Something About Economics

John Hinderaker at Power Line: blogged Senate Republicans have unveiled their "Gas Price Relief and Rebate Act of 2006," and it's not pretty. Let's just go through its components, one by one.

1) Gas Tax Holiday Rebate: everyone gets a check for $100.

Taxes are a large part of the cost of gasoline. How about if we cut them?

I agree, and not just for 60 days like the Democrats propose.

2) Consumer Anti-Price Gouging Protection: Authorizes the FTC and others to "bring enforcement actions against any supplier unlawfully inflating the price of gas."

Meaning what? How you you "unlawfully inflate the price of gas"?

Meaning people are complaining, so politicians have to ignore the truth and pretend they are right.

3) Tax Incentives: Repeals tax incentives for the oil companies, while expanding tax incentives for hybrid vehicles and increasing refinery capacity.

Not sure I understand that one. Is someone other than the oil companies expected to build oil refineries?

Rather than providing an incentive to increase refining capacity offer a waiver of all environmental requirements and immunity from environmental law suits if construction is started in the next three months.

4) Fuel economy standards: Authorizes the Secretary of Transportation to impose fuel economy standards.

How about if we just let people buy whatever kinds of cars they want, and let them decide whether they're willing to pay for the gas?

Makes sense to me.

5) Advanced Energy Initiative: Funds research and development into alternative fuels and "advanced technology vehicles."

I'm all for those things. But is there something special about the government's money? Isn't the prospect of cutting in on the oil companies' action sufficient incentive for industry to carry out that research?

6) Strategic Petroleum Reserve: "Urges" the President to suspend making contributions to the reserve for six months.

Well, you can't say Congress isn't doing anything. They're "urging."

7) Expanding Domestic Supply in ANWR: "Opens a portion of the Coastal Plain of ANWR to environmentally sensitive oil exploration to reduce our dependence on foreign oil."

Hallelujah. Let's hope it passes this time. This means you, Norm. And you too, Mark.

I agree

8) Refinery Capacity: Includes incentives to encourage additional refinery capacity.

I believe it's the case that we haven't built an oil refinery anywhere in the U.S. for more than 15 years. I don't think the problem is a lack of "incentive;" I think the problem is that government regulations (principally environmental) and the threat of litigation make refinery construction so slow and expensive as to be virtually impossible. Do the Republicans propose to do anything to make refinery construction easier? Not that I see in the package I got from the Senate.

Bottom line: The Republican Senators' proposal does nothing, other than ANWR drilling, that acknowledges the rules of supply and demand that govern prices. The "Gas Price Relief and Rebate Act" is mostly crude pandering of the kind we used to expect from Democrats, not Republicans.

I want the oil companies to make enormous amounts of money. I want them to make enormous amounts of money so they can spend it on drilling wells and building pipelines and refineries. I talked to an oil executive recently who told me that the fact that we can't expand our refining capacity is a scandal in terms of the public interest, but is actually good for the oil companies' profitability. Look at it this way: if the oil companies agreed among themselves not to drill for oil in new locations like ANWR, and not to build new refineries, so as to limit the supply of oil and thereby drive prices higher, it would be illegal; indeed, it would be the greatest price-fixing conspiracy in American history.

That is a very good point. But they are not doing it, Congress is.

But it isn't the oil companies that have conspired to limit supply and thereby drive prices higher. It is our government that has foreseeably, if not intentionally, achieved this ignoble end.