Price controls may be a bad idea, but Nixon’s attempt to impose them is not a good example of why. The freeze and controls were imposed by an incredibly small staff, working with very little time, and most of those working on it had no idea what they were doing. It’s like asking the staff at a small-town city hall, with whatever expertise they happen to have, to organize the vaccination of all Americans in a month. The success of the policy in such a case does not depend on its wisdom.
As for whether a current president could control (or attempt to control) gas prices, Nixon’s authority was given to him by Economic Stabilization Act. I don’t know whether that authority expired or was repealed. If such a thing were to happen today, the president would likely claim the power to do so because it was essential to national security. And whichever party did not control the presidency would howl.
Wouldn’t putting price controls on gasoline have more or less the same effect that rent controls have on housing? Since the profit margin is so small the oil companies devote less of their time, effort and money in getting gas to the pumps so you’ll have gas shortages and long lines like in the days of Jimmy Carter.
The pump price of gasoline comprises two components.
The first is the oil company’s cost (including its mark-up)
The second is the tax imposed by the government.
In most countries outside the middle east, the tax component is significantly higher than the oil company component (UK prices are about US$8.50 per gallon)
That’s been the case forever for countries that have to import their supplies: governments want to avoid their currencies depreciating because of big balance of payments deficits. And the tax also contributes significantly to their revenue.
Historically, America produced a lot of its oil and the government didn’t levy the same sort of taxes that non-producers do. That’s why European / Asian cars are economical and American cars have been gas-guzzlers.
In the long-term the price of gasoline will rise because it’s a finite resource. The cheap (easy to extract) stuff is already gone, and the prices will rise over the long-term because what’s left costs increasingly more to get out of the ground.
If a government wants to control the pump price over the long term it can only do that by progressively reducing its tax take, and no government will do that.
There is good case to be made out for the US administration announcing that over the starting in (say) two years time, and over the following (say) five years, the tax component of gasoline will triple. This will put the manufacturers on notice. Either they improve their cars’ efficiency, or they will see their market disappear. Give them (and the voters) enough warning, and the government could successfully introduce this. It would
a) reduce the budget deficit
b) reduce the demand for oil
c) reduce the rate of depletion of oil reserves (and the rate at which the oil companies’ component of the price will rise)
As for controlling the price of oil - it’s never going to happen in ANY country that uses more oil than it produces
A great column, as always… But I have one quibble. It closes with, “If you don’t feel like spending so much and don’t want to move to Venezuela, your only choice is to quit whining and figure out some way to use less.”
The key to the vibrancy of the capitalist economic system is that we all have other choices. You can substitute other fuels, or substitute other vehicles, or - if you really believe that gasoline prices could be lower - you can find a way to deliver it to market at a lower price.
How big a staff do you need to impose a “no price hikes” policy? Not many. OK, so you may say, the government might use a more sophisticated policy.
Such as what?
The current policy (free market) essentially guarantees the lowest average cost
BTW, nationalizing an industry may make the commodity cheaper to buy, but does not decrease the overall cost: it just shifts it, for example, to a tax burden. (The exception to this is the case where the nation has cheap oil and can produce more than it uses, giving the local market favoritism that free markets wouldn’t. Thus, nationalizing oil works in Venezuela, but would not in the US.)
But, let’s see what putting a price cap on gas or oil would cause.
When the supply of profitable oil sources dry up, there won’t be enough, so we’ll (once again) wait in lines to get gas. I remember those days; do you?
There will be far less market incentive to find new sources for more expensive oil, or more expensive processes to produce gas from lower grade oil.
The US demand on global oil will be lower, reducing prices for other countries.
The US economy will tank. Study “energy intensity” to find out how important a high supply of inexpensive energy is to the US economy (or just about any modern economy).
Who’ll rejoice? Those who think that less carbon emissions is a good thing will be very happy. China and Europe will be elated at the lower prices. Of course, the latter will offset the former considerably. But the US economy will still be in the tank.
Cheaper energy is better only if the supply (of cheap energy) isn’t limited. Unfortunately, that only happens in science fiction.
Substituting other fuels or vehicles would qualify as “some way to use less”, wouldn’t it? And the chances of your last option are vanishingly small for the typical Joe Corolla.
Powers &8^]
Cynic13, that last sentence is directed at the consumer. Substituting other fuels or other [non-gasoline] vehicles are ways of using less [gasoline]. The delivery system is not in the hands of the consumer, but rather the producers.
I remember when gas was regulated, it was supposed to get cheaper by deregulating it. That lasted less than a year and the price has been rising ever since. It is the speculators that bring up the price. Gas could be sold cheaper from the refineries than it is without the speculators raising it for every little reason they can get their hands on. Speculators never lose money, the execs of big corporation probably choose speculation as their main way to get rich.
More to the point, the only way any buyer of gasoline (even a speculative buyer of futures) can increase gasoline prices is to consume it… otherwise, the market still contains X billions of gallons. Supply is effectively unchanged. Speculative demand is transient and has nothing to do with delivery. It’s not like they’re hoarding barrels of gasoline in the basement to “corner the market”.
If you want to see where some of the root demand (real consumption demand, not fake speculative non-delivery demand) is, look across the Pacific Ocean and the rest of the modernizing Developing Nations blocs. Face it, American Driver: you’re now bidding against hundreds of millions of other drivers to buy your 30 gallons of SUV Juice, so of course the core price goes up.
Maybe the President needs a way to control demand in nations that have no business competing with us. :dubious:
The only time I’m aware of that gas prices were regulated were during Nixon’s wage and price freeze phases.
Hard to believe it happened in a Republican administration!
There may have been deregulation of some aspect of the oil industry. In any case, the primary reason for high gas prices is simple: there’s no longer enough “cheap oil” (like Saudi oil) to meet the demand.
Oil prices are set (like most things in a free-market economy) by “marginal price”. That is, to produce the next barrel of oil, how much does it cost? Anyone who can produce it cheaper sells it at that cost (because they can).
Unfortunately, the next barrel of oil keeps getting more and more expensive. Expect this trend to continue. Meanhwile, Saudi Arabia, which could produce oil and profit at say $4/bbl gets to charge $100 (or whatever it is today) and pocket the difference. If the demand were low enough that they could meet the whole demand, then prices would fall dramatically. (OPEC tries to avoid this, but it’s pretty toothless.)
Only if one assumes that they’re competing for the use-value of the oil as consumers rather than for the titles of exchange. Speculators can lose out to other speculators, but they’re not the only players in the market (consumers can lose a greater proportion as a class).