About Those "Skyrocketing" Gas Prices

Larry Elder

5/31/2007 12:01:00 AM - Larry Elder

What to do about -- choose the adjective -- "spiraling," "skyrocketing," "out-of-control" gas prices?

Well, we could try a little perspective. In 1981, Americans spent 5 percent of their household budget on gas and oil. Last year, despite "skyrocketing" gas prices, Americans spent 3.8 percent.

A national morning show interviewer practically high-fived the governor of Florida for urging an investigation into "gouging." Meanwhile, over at one of the cable news networks, the "newsman" beat his desk, his chest and anything he could find to express his concern, outrage and downright indignation.

The California speaker of the State Assembly said that while he lacked evidence that oil companies engage in cheating, he still felt they did. Why? His gut told him so. In fact, over the last 20 years, 30 federal investigations seeking evidence of price manipulation or collusion came up with, uh, well, a dry hole.

But the conspiracy theorists press on. Sen. Chuck Schumer, D-N.Y., asked the Government Accountability Office to conduct an investigation. A year ago, he asked the Federal Trade Commission to investigate. By then, the FTC had already conducted two investigations, uncovering no evidence of unfair business practices. But, who knows? Maybe the oil company CEOs pulled a Sandy Berger, and stuffed damning evidence in their pants. So, by all means, let's look harder. Time for a strip search!

The mainscream media reports on the "outrageous," "unacceptable," "unjustifiable" "record profits." Never mind that following price peaks in 1981, low crude and gas prices during the '80s and '90s bankrupted some oil companies. But that was then. Today, Exxon Mobil, Chevron and ConocoPhillips earn tens of billions of dollars annually in profits that "defy common sense."

Why bother reporting that, with Big Oil profits at eight to 10 cents on the dollar, other companies and industry sectors earn more -- including, for example, Internet giant Google and the banking industry. In California, the state "earns" about 40 cents per gallon, with the feds' cut coming in at almost 19 cents.

What about gas prices as a percentage of our income? In other words, does the gas bite of our paycheck rival the bite of yesteryear? Not even close. Given today's fatter paycheck, we pay less as a percentage of our mean disposable income. A gallon was 27 cents in 1949 -- but to put the same pinch on your wallet today, you'd pay $6.68. Gas for 1962's "muscle cars" cost 31 cents a gallon. To feel the same economic impact today, you'd pony up $4.48 a gallon.

Conspiracy theorists point to the "failure" of the oil companies to build new refineries. But environmental restrictions make the construction of new refineries an expensive and risky proposition, and few communities want them anywhere near their ZIP codes.

A recent editorial in a liberal newspaper brought some sad news. It pinned the high prices on the mysterious notion of supply and demand. It noted that despite the teeth-gnashing, Americans -- over the Memorial Day weekend -- intended to keep driving. And even with the availability of more fuel-efficient cars, Americans still love those old "gas-guzzling" SUVs, what with their roominess, high-tech features and all. Somebody, please, stop the insanity!

What about the prices paid by consumers in other countries? While the average driver in the U.S. paid $2.68 per gallon in mid-April, our Northern brethren in Canada paid $3.56. Meanwhile, a gallon in Japan cost $4.16, the Spaniards paid $5.14, the French forked over $6.50, a trip down the autobahn cost German drivers $6.72 a gallon, and our friends in the United Kingdom kept a stiff upper lip while shelling out $8.37.

Some lawmakers talk of "breaking up" the oil companies, or imposing a windfall profits tax. Been there, done that. The taxes simply suck up money otherwise spent on research, exploration and production. And you want to put government in charge of determining the appropriate size and operating efficiency of oil companies?

So let's sum up. Politicians and the mainscream media ignore supply and demand; overlook the impact of federal, state and local taxes on the price of a gallon of gas; disregard the effect of consumers' driving habits; refuse to point out the ineffectiveness of "windfall profits taxes"; and blame Big Oil for refusing to build refineries while ignoring environmental restrictions that make it unprofitable to do so.

But at least they care.