What pandering politicians won't tell you about gas prices

May 24, 2007|By Robert Hardaway

Few politicians can resist the urge to exploit consumer angst over rising prices at the pump. Here are 10 things the politicians won't tell you about gas prices:

1. At more than $3 a gallon, the U.S. inflation-adjusted price for gasoline is now less than it was in 1981, a remarkable decrease in price over a 25-year period during which real prices in other sectors, such as health and education, have tripled and quadrupled.

2. This decline in the price of gasoline since 1981 is enjoyed almost exclusively in the United States. In most other developed countries, the price of gas is at least double what Americans pay. Consumers in the Netherlands pay an average of $7.77 a gallon, while those in Great Britain pay more than $7 and consider it a bargain.

3. The gross profit margins of the major oil companies are far less than those for many other sectors, such as beverages, electrical equipment, chemicals and computers.

4. At present gas prices, the major oil companies make a profit of 10 cents to 12 cents a gallon. If you really think that's a lot, buy some of the stock. But most people believe investing in oil companies is a pretty risky business - witness the devastating losses that oil company investors endured in the 1980s.

5. At present prices, combined federal and state government profit (i.e., taxes) on each gallon of gas is 28 cents to 68 cents a gallon, depending on which state you live in. San Francisco, home of House Speaker Nancy Pelosi, tacks on an extra 26-cent bite.

6. Gasoline consumption in the United States increased drastically during the last year.

7. Oblivious to, and largely insulated from, the $7 to $8 per gallon that consumers in other industrialized countries pay, energy-greedy Americans continue to buy such gas-guzzling behemoths as Hummers and SUVs at a brisk pace.

8. If government singled out oil companies for a confiscatory 50 percent profit surcharge, it is tempting to think that the price of gas might decline by up to 6 cents a gallon, say, from $3.38 a gallon to $3.31 a gallon. In fact, gas prices would soar, as investors would no longer capitalize oil companies, turning instead to industries with higher profits. The oil companies would then either have to cut back exploration (Exxon alone has invested $15 billion in new capital investments) or go out of business, thus causing supplies to tighten and prices to skyrocket.

9. Crude oil prices are set not by private companies but by the international market of supply and demand, which fluctuates hourly. While the major oil-producing countries can form cartels that can set prices higher than a free market, these countries are not subject to U.S. antitrust laws.

10. If government is serious about curbing oil company profits and U.S. reliance on foreign oil, the only way to do it is the way the Europeans do it: a gasoline tax that raises the pump price to about $8 a gallon. And that's one thing you can be sure the politicians will never, ever tell you.

Robert Hardaway, professor of law at the University of Denver Sturm College of Law, is the author of "Population, Law and the Environment." His e-mail is rhardawa@law.du.edu.

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