Thursday, May 4, 2006

A British Perspective on Fuel Prices

I love reading the Economist.  Here's its take on the American reaction to high fuel prices.  I have one quibble with the Economist's perspective: it is not inconsistent to object to the profits of price-gouging oligopolists and to advocate higher taxes on fuels.  In the first case, the money goes to the rich getting richer -- in the second case, the money goes to the public and could be used to deal with critical energy-related problems: creating more efficient, sustainable and available public transportation, encouraging more sustainable energy production and use, etc:

Steven Hayward of the American Enterprise Institute points out, there is no debate as to whether these penumbras and emanations include the right to cheap petrol. Americans are convinced that the rising price of petrol—the average price of a gallon has reached $2.90 and some places are charging more than $3—is nothing less than a violation of the rights they won from George III; and they have no doubt that the people doing the violating are the oil companies. Aren't the oil companies making record profits? And didn't the chairman of Exxon, Lee Raymond, just get parting “compensation” worth about $400m? “Does everybody love Raymond?”, asks Mr O'Reilly. “I don't. I think he's a greed-head.”

You can quibble for as long as you want about the economics of all this. You can point out that the price of petrol is fixed by global forces—from rising demand in India and China to political instability in Nigeria and, particularly, Iran—rather than devilish CEOs. You can point out that, so far, rising petrol prices have had remarkably little impact on the economy. The oil shocks of the 1970s sent inflation soaring and tipped the world economy into recession. Today the American economy is motoring along on a full tank, with low inflation, low unemployment and rising consumer confidence. You can point out that Americans don't know how lucky they are—a gallon of petrol costs $6.4 in Britain. You can even argue that it is their fault for driving gas-guzzling SUVs and living in McMansions miles from anywhere.

But you might as well hold your breath for all the difference it makes. No less than 69% of Americans think that the rise in petrol prices has already caused them either severe (23%) or moderate (46%) hardship. Nearly two-thirds think that the president has a lot of influence over the price of petrol. The result is that a presidency that has already been battered by Hurricane Katrina and bruised by the Iraq war is being bombarded by soaring petrol prices. Mr Bush's approval ratings are at an all-time low of 32%; economists are warning everyone that the price of petrol will rise higher as the summer driving season starts; and pundits are suggesting that Mr Bush may be a Republican Jimmy Carter, destroyed by Middle Eastern terrorists and rising oil prices. All he needs is a cardigan and a liking for the word “malaise”.

The Economist (subscription)

The Democrats have seized the opportunity to bash Big Oil with predictable relish. Herb Kohl, a senator from Wisconsin, has introduced a bill to prevent petrol companies from colluding to keep prices high. Big Oil has “unquestionably enriched itself during this period of high prices,” he says. Carl Levin, a senator from Michigan, has urged Mr Bush to impose a windfall tax on the oil companies' “obscene profits”. On April 20th the Democratic Congressional Campaign Committee recommended that candidates for office hold campaign meetings at petrol stations—and pledge that as members of Congress they will “fight for families...not the oil and gas executives”.

And those stalwart friends of big business, the Republicans? Naturally, they have fired a few shots at the Democrats. How can the Democrats have the nerve to complain about rising petrol prices when they have systematically blocked attempts to increase the production of oil? And when they want to bring in “green” taxes that will push the price of petrol much higher? But for the most part they have contented themselves with me-too company bashing. Bill Frist and Dennis Hastert, respectively the majority leader in the Senate and the speaker of the House, have called for an investigation into “price fixing” and “gouging”. Arlen Specter, a senator from Pennsylvania, is also talking about a “windfall-profits tax” and an antitrust investigation. Other Republicans have threatened to summon oil executives to Capitol Hill for a grilling.

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