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K. Lloyd Billingsley - Contributor
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K. Lloyd Billingsley is Editorial Director for the Pacific Research Institute and has been widely published on topics including on popular culture, defense policy, education reform, and many other current policy issues. [go to Billingsley index]

Folie de Petrol
[K. Lloyd Billingsley] 9/11/03

The price of gasoline spiked sharply over the Labor Day weekend and prices remain high. Cruz Bustamante, the Lieutenant Governor who aspires to be Governor, wants to slap government price controls on gasoline. An intriguing response to this notion came in "Bustamante's Folly: Gas Price Controls Would Bring Back Lines," an August 30 editorial in the liberal Sacramento Bee.

"In a gubernatorial election contest with 135 candidates on the ballot, the competition for who can come up with the dumbest idea is bound to be fierce," said the Bee, " But Lt. Gov. Cruz Bustamante's call Thursday for state price controls on gasoline makes him the clear front-runner."

The Bee noted that "as in any market gasoline prices rise and fall," but observed that politicians only sound off on oil company "gouging" when prices jump. When prices are low - in the late 1990s they were as low as at any time during the past 50 years - nobody gives the companies any credit. The "real explanation," the Bee said, lies in "the balance between supply and demand, and the structure of the state's gasoline market."

Demand for gasoline has soared, but there has not been a similar drop-off in demand. The Bee noted that a pipeline failure in Texas caused gasoline headed for the California market to be rerouted to Arizona.

"California is especially vulnerable to shifts in supply and demand," said the Bee, because "air quality rules requiring special California blends of fuel make it an island in the international market. And the politically driven decision by President Bush and Congress to force ethanol into California gasoline has caused technical problems that make the state's already tight supply even tighter."

The Bee wants an end to the ethanol requirement, more pipeline connections out of state, a state gasoline reserve, better fuel efficiency, and higher fuel taxes. "But the price controls Bustamante proposes would be a disaster," said the newspaper, recalling the long lines of 30 years ago under federal price controls.

"Either Bustamante doesn't understand simple economics," the editorial concluded, "or he's pandering to people who don't." Meanwhile, there are other issues for policymakers, including energy secretary Spencer Abraham, now conducting an investigation into gasoline prices.

One cannot pump gasoline from the ground. Crude oil must be found, extracted, and refined into gasoline, airplane fuel, and other products. This is what oil companies do, often under difficult and dangerous conditions.

Instability abroad should promote domestic production and exploration. Refining capacity should also be expanded. According to the Federal Energy Information Administration there were 324 refineries in the United States in 1981 but last year only 149. Since demand for gasoline has increased, we need to build more refineries. That would require standing up to an environmental lobby that opposes such construction and wants gasoline to cost even more.

A gallon of gasoline includes 18.4 cents in federal taxes, 18 cents in state taxes, plus sales tax, close to 45 cents per gallon and about 25 percent of the current price at the pump. Instead of grandstanding or calling for price controls, which don't work, politicians could simply lower these taxes.

This would give California commuters much needed relief. But it requires standing up to a government establishment that doesn't understand simple economics and panders to people who don't.

copyright 2003 Pacific Research Institute