What do Richard Nixon, Jimmy Carter and the ancient Roman Emperor Diocletian all have in common? They all imposed price controls on their respective economies. When Presidents Nixon and Carter embraced government-imposed gasoline price controls for the better part of a decade, consumers paid the price in terms of shortages, rationing and long waiting lines. In contrast, succeeding administrations from Presidents Reagan to Clinton did not, and the performance of the economy under their collective watch proves they were correct.
Why, then, is Congress considering a return to the failed policies of the
1970s? Consumers are frustrated and challenges exist with respect to needed
energy policy reforms. Yet under the guise of addressing gasoline
"price-gouging," legislation is being debated in Congress that could march us
back to the days of seeing "No gas today" signs at every intersection.
Whether well-intentioned or politically motivated, price controls ultimately result in harsh unintended consequences, including shortages in the market and
unnecessary economic hardships for consumers. Further, these proposals do
nothing to address the core issues related to high gasoline prices: the need
for greater supply and expanded domestic refining capacity to meet
ever-increasing demand.
Vote-conscious policymakers who are so intent on taking immediate action could rescind the average 42 cents of federal and state taxes that are tacked on to every gallon of gasoline, diesel and jet fuel. Yet this is highly doubtful ince they consider that "their" money.
When demand is high and capacity is reached without the ability to increase supply, we are faced with either shortages or high prices. In seeking to address the latter, current proposals would actually ensure the former.
Price controls are a proven means to hasten shortages and supply disruptions, the impact of which will be even harsher during times of disasters and emergency response. Think about the Carter era of long lines at gas stations in the 1970s and apply these memories to the events following Hurricanes Katrina and Rita. Even in view of the failed emergency response to these recent natural disasters, the outcome would have been far worse if fuel resources for evacuees and first responders were limited or nonexistent.
Couple the fact that domestic refiners are running at or near capacity with increased global competition for crude oil, and the need to leverage more domestic resources now off-limits and expand existing U.S. refineries becomes
even more apparent. Government-imposed price controls, however, will create
the opposite effect, likely compelling companies to reconsider future expansions at U.S. refineries. From a simple return on investment standpoint, punitive laws simply eliminate the incentive to do so. If legislation that includes price controls becomes law, numerous infrastructure plans around the
country will be placed in jeopardy. Continued... |