting to raise taxes on the American people) and their ties to particular industries are going to be heavily scrutinized.

Posted by Linus | May 25, 2007 1:56 PM

...those cases when gas stations and/or oil companies take advantage of a disaster to screw consumers for short-term gain.

If this is truly within their capacity, then why would they even bother to wait for a disaster to strike?

Posted by benny | May 25, 2007 2:01 PM

No objection to the idea that a any good liberal energy policy would make gas more expensive.

As it stands however 1) people will see higher prices then they are used to seeing, 2) possibly read in the newspapers that oil companies are making record profits 3)see no progress towards conservation, reduced cO2 emissions, or any progressive policy aim.

If factor in that we are doing next to nothing in the way responsible energy policy, then people aren't mistaken to be upset at gas prices.

Posted by ChrisB | May 25, 2007 2:08 PM

Public transportation is fine for a few things, but the personal car is simply not going to go away. It's just too convenient.

But people could right now choose to buy *much* more fuel efficient cars. Longer term, people could choose, for example, to live in a townhouse or in a house on a small lot, instead of getting the house on a half acre lot that's 60 miles from work. These kinds of changes are much more doable than somehow getting everyone to ride buses or subways.

Summary: concerned lefties should put much less focus on public transport, and much more focus things like

1. higher fuel taxes
2. better local land use policies
3. road congestion pricing

Posted by ed | May 25, 2007 2:16 PM

Apparently Matt wants a society where all the gas belongs to the wealthy. That's what "market allocation" is. It means the rich get whatever the hell they want, and the rest of us get jack shit.

Posted by soullite | May 25, 2007 2:18 PM

Maybe high fuel prices are a good thing. What's NOT a good thing is oil company profits. We should tax those away. This would leave the oil companies no incentive to increase or even maintain capacity, which would raise prices even higher. Even if the argument against "price gouging" is demagoguery, it sure seems like damn useful demagoguery from both an environmental and a distributive justice perspective.

Posted by Consumatopia | May 25, 2007 2:21 PM

No, this analysis isn't even wrong. First, the oil companies are selectively shutting down refineries so as to reduce supply and jack up prices (obviously they've calculated that they're on the price-elastic portion of the demand curve). This is exactly what Enron and the other energy companies did to California in 2000. They shut down power plants to gouge the consumer. This action violates all kind of laws. Even the excuse is the same.

Second, Mr. Ygelsias's argument is: "Encourage the oil companies to rip-off the consumer so there will be an incentive to use alternative energy. No, the incentive will be for the oil companies to keep doing the same thing since they're making so much money.

Posted by Jose Padilla | May 25, 2007 2:29 PM

Increasing the price of gasoline doesn't have to profit the oil companies. It can be in the form of taxes that are earmarked for specific purposes.

And no, we don't have the kind of infrastructure where we can raise the price of gas to European levels ($5-10) without causing massive riots. But if we're ever to become more responsible about oil consumption, someone somewhere is going to have to hurt.

Posted by benny | May 25, 2007 2:39 PM

Public transportation is not an option for many. Either the government forces the oil companies who are making record profits because of their "refinery issues" to invest those profits into alternative energy or the government taxes them on those profits and puts the money into alternative energy.

Just sitting there and watching the buddies of the administration get rich is not a good option.

Posted by Justin | May 25, 2007 3:47 PM

anent CO2 and cows

No. Cows produce quite a lot of CH4 but not so much CO2. CH4 is a nasty green house gas, but the total produced by cows doesn't have as big an effect as transport produced CO2.

Posted by Jeffrey Davis | May 25, 2007 4:04 PM

Two points.

1. Any price gouging is being done at the very local level, by the local retailer, not by the major oil companies.

2. Record oil company profits have absolutely nothing to do with price gouging. It's a matter of supply and demand.

See here for more:

http://www.theoildrum.com/node/2571

Posted by blah | May 25, 2007 4:05 PM

According to the oil companies, it's the possibility that we'll do something sometime somewhere about our dependence on oil that keeps oil expensive. Really. Why should the oil companies build refineries to help increase the availability and reduce the price if we're just going to kick the habit someday?

Posted by Jeffrey Davis | May 25, 2007 4:14 PM

I don't see why we need to have an argument about public transportation vs. land use policies. The two goals are complementary. I agree that you are not going to see people giving up cars. What you could see with better public transportation is people driving much shorter distances. I've been lucky enough to never live anywhere where I was further than a 10 minute drive to my work. In 6 years I've only driven about 40,000 miles. You could keep a lot of the convenience factor in the car while still If public transportation options to people who live in suburban areas. If you actually built good infastructure, the more rational planning would follow. It isn't that people love to commute an hour each way to work, they just value things like a bigger house and more space more than the time and expense involved in a long commute. Of course, all of this would cost lots of public money.

Posted by Gabe | May 25, 2007 4:29 PM

Here's why I'm not so mad about the spike in gas prices. In February I bought a few hundred shares of little domestic gas refiner called Frontier Oil (symbol FTO, on the NYSE). The dollar amount I am up on this stock now is more than I will spend on gas for the rest of the year.

I'm not the only one on here who did something like this, am I?

Posted by Fred | May 25, 2007 7:22 PM

Why should the oil companies build refineries to help increase the availability and reduce the price if we're just going to kick the habit someday?

Which is exactly why we should tax those profits away--because the oil companies have no incentive to invest in refinery capacity anyway, those profits are doing nothing but making some people rich.

Posted by Consumatopia | May 25, 2007 7:31 PM

Good call, Matt. You're exactly right: you can't promise cheap gas at the same time you're promising to impose taxes designed to make it more expensive. There are all kinds of wonky "solutions" to this, but they pile on top of one another until you have only succeeded in creating distortions and opportunities for political entrepreneurs. Let's raise the price by way of taxes, then make income tax-based rebates. Let's excoriate oil companies and threaten to sue them, then threaten legislation to keep them from moving offshore. Let's set arbitrary definitions of gouging, then introduce legislation to prevent them from closing in a crisis. After imposing all those costs, let's undertake investigations to figure out why there is consolidation.

I wish I could find it, but way back in 2000/2001, I read a report by the state of California that found that the number of systems offline was no greater than it had been in previous years. The allegation is unfounded. That is also the case WRT refineries: there haven't been any new ones built since the 1970s, yet refinery yield has increased since then, and we are importing more from Europe (their shift towards diesel leaves them with underutilized gasoline capacity) and India. Meanwhile, there has been more scrutiny of refinery operation since last year's problems, so they are taking extra precautions.

Besides, the whole argument makes no sense when you are talking cut-throat competition like they have in the oil business: cutting capacity to increase prices only works if you reap the benefits. If I shut down my refinery, yes, prices may go up, but my competitors reap the benefit. Incidentally, California's situation was different: since consumers didn't pick where their electricity came from, and since the price they paid was divorced from the price paid to the utilities, they continued using more and more at a fixed price while the state went out and paid the highest price to all competitors, regardless of whether they were the low cost (efficient) producer or not. *That* is what wonkism gets you: a great big complex system in which the designers think they have covered every avenue, but not only haven't they, they have managed to kill existing institutions at the same time, eliminating the safety features while delivering the new institution into the hands of the regulated industry.

Posted by Eric H | May 25, 2007 11:43 PM

I couldn't agree more with what Matt writes.

It's been pretty clear to me for awhile now the need; nay, the requirement, that we wean ourselves off of that which, while currently convenient and as Matt says while it remains cheap and (perhaps) readily available, it ultimately does ourselves and our environment harm.

We're a smart bunch, we've used our noodles before to realize previously unimaginable things. Despite the narrative pushed by those who would maintain and reinforce the cognitive dissonance between society's energy requirements and the effects of the materials used to meet them, education into the issue is spreading and I am cautiously optimistic that we'll come around and take the hard, painful actions necessary to do the right thing.

Posted by terraformer | May 26, 2007 9:40 AM

We have copious coal, but most lefties are against us using it; we have more oil in Alaska and offshore of Florida and California, but lefties (and a Republican governor in CA) are against tapping more of it; we have nuclear technology, and if we were to match France on per capital basis, could easily quadruple our number of nuclear plants; lots of lefties against this too.

What else is left that can contribute to our energy needs on the scale that oil, nuclear, and coal can?

Another question: Let's say we use our noodles as terraformer suggests, and discover a cleaner and better source of energy than the ones mentioned above -- but it is twice as expensive as oil. Would it still be worth using? Wouldn't our industry and economy be handicapped by having to pay twice as much for energy?

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