Price controls would be disaster

Drivers areunderstandably upsetover the rapidly rising price of gasoline. A year ago, the price for unleaded regular was under $1. Today, it is 50% higher in most places, with still higher prices predicted for the summer driving season. The cause is an escalating price for oil caused by supply cutbacks in the Organization of Petroleum Exporting Countries (OPEC). Earlier this month, a barrel of oil was selling for more than $30, triple its price from this time last year.

Should gasoline prices remain at their current level for much longer, as sure as night follows day, some politician is going to demand price controls to "aid consumers." Truck drivers are already demanding that the government "do something" about the high price of diesel fuel. Given the Clinton Administration's history of pandering to such concerns and of stretching the law to suit its purposes, one cannot dismiss the possibility that it will find a way to make a bad situation worse.

Price controls would, of course, be a terrible mistake. Indeed, any government intervention at this point would probably be counterproductive. It was the Carter Administration's blundering that gave us long gas lines in 1979. As subsequent analysis proved, there was plenty of gasoline available, but Department of Energy (DOE) rules required it to be distributed to stations based on consumption in 1972! So naturally, areas of rapid growth in the succeeding seven years had severe shortages. DOE regulations also prevented prices from rising to market-clearing levels and allocated supplies to a long list of special groups, such as farmers.

Another prediction one can make fearlessly is that demagogues will blame the oil companies for profiteering. In the 1970s, this led to enactment of a "windfall profits" tax. So insane was this tax that it applied even to newly discovered oil, thus discouraging exploration and drilling.

In any event, prices are not as high as they appear, nor as painful to bear. There are three reasons. First, adjusted for inflation, the price of gasoline is well below its 1981 peak of close to $2.50 per gallon (in 2000 dollars). Second, incomes have grown considerably in the last 20 years so that gasoline consumes a smaller portion of the family budget today. And finally, despite the proliferation of sport utility vehicles, overall auto fuel efficiency is up 50% since 1979.

If the Clinton Administration wants to do something helpful, it should consider two things. First would be lowering the onerous gasoline tax, which averages 41 cents per gallon (federal, state and local). Second would be easing the oil embargo against Iraq, which serves only to punish innocent civilians while having no impact on its leaders.

Mr. Bartlets, a nationally syndicated columnist, is a senior fellow with the National Center for Policy Analysis.

Copyright Human Events Publishing, Inc. Mar 31, 2000
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