What About Those Higher Gas Prices?

Willing the ends without willing the means is almost the very definition of puerile behavior. Nonetheless, this behavior is descriptive of the Democratic approach to the twin issues of climate change and gasoline prices. Al Gore and his environmental minions constantly remind us of imminent climate disaster posed by greenhouse gas emissions, much of it released from the tailpipes of our cars. The quickest way for us to move toward reduction of these emissions, either by developing and purchasing higher mileage cars or altering our traveling habits, is by increasing the price of gasoline. Indeed, the Clinton-Gore Administration modestly increased the federal gasoline taxes. On the other hand, higher gas prices automatically induce spasms of anti-oil company rhetoric. This is reflective of the internal contraction within the Democratic Party of populist rhetoric and the impulse to use the government to manage our lives for us.

Economist Robert Samuelson recently elaborated on the hypocrisy. Samuelson explained how the cause in the recent spike in gasoline prices is limited refining capacity. Because of low profit margins in this sector of the industry, refining capacity has not increased very much over the last few decades. In the early 1980’s, the US enjoyed an excess of refining capacity and partially as a consequence no new refinery has been built in the US since 1976. Recent increases in US refining capacity have been the product of modernization of existing facilities rather than the construction of new ones. Of that capacity, the US is currently using nearly 90%. It is not generally possible to run at 100% of capacity, given accidental stoppages and scheduled maintenance.

Some have argued that the oil industry has deliberately arranged to minimize refining capacity to force an increase in prices. Such activity is illegal, if it can be proved. Illegal restraint of trade seems unlikely, given that refining capacity in the US is not concentrated in one or two firms. Samuelson cites Michael Salinger of the Federal Trade Commission as describing the concentration in the oil refinery business as “low to moderate.” Moreover, foreign refinery capacity would tend to limit the ability of US refining firms to create artificial shortages. Given the stated governmental goals of reducing gasoline consumption over the next decade, it is not clear whether it makes economic sense for oil companies to make the long-term, large-scale capital investments in significant increases in refinery capacity.

Even if one could demonstrate that oil companies were artificially generating increases in prices, aren’t they doing what environmentalists want but to do but do not have the political power to execute? The only question seems to be whether the government is enriched by taxes or oil companies by windfall revenues, for consumers the effect is the same. High gas prices will push the US economy toward lower gasoline consumption, the stated goal of environmentalists.

The disheartening part is that despite the rhetoric, the higher gasoline prices we have experienced may decrease gasoline consumption but will have only have marginal, perhaps not even measurable, climatic impact over the next few decades. To have a significant effect would require rapid decreases in emissions, changes that are sufficiently aggressive that they would likely cause painful and disruptive economic transitions. Such transitions could stunt economic growth just when we need it to finance Social Security and Medicare for the baby boomers, and they would likely hurt the less affluent the most severely. This is the truth that Democrats are unwilling to acknowledge.

We are told we need to invest those renewable energy sources with less of a climatic impact. If such alternatives were available on a large scale and less expensive, we would have moved to them already. If they are more expensive, it means that no matter which way one cuts it, more personal resources will be used to pay for more expensive energy. Less money to be spent on everything else. Under normal free market economic circumstances, economic transitions make life better because there is a trend to move to the more efficient provision of goods and services. Government forces transitions are, almost by definition, inefficient.

Democratic partisan James Carville recently criticized the manner in which George Bush led us in the War on Terror because he did not involve most Americans directly in the cost of war. Bush did not raise taxes; rather he encouraged economic growth through tax cuts. He asked Americans to lead their lives normally and did require additional economic sacrifices. Carville argues that when you go to war you have to take the entire country to war. Everyone needs to feel the sacrifice [1]. If we take Carville at his word, should not Democrats be asking for sacrifices in the fight to save the planet? Too many subscribe to the illusion that by relatively modest efforts; people driving a few more Prius’s, coupled with a few more wind farms and solar panels, we can significant alter the climate change trajectory. Should not the true economic costs of the economic transformation required to deal with what Al Gore claims is the greatest global challenge of the age be made clear.

Ultimately, the argument made by those who advocate aggressive measures be taken to reduce climate change, is that the present, almost certain, negative economic consequences necessary to alleviate climate change are much smaller than the predicted negative consequences of not doing so. Honesty demands that such a case be made without minimizing current costs or maximizing future ones.

[1] Leave aside for a moment that the US won the Cold War by essentially economically outgrowing the Soviet Union. In a very real way, Americans won the Cold War not through economic retrenchment, but through the growth associated with business as normal. Maintaining economic strength is a necessary strategy in winning a war. What Carville is really complaining about is that Bush chose tax cuts rather than tax increases in order to invigorate the economy.

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