Big Government Responsible for High Gas Prices
In the past few months, American workers, consumers, and businesses have experienced a sudden and dramatic rise in gasoline prices. In some parts of the country, gasoline costs as much as $4 per gallon. Some politicians claim that the way to reduce gas prices is by expanding the government’s power to regulate prices and control the supply of gasoline. For example, the House of Representatives has even passed legislation subjecting gas station owners to criminal penalties if they charge more than a federal bureaucrat deems appropriate. Proponents of these measures must have forgotten the 1970s, when government controls on the oil industry resulted in gas lines and shortages. It was only after President Reagan lifted federal price controls that the gas lines disappeared.
Instead of imposing further restraints on the market, Congress should consider reforming the federal policies that raise gas prices. For example, federal and state taxes can account for as much as a third of what consumers’ pay at the pump. The Federal Government’s boom-and-bust monetary policy also makes consumers vulnerable to inflation and to constant fluctuations in the prices of essential goods such as oil. It is no coincidence that oil prices first became an issue shortly after President Nixon unilaterally severed the dollar’s last link to gold.
Basic economics says that when government restricts the supply of a good, the price will increase. Yet Congress continues to reject simple measures that could increase the supply of oil. For example, Congress refuses to allow reasonable, environmentally sensitive, offshore drilling. Congress also refuses to remove the numerous regulatory hurdles that add to the prohibitively expensive task of constructing new refineries. Building a new refinery requires billions of dollars in capital investment. It can take several years just to obtain the necessary federal permits. Even after the permits are obtained, construction of a refinery may still be delayed or even halted by frivolous lawsuits. It is no wonder that there has not been a new refinery constructed in the United States since 1976.
Last year, in order to provide the American people with relief from high oil prices, I introduced the Affordable Gas Price Act (H.R. 2415). This legislation protects the American people from gas price spikes by suspending the federal gas tax whenever the national average gas price exceeds $3.00 per gallon. The Affordable Gas Price Act also expands the supply of gasoline by repealing the federal moratorium on offshore drilling, including in the ANWR reserve in Alaska . HR 2415 also provides tax incentives and protection from nuisance lawsuits for those seeking to build new refineries. Finally, HR 2415 authorizes a federal study on the link between our nation’s monetary policy and the price of oil.
The free market can meet the American people’s demand for a reliable supply of gasoline as long as government does not distort the market through excessive taxation and regulation. Therefore, Congress should lower gas prices by pursuing an agenda of low taxes, regulatory relief, and sound money by passing legislation such as my Affordable Gas Act.
Written by Dr. Ron Paul
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A Reagan Energy Policy
An energy policy is not just about lower fuel costs. It is about making America energy independent. Independent from treacherous sources. It is about saving American blood and American treasure.
It is about balancing the trade deficit and thus strengthening the dollar. It is about defeating terrorism at its roots instead of sending our soldiers to face a brutal enemy. It is about freeing ourselves from old fears and embracing new 5th generation technologies to safely and efficiently provide American energy to warm our homes and to keep the lights on in America.
It will not be an easy road. The agents of fear have deeply infected our national psyche. We must raise our eyes to a brighter future and step in that direction.
In many OPEC nations the cost of oil to the state is free. The exploration and development costs were done by western counties long ago and nationalized by the host nation. Cost is not a factor. The price of oil is determined on the free market.
Restated: the cost of oil/gas at the well head has nothing to do with the price of gas at the pump! Again, the cost of oil/gas has does not affect the price of gas at the pump.
Conversely, the amount of gas people buy drives the price. The economic term is “demand driven pricing”. Even if Big Oil was losing a dollar a gallon or making an extra dollar a gallon, the price would be the same because they have to sell or store. Once the tanks fill, they have lower the price to where “oil in” equals “oil out”.
Big Oil (Exxon Mobil, ConocoPhillips Co., Shell Oil Co., Chevron and BP) distribute oil/gas. The amount gas Big Oil has to distribute is fixed in the short run (long term covered later). Flow from the well head, pipeline capacity, shipping capacity and refinery services all have contracts with the Big Oil that must be paid even if oil/gas is not flowing. The oil/gas is moving through the pipeline constantly. It has to be either sold or stored. If Big Oil charges too much, less gas will be sold, their storage tanks will begin to fill.
If the price is too low, Americans buy more gas than is coming down the pipeline, they will soon face panic-causing shortages.
To avoid those gut wrenching “out of gas” signs hand written on the bottom of a Frito box, Big Oil has to raise its prices to slow demand. People buy less at $4.25/gal that at $4.00/gal. This price increase causes profits to soar. Soon congress is talking nationalization.
Suppose, 150 million gallons/day are in the pipeline. The average price is $4.00/gallon. If Americans start buying 160 million gallons/day, Big Oil sees a shortage in the very near future. They raise the price to say $4.25, Americans buy less. The shortage is avoided. Big Oil profits soar. Congress starts talking nationalization.
Suppose, as Hillary and McCain suggested that the feds remove their 13.5 cent tax. The drivers are going to by more gas (say a 155 million gallons a day) at the new lower price of $411.5. Big Oil is going to have to move the price up to $4.25 to avoid a shortage. Congress is going to talk about indicting Big Oil for “stealing the tax break”.
Suppose America puts an a $.25 tax on at the pump. The shortage would still be avoided. The oil companies profits wouldn’t soar. The money could be used to reduce the burden on American tax payers (Right!). A good idea but we can do better!
Suppose that America went to the Group of Eight(G-8: Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the US) countries that control 65% of the worlds GNP. Suppose America presented a plan to place a tariff of $2.40 on each gallon of OPEC oil (controls 65% of the world’s oil) to be implemented at 10 cents a month over the next two years. Suppose this plan passed.
That is less than the increases that we are now experiencing. We could use our increasing share of oil revenue to reduce income taxes or save social security. Because the tariff is on foreign oil, the US and G-8 oil will be now be more valuable. Exploration incentives would increase.
America would also announce that the US was going to safely and efficiently bring all its energy resources to market: including ANWR, the Florida offshore deposits and the midwest shale oil.
Also America would announce that we are building 8 regional nuclear power plants with the capacity to convert water to hydrogen and oxygen. Hydrogen is one of our best bet for a safe clean engine in the future. We are way behind Europe on nuclear power plants. France gets 78% of its electrical energy from clean efficient 4th generation plants. We will build 5th generation plants.
It is counter-intuitive but putting rising tariffs on OPEC oil may lead to a decrease in the price of oil! Oil sold this month will have a smaller tariff than oil sold next month, this would be incentive sell this month.
As the tarrifs reach deeper and deeper into OPEC’s pockets, it may have to sell more oil to keep the sheikhs and princes in the lifestyle to which they have become accustomed.
As they see America and other G-8 countries drilling to bring more untaxed oil onto the market, they will realize that their oil will be worth less in the future. Future increases production means future increases in supply, driving the price down. Maybe at $.10/month. Maybe more. Previously we were talking short term, this measure puts addresses the long term availability.
Can you imagine: increasing tarrifs, making the price of oil go down, taking money out of OPEC pockets, putting it in ours, think about it.
This is a big idea. A big Reagan-sized idea! This is as big as defeating the Soviet Union. This takes vision and courage. It is not about just lowering gas prices. It is about the dollar getting real respect. It is about the trade deficit dropping like a rock. It is about defeating terrorism by draining its source of funding. It is about America tackling the real problem of safe clean energy to replace oil from a position of strength. It is about America assuming is position as the world leader, as once again becoming the shining city on the hill.
Regardless of the price of a barrel of oil, watch the price of gasoline at the pump soar as the government continues to allow the FED to debase the dollar. At some point, the nations of the world will stop buying their oil in dollars and the value of the dollar will tank even more.