Lynne Kiesling
The outright demagoguery from DC is disgusting but not surprising. More FTC studies of “price gouging”, more threats of “windfall profits” taxes, more ranting and puffery. Ladies and gentlemen (and I use that moniker to be polite, not truthful) of Congress, look within yourselves if you want a true explanation for the increase in gasoline prices this spring beyond their previous spring increases. Today’s Wall Street journal editorial (subscription required) said it beautifully:
There’s been unconscionable behavior all right, most of it on Capitol Hill. A decent portion of the latest run-up in gas prices — and the entire cause of recent spot shortages — is the direct result of the energy bill Congress passed last summer. That self-serving legislation handed Congress’s friends in the ethanol lobby a mandate that forces drivers to use 7.5 billion gallons annually of that oxygenate by 2012.
At the same time, Congress refused to provide liability protection to the makers of MTBE, a rival oxygenate getting hit with lawsuits. So MTBE makers are leaving the market in a rush, while overstretched ethanol producers (despite their promises) are in no way equipped to compensate for the loss of MTBE in the fuel supply. Ethanol is also difficult to ship and store outside of the Midwest, which is causing supply headaches and spot gas shortages along the East Coast and Texas.
These columns warned Republicans this would happen. As recently as last year, ethanol was selling for $1.45 a gallon. By December it had reached $2 and is now going for $2.77. So refiners are now having to buy both oil and ethanol at sky-high prices. In short, the only market manipulation has been by politicians.
For the record, the FTC has an entire crew that pores over weekly average gas prices in hundreds of cities, looking for evidence of gouging — to no avail. Perhaps this is because no oil company controls enough of the market to exercise enough power to raise prices. The Hastert-Frist call for an investigation is nothing but short-attention-span political theater.
See also recent discussions at Environmental Economics and Jim Glassman’s article in Tech Central Station on President Bush’s “disingenuous” speech today to alternate fuel producers.
Here’s a situation in which I really hate to say “I told you so”. Even politics-hating, non-active me, I am ready to call my senators and try to teach them some economics upside the head on this one. Grrrr.