The same thing is true for gasoline. If the price gets too high, consumers will buy less and thus drive less. As USA Today reported on May 18, this already seems to be happening. “Miles driven in February declined 1.9 percent from February 2006,” the paper reported, “That’s in sharp contrast to the average annual growth rate of 2.7 percent recorded from 1980 through 2005.” The market works.
Of course, lawmakers aren’t powerless here. There are steps they could take to help consumers. They should start by becoming less involved in the oil industry.
Think back to the La Follette era of the 1920s. Then, gasoline was a true commodity. It was the same whether one bought it in Maine or California. But today, various states and local governments require oil companies to deliver specific blends tailored to their desires. That makes it more difficult for refiners and thus more expensive.
A leading example of this is ethanol. The federal government requires ethanol be added to our fuel supply. This increases the price of both corn and gasoline. If lawmakers would end the era of “boutique fuels,” gas prices and food prices would come down.
What Washington shouldn’t do is attempt to set prices. During his hearings back in 1974, Sen. Jackson complained that he could never find an open gas station. Dealers kept running out of gas and shutting down. Well, that’s completely predictable. Back then, the oil industry was operating under federally-imposed price controls. That meant Washington was artificially limiting the free market’s ability to make gasoline available.
Note that after Hurricane Katrina and now today, with gasoline costing more than $3 per gallon, there are no long lines for fuel and no stations closed for long periods of the day. The price went up, but the system didn’t collapse. Again, the market works.
For decades, politicians have attempted to determine the “fair” price of gasoline. Meanwhile, they’ve been meddling in ways that artificially drive up the very prices they say they’re trying to control.
If lawmakers actually want to help consumers, they should stop legislating and allow a free market in gasoline.