Gas price controls will mean long lines

September 12, 2005|By Steve Chapman

WASHINGTON - When Rudyard Kipling said it was a great virtue "if you can keep your head when all about you are losing theirs and blaming it on you," he was not thinking of Sen. Maria Cantwell, a Democrat from Washington. This week, as gasoline prices remained above $3 a gallon, she proposed giving the president the power to tell retailers what they can charge at the pump.

A lot of people grew anxious seeing long lines forming the week before last, as motorists rushed to fill their tanks in the aftermath of Hurricane Katrina. But Ms. Cantwell apparently enjoyed the sight well enough that she'd like to make those lines a permanent feature of the landscape. If so, she has the right approach. The government does many things badly, but one thing it knows how to do is create shortages through the vigorous use of price controls.

That's what it did in the oil market in 1979-80, under President Jimmy Carter. He was replaced by Ronald Reagan, who lifted price caps on gas and thus not only banished shortages but brought about an era of low prices.

Ms. Cantwell thinks oil companies have manipulated the energy market to gouge consumers, though she is awaiting evidence to support that theory. "I just don't have the document to prove it," she declared. Her suspicions were roused when she noticed that prices climbed in Seattle - though most of its oil comes from Alaska, which was not hit by a hurricane.

Maybe no one has told Ms. Cantwell that oil trades in an international market, and that when companies and consumers in the South can't get fuel from their usual sources, they will buy it from other ones, even if they have to go as far as Prudhoe Bay.

If prices rose in Dallas and didn't rise in Seattle, oil producers would have a big incentive to ship all their supplies to Texas - leaving Washingtonians to pay nothing for nothing. When a freeze damages Florida's orange juice crop, does Ms. Cantwell think only Floridians feel the pain?

Sen. Byron Dorgan, a Democrat from North Dakota, meanwhile, was outraged by the thought of giant oil companies making money merely for supplying the nation's energy needs. He claimed they will reap $80 billion in "windfall profits" and wants the government to confiscate a large share of that sum through a special federal tax.

But the prospect of occasional "windfall" profits is one reason corporations are willing to risk their money drilling wells that may turn out to be drier than Alan Greenspan's reading list. Take them away, and investors may decide they'd rather speculate in real estate.

It's hard to see why oil companies shouldn't make a lot of money when the commodity they provide is suddenly in short supply. After all, they are vulnerable to weak profits or even losses during times of glut. Back when Americans were enjoying abundant cheap gasoline, the joke was that the surest way to make a small fortune in the oil industry was to start with a large fortune.

Oil companies are also subject to the whims of nature. No one is holding a charity fundraiser for the business people whose rigs and refineries were smashed by Katrina. No one will come to their aid if prices drop by half.

Besides, high prices serve two essential functions: encouraging production and fostering conservation. Spurred by the lure of windfall profits, oil companies will move heaven and earth to get more gasoline to consumers. Shocked by the tab when they fill up a 5,600-pound SUV, motorists will look for opportunities to leave the Suburban at home. They may even commit a sin not covered by the Ten Commandments: Coveting their neighbor's Prius.

Controlling prices, by contrast, would have exactly the opposite effect: telling consumers they should waste fuel to their hearts' content and telling producers to leave the black stuff in the ground. When events in the world conspire to make oil dear, there is nothing to be gained from masking that fact. We can ignore reality, but reality won't ignore us.

Steve Chapman is a columnist for the Chicago Tribune, a Tribune Publishing newspaper. His column appears Mondays and Wednesdays in The Sun.

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