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Article in the Financial Times [Jacob Weisberg | 27/04/2006]
Petrol-induced stupidity on wheels
Few topics seem to addle the collective brain of Washington like high petrol prices. Politicians who raise this issue can generally be assumed to be partisan, cynical, demagogic and dishonest. But one must not discount the possibility that something about the subject actually makes them stupid.
With US prices at the pump now spiking around their inflation-adjusted 1981 peak of slightly more than $3 a gallon, we are witnessing stupidity on wheels. Republicans, who as incumbents fear that they will be blamed, are in a kind of frenzy to abandon free-market principles, basic economic reasoning and, increasingly, reason itself. Their week began with Bill Frist, the Senate majority leader, and Dennis Hastert, the House speaker, calling upon the Bush administration to investigate possible price-gouging, or profiteering, and market manipulation. The Republican leaders went so far as to recommend "sweeps" of filling stations to confirm that price increases reflect "changes in market conditions" and not merely an attempt by businesses to earn money. The next day, George W. Bush joined in calling on his administration to launch an investigation. As it happens, this is the same Federal Trade Commission inquiry they all demanded last year after a post-Hurricane Katrina price rise. While he was at it, Mr Bush also asked Congress to repeal the tax breaks they gave to the oil companies last year.
Republican talk about price gouging is foolish at several levels. If you do not have some sort of monopoly power, gouging is another word for charging the highest price the market will bear. What constrains filling stations from marking up the price of petrol excessively is not the fear of prosecution, but competition from other filling stations. Even many congressmen understand this, but calling for an investigation is a good way to deflect attention from Republican favouritism towards oil companies that are now so profitable that they have become unpopular. Of course, there is notorious anti-competitive behaviour in the petroleum industry. It takes place every time ministers of the Organisation of the Petroleum Exporting Countries meet. But no presidential administration, especially the current one, has ever taken seriously the idea that this price-fixing cartel is a criminal conspiracy under American law.
Democrats, who can barely restrain their glee at this political opportunity, bandy the same implausible complaints about gouging and "speculation" and propose confiscating oil company earnings through a windfall profits tax. They also have their own distinctive form of petrol-induced stupidity, which is to ignore the conflict between the environmentalism they espouse and the cheap fuel they demand. Nancy Pelosi, the House minority leader, even moaned about high petrol prices in her Earth Day statement last week. If you care about clean air and preserving the coastline, you should welcome high petrol prices. Even Al Gore, who once called the automobile "a mortal threat to the security of every nation", decried high petrol prices when he ran for president in 2000. Democrats like to argue that petrol prices are high becauseMr Bush has done too little to develop alternative energy sources and reduce the US's dependence on imported oil. But it is high oil prices, far more than subsidies for ethanol or incentives to purchase hybrid cars, that will drive the development of new fuels.
Some petrol-related idiocies seem to afflict both sides equally. Whichever party is out of office tries to assert that the party in office has the ability to reduce petrol prices, but chooses not to do so. Everything Democrats say about Mr Bush echoes what Republicans said about Bill Clinton when prices spiked in 2000. When you are out of power, you attack the president for not opening up the strategic petroleum reserve. If he gives in to your demands, you denounce him for misusing it for political reasons. "The strategic reserve is meant for times of war or a major disruption in oil supplies," candidate Bush told an audience in October 2000, when he was criticising Mr Gore for proposing to draw upon the government's petroleum reserves in an effort to reduce market oil prices - precisely what Mr Bush has just ordered done.
What none will acknowledge is that higher petrol prices in the US are in many ways beneficial. To be sure, oil at $70 a barrel causes hardships for working people and delights some of the world's worst dictators. But cheap petrol in the country that consumes the most of it imposes its own costs on society: greenhouse gas emissions, air pollution and its attendant health risks, traffic congestion and accidents.
The ideal way to cope with these externalities would be with European-level petrol taxes, or some form of carbon tax. But these are politically impossible ideas at the moment - Democrats lost control of Congress in large part because they passed afour-cent-a-gallon tax increase in 1993. The next best solution is the one that has arrived on its own: a high market price for oil, which spurs conservation and substitution. Sustained high prices could prompt positive behavioural and political changes: energy conservation, public transport, less urban sprawl and, eventually, the economic viability of alternative fuel sources that may one day undermine the power of the oil oligarchs. Are politicians too stupid to understand this, or just smart enough not to say it aloud?
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