Political Posturing on Gas Prices Mostly Hot Air

Three gas station owners report for their first day in prison. The prison guard asks one of them, "What are you in for?" He replies, "The government says I charged customers more for my gasoline than other gas stations. I'm in for price gouging."

The guard looks at the second man. "And you?" He answers, "I charged less for my gasoline than everyone else. I'm in for anti-competitive pricing."

The guard looks to the third. "And you?" He shrugs. "I charged the same price for my gasoline as all the other gas stations. I'm in for collusion."

Like many jokes, that one has a lot of truth to it. I'd imagine many Americans wouldn't mind at all to see just about everyone involved in the oil industry do some time in the pokey these days. What's been even more disheartening has been to see Americans turn to their politicians, and ask them to "do something" about the price of gas. We seem to love the free market until it inconveniences us. Then we want someone punished.

Of course, the politicians only fuel the fire (pardon the pun). Ignoring the fact that such measures have led to shortages, long lines and generally fallen flat every time they've been tried, last summer the state of Hawaii put a cap on wholesale gas prices. The cap was revoked this month when, again, it failed to yield cheap, plentiful gas for everyone.

In Maryland, lawmakers actually did some good. Or rather, undid some bad. Maryland, believe it or not, had a law preventing gas stations from charging too little for gasoline, making the joke that opened this column all too real. They've revoked that law, at least for now.

At the national level, the Republicans in Congress attempted to buy motorists off with a $100 rebate, conveniently proposed just six months before the mid-term elections. Which shows that the GOP not only believes we're whores, but cheap whores, at that.

Democrats, meanwhile, have revealed a stunning ignorance for how energy markets work. Nancy Pelosi seems to think that there's a grand conspiracy among President Bush, Vice President Cheney, and every single oil company operating in the U.S. to keep gas prices high.

Here's a quick economics lesson for Pelosi: Oil companies want to sell oil. The best way to do that is to let the market flourish, so prices settle at a level that produces an efficient mix of value and profit. It doesn't do them any good to be sitting on gas no one will buy, no matter how expensive it is.

People buy less of a good when it's more expensive. When gas is expensive, for example, we cut back on driving. We walk, or take public transportation. Which means the oil companies sell less gas. If the oil companies are colluding to keep prices high, then, it's to their own detriment.

The funny thing is, there are a few things government could do to bring down gas prices, but they mostly involve undoing things government has already done. EPA regulations requiring oil companies to change gas formulas each summer, for example, are primarily responsible for the bumps in gas prices in spring and fall.

Congress could also revoke the federal gas tax if it were serious about feeling the motorist's pain. And if it really wanted to send a message to the oil companies, Congress could end the tax loopholes, federal subsidies, and other preferential treatment it throws the industry's way.

The media isn't much better, often suggesting that a quick fix to gas prices could be possible. The price of a gallon of gasoline is set, of course, by about a million different variables -- variables that reach all corners of the earth, and that involve millions of people drilling, trading, refining, shipping, buying, and selling.

Look, I don't like paying $60 to fill up my small car any more than anyone else. But we seem to have adopted the idea that we have a right to gas under $3 a gallon. No such right exists. Until the gas hits the tank in your car, someone else owns it. Asking the government to force a gas station to sell you gas at the price you want is like asking them to force the baker to sell you cheaper bread, or the vineyard cheaper wine. That's not how capitalist societies work.

The really perverse thing about all of this is that at the same time they're carrying on about high gas prices, the same politicians are talking about the importance of alternative energy and our "oil dependence." But alternative energy sources will emerge the day they become more efficient and profitable than gasoline.

So long as gas is cheap, gas will continue to be our preferred source of energy. Once gas grows scarce, and consequently more expensive, other fuel sources will become lucrative -- at which point someone will develop them, sell them, and get rich from them.

But politicians can't just sit back and let the market take its course. They need to control things. So even as they're bending over backward to keep gas artificially inexpensive (staving off market incentives to develop alternative fuels), they're giving billions of taxpayer dollars to research and development boondoggles (read: corporate welfare) to find replacements for gas. It's waste stacked on waste stacked on waste.

Of course, "waste" is the one thing Congress seems to do pretty efficiently.

Radley Balko is a policy analyst for the Cato Institute specializing in "nanny state" and consumer choice issues, including alcohol and tobacco control, drug prohibition, obesity, and civil liberties. Separately, he maintains the The Agitator weblog. The opinions expressed in his column for FOXNews.com are his own and are not to be associated with Cato unless otherwise indicated.

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