The Coffee Talk on Gas Prices That Isn’t

Michelle Bernard
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Posted: Jun 12, 2007 2:14 PM
The Coffee Talk on Gas Prices That Isn’t

Like most of the American public, I have stood at the pump at my local filling station and cursed the cost of gasoline. Yet, after filling my tank I inevitably drive to Starbucks to stand in line with other women seeking a reprieve from morning mommy detail, handing over $4.24 without batting an eye as I order my beloved venti, soy chai latte.

The other morning I had, as Oprah might say, an “aha” moment. After paying for my cup of tea, I thought “What’s wrong with this picture? Why am I complaining about the price of gasoline while forking out what is arguably a lot of money for a cup of hot water and spices?”

Mothers and fathers beware – if certain members of Congress have their way, you will not be standing in line at Starbucks any more because you’ll be too busy waiting in mile-long lines to get gasoline. Every year as summer vacation drive time nears and families get ready to hit the road for vacations, politicians and the media heighten the emotional sensitivities of an American public willing to spend large sums of money on coffee, or in my case tea, but infuriated by the thought of what they spend on a gallon of gasoline.

To highlight their empathy before a frustrated public, Democrats and Republicans alike in the U.S. House of Representatives passed the Federal Price Gouging Protection Act. According to a study recently issued by American Council for Capital Formation (ACCF), the likely impact of this legislation and others like it is the imposition of price controls on gasoline similar to those in the 1970s which caused major supply disruptions, rationing and endless waiting lines for gasoline. History is set to soon repeat itself if these bills become law.

If I were to put my legal hat on, I would say that terms included in the legislation such as “unconscionably excessive” and “unfair advantage” should be declared as void for vagueness. Even worse, penalties include up to 10 years imprisonment, $150 million in corporate fines, $2 million in fines against an individual if anyone can claim prices to be “unconscionably high ” — this must have plaintiffs and criminal defense lawyers, many of whom I consider friends, licking their lips.

First off, why are gas prices so high?

Beyond the counter talk at the coffee shop, it is because the United States now operates in a global and highly competitive market which has caused the demand for energy to increase both at home and abroad. As nations such as China, India and others develop their economies at lightning speed, worldwide demand for crude oil has greatly increased, yet production is at an all time low. And with much of our own domestic crude oil reserves off-limits, prices on imports have increased dramatically. Further, the U.S. does not currently have the refining capacity to make enough gasoline to meet domestic demand. As a result, we are forced to import not just crude oil, but also a significant amount of refined fuels such as gasoline, diesel and jet fuel. Taken in aggregate, the reasons for price spikes at the pump become even more apparent.

But what does this have to do with price gouging?

The price controls established under the Federal Price Gauging Act and other legislative proposals would likely cause foreign producers to sell their products to other countries where they could charge higher prices. Further, because price gouging under this bill is difficult to define, but highly punitive, producers and refiners will think twice about needed investments to expand domestic refining capacity. After all, Starbucks likely wouldn’t open new stores if laws were passed with fines and criminal penalties to be assessed when any consumer could claim their purchase was “unconscionably hot.”

As this bill moves to the Senate, we should remember that while “price gouging” legislation sounds good, it will result in many unintended consequences. Further, hosts of similar state laws and consumer protections already exist. Federal legislation, if passed, would only create another layer of confusion and possible legal manipulation.

So what should Congress do about high gasoline prices?

First, don’t make the problems worse by passing legislation that will not lower the price of gas or produce one additional drop of fuel. Stop pointing fingers at others and work with industry to develop pragmatic approaches that will open more domestic oil production in environmentally sound ways and help to increase domestic refining capacity. Finally, decrease gas taxes – that could lower the price on average by 42 cents a gallon of gas or $300-$400 per year for a family that racks up 15,000 miles a year. In the process, Congress can help meet today’s record demand and alleviate gasoline high prices. And I can get back to my tea.