who's your nanny?

No Blood for Ethanol!

Steven Chu, Our Holy Savior's pick to head the unconstitutional and worthless Department of Energy, wants the federal government to "boost the price of gasoline to the levels in Europe" -- ostensibly to coerce nonviolent people into buying more fuel efficient cars, traveling less, abandoning jobs or homes in order to move closer to work, and resorting to inefficient and costly public transportation.

Oh, and don't forget the benefit to his scientist pals in the alternative energies field that would benefit financially from all the corporate welfare subsidies, research grants, and mandates aimed at artificially increasing demand for fuels that couldn't otherwise compete with coal, oil, and nuclear energy on the open market.

Considering gas at the station closest to my house is going for $1.59 right now, it might be a good idea to round up as many 55-gallon drums as I can find and start hoarding for use over the next couple years. At less than $88 a drum at current prices, I'd be able to fill my tank almost three times for what it would cost everyone else for a mere half a tank once gas hits $8 a gallon!

Of course, the state would put an end to this rather quickly. Surely they would rush to pass anti-"hoarding" legislation to prevent gas stations from raising their prices once they caught on to this little scheme and responded to the spike in demand. After all, only the government's allowed to gouge us!

Gas Could Cost a Buck Next Year?

So says Gulf Oil CEO Jim Petrowski.

To heck with that. Given that the average federal plus state fuel tax is 47 cents, it should only cost about 50 cents a gallon.

Are the Oil Companies Suddenly Feeling Charitable?

It's been quite awhile since I can remember filling my truck's gas tank for 40 bucks, but I did just that about an hour ago. I think that's just about half of what I paid only a few months ago.

Which got me to thinking, at about two bucks a gallon nowadays, there's not much talk around town and in the press about all those "greedy" oil company CEOs anymore. Let me go out on a limb and guess that will pick up again, oh, around the May-June timeframe.

Instead of making more New Year's resolutions to stop eating Big Macs or save the trees, wouldn't it be nice if more people resolved to read a basic economics book once in a while?

Speculators Are Not to Blame for High Oil Prices

Robert Murphy explains.

It Really Is the Economy, Stupid

Now that gas has hit an average of four bucks a gallon, I figured it might be a good idea to reiterate the main reason our wallets seem a lot lighter than normal these days: the dollar is weak.

Sure, we all know about state and federal taxes and regulations -- government never accuses itself of gouging consumers, does it? -- which impose costs on both producers and consumers. But it's the Fed's policy of inflation and the resultant monetary debasement that is most to blame for rising prices everywhere.

We tend to notice gas prices more than anything else because they constantly fluctuate with the market and we buy fuel so frequently, but prices are rising across the board. Before I left for work this morning, one of the morning shows was noting that the price of beer has gone up.

I'm of the opinion that much of our collective economic ignorance is due to the widespread popularity of these brain-draining talk shows, so I didn't stick around to hear what they blamed the increase on. However, I buy beer even more often than I buy gasoline, and not long ago a 30-pack of Miller Lite at the corner store cost $18.89; today, though, it costs almost $21 (both prices calculated after taxes, of course).

In short, I'm not buying more beer; my dollars are simply buying less than they used to.

Blame the plummeting dollar, not the brewer. Or the distributor. Or the liquor store owner.

Whereas the U.S. dollar and the euro traded almost evenly a few years ago, as of this writing the dollar is worth €0.63. Put another way, today the dollar trades at about $1.58 against the euro.

If the dollar were trading at par with the euro -- as it was before the Fed went on a printing spree to, say, finance war and subsidize mortgage lenders -- gas would only cost about $2.52 today. That's not too shabby smack-dab in the middle of the summer when travel is at its peak.

To put this in terms every consumer can understand, gas would cost $1.48 less per gallon than it does today -- right at this very moment -- if the government weren't continuing to destroy the value of our currency.

Ultimate Recycling

Writes my friend Wolf: "Hell, Hitler ran the entire German army on chicken sh*t. This HAS to be
doable."

Personally, I'd rather just put an end to futile, immoral wars and socio-fascist domestic entitlement programs that trash our currency. But that's just me.

Thank You, Captain Obvious

In what probably signified the extent of Barack Obama's understanding of economics, the senator said over the weekend that rising gas prices would cause some Americans to buy more fuel-efficient vehicles.

We Don't Need Oil to Plunge

U.S. News and World Report's Kirk Shinkle comes up with six reasons why oil could plunge. The problem, however, is that we don't need oil to plunge nearly as much as we need the dollar to rise.

Shinkle admits that any of the prospective breaks he envisions would still leave oil well over $100 a barrel, but, interestingly, he never mentions the one action that could immediately reduce gas prices: ending the Iraq war.

Today, right now, at this very moment, the U.S. dollar is worth about €0.63. Think back about three years. We all know roughly what a dollar bought back then, when it was trading evenly with the euro. Well, we might be paying $135 a barrel for oil today, but if one dollar were worth one euro, that same barrel would cost us only $85 right now ($135 x .63).

I've mentioned a couple times before that the U.S. spends more than $5 billion a year just to fuel all its trucks, tanks, jets, humvees, you name it, in Iraq. Given that the United States imports over $500 billion worth of oil every year, merely subtracting our obligation for Iraq from the total probably wouldn't make that much of a dent itself in gas prices.

However, it's not so much the fact that we're allocating 1 percent of our imports to one specific locale that's driving up costs as it is the fact that wars are incredibly expensive -- we literally must borrow, beg, and steal to finance them, and when a significant chunk of your bills are paid by inflating the currency by creating more and more money out of thin air, that currency loses value very quickly and prices rise across the board.

And we haven't even bothered to discuss our politicians' plans to continue to increase domestic spending.

(Thanks to BC for the story.)

$12-a-Gallon Gas?

This is what some are predicting, but it wouldn't happen if the U.S. lifted its environmental restrictions on energy production and allowed more producers into the market, or merely allowed more substantial production among existing energy companies (it could also end a pointless war that's driving up demand for oil as American taxpayers fork out over $5 billion a year to gas up machinery in Iraq).

Rising prices indicate increasing market demand and send a signal to companies that there are profits to be made, whereby drawing more players into competition for these revenues and subsequently driving prices back down.

But then again, this is assuming a relatively stable dollar, and I suppose anything's possible if runaway inflation renders your currency less and less valuable by the day.

After all, given that the dollar currently is trading at $1.57 against the euro (as it has roughly for the past month), a dollar is worth about €0.63 -- meaning that a gallon of gas would still only cost $2.38 today instead of the $3.79 I spotted this morning on the drive to work if the two currencies traded evenly, as they did only a few years ago.

Given the fact that gas here in Southern Maryland was $3.23 about two months ago, using today's exchange rate it would have cost about $2.03 a gallon were the dollar even with the euro -- meaning that gasoline really would have increased only 35 cents -- or about 17 percent -- in the past two months, reflecting a pretty normal increase in demand heading into the summer months.

I'd be willing to bet most of us aren't making 17 percent more than we were back when the dollar and euro were about even (I know I'm not), which means that these normal upticks in demand now account for a much greater chunk of our real income than they once did before inflation began to skyrocket.

Where's the Demand for Gas Coming From?

There are many reasons for today's rising gasoline prices -- from the tanking dollar to increased demand among increasingly prosperous nations like China and India -- but Michael Klare reminds us what the biggest source of demand might actually be: America's wars.

Every day, the average G.I. in Iraq uses approximately 27 gallons of petroleum-based fuels. With some 160,000 American troops in Iraq, that amounts to 4.37 million gallons in daily oil usage, including gasoline for vans and light vehicles, diesel for trucks and armored vehicles, and aviation fuel for helicopters, drones, and fixed-wing aircraft. With U.S. forces paying, as of late April, an average of $3.23 per gallon for these fuels, the Pentagon is already spending approximately $14 million per day on oil ($98 million per week, $5.1 billion per year) to stay in Iraq. Meanwhile, our Iraqi allies, who are expected to receive a windfall of $70 billion this year from the rising price of their oil exports, charge their citizens $1.36 per gallon for gasoline.

Klare argues that, whether we know it or not, this surfeit of petroleum spending is allowing foreign oil producers to "gobble up" American assets at such a rate as to render American superpowerdom obsolete.

Well, that would be one good thing about expensive gas anyway.

However, I don't necessarily agree that the United States' trade imbalance vis a vis petroleum is, per se, responsible for this country's economic distress. As Henry Hazlitt (among other Austrian economists) wrote, a country's exports are driven by its imports -- essentially, foreign nations must first acquire your nation's currency in order to turn around and spend or invest it in your country. And because one can only demand something by first producing something, having the ability to import is an undeniably good thing.

It is important to stress the invalidity of the oft-expressed maxim that "exports are good" and "imports are bad," as if these are mutually exclusive concepts. Nothing could be further from the truth. Free trade is good; centrally managed economies, defined by inflationary monetary policy, are bad. The dependence upon increasingly expensive imported oil that Mr. Klare laments is bad precisely because the federal government is taking us on joyrides of empire that can only be funded by taxation, inflation, and borrowing -- the borrowing further indebting Americans to foreign nations; the taxation and inflation indebting it to itself (assuming it doesn't later borrow to repay those debts, too).

The United States is falling apart in chunks, to borrow a phrase I heard recently, not because it has a trade imbalance in oil, but because the feds are ratcheting up enormous, crippling debt by financing escapades it cannot sustain in the long run. In my view, it has very little to do with what the state actually spends that money on.

Sign of the Times

Here's one for my good buddy Wolf..

'Duh' Headline of the Day

A headline in South Carolina's The State wonders if a reduction in gas prices will follow a slight decline in oil prices. In a free market, of course they would. But before you go getting too excited, keep in mind the dollar continues to fall, as well.

Out of God's Hands

No amount of praying will bring about lower prices for gas -- or any other good, for that matter -- as long as the dollar continues to tank.

"Commonsense" Gas Plan?

Republicans in the House have asked Nancy Pelosi to reveal a plan to lower gas prices.

“Two years ago this week, you stated that House Democrats had a ‘commonsense plan’ to ‘lower gas prices,’ ” the letter said. “In light of the skyrocketing gasoline prices affecting working families and every sector of our struggling economy, we are writing today to respectfully request that you reveal this ‘commonsense plan’ so we can begin work on responsible solutions to help ease this strain.”

This must be a sign that I'm just behind the times, but I honestly wasn't aware that politicians set gas prices.

Let me go out on a limb here and predict that this so-called "plan" is likely to suggest actions that hurt suppliers and consumers alike, namely price controls -- which lead to all sorts of other problems.

The only "commonsense" actions the government can take to lower gas prices are those reversing previous actions that have forced prices higher in the first place. For starters:

-eliminate state and federal gas taxes
-eliminate costly regulations placed on the oil industry
-stop printing fiat currency out of thin air, which causes inflation and devalues the dollar, causing all prices to rise
-quit occupying and destroying oil-producing nations
-eliminate subsidies for ethanol and other biofuels the market doesn't demand
-eliminate federal regulations forcing refiners to reformulate gasoline with ethanol

Yeah, that probably makes way too much sense for our busybodies in Washington to comprehend.

It's the Dollar, Stupid

An AP headline today reads, "Retail gas hits record $3.50 a gallon as oil marches higher."

Yes, demand for oil will only grow as the summer months approach, so don't be surprise when gas hits $4.00 a gallon. But this report misses the point. Oil is not marching higher so much as the dollar is tanking further.

A glimpse today at the exchange rates shows us that a dollar is worth €0.63. A month ago, the dollar traded at $1.54 against the euro; today it's at $1.59 and continuing its decline.

So before you go buying into the notion that oil is causing you and your family undue distress, take a minute to calculate what a gallon of gas would cost you today if the dollar were simply trading evenly against the euro, as it was only a few years ago. If €0.63 were equivalent to $0.63, a $3.50 gallon of gas would run you a mere $2.20.

Dollar Plummets, Gas Prices Soar

As I discussed last week, there are many reasons gas prices continue to rise, and virtually none of them has anything to do with "greedy" oil executives. But even the least savvy consumer will recognize that prices everywhere are slowly creeping upward, and it is primarily due to the weakening dollar.

We tend to notice gas prices more than anything else because they constantly fluctuate with the market and we buy fuel so frequently. I don't know about anyone else, but I buy beer even more often than I buy gasoline -- and whereas a 30-pack of Miller Lite at the corner store used to cost $18.89, it now costs $20 and change (both prices calculated after taxes, of course).

I'm not buying more beer; my dollars are simply buying less than they used to.

People will always misunderstand the concept of supply and demand, and the press will always run stories of that one gas station in the middle of nowhere whose gas prices are higher than anyone else's (hint: if they weren't, you wouldn't be guaranteed of being able to fill up when you stopped there). But we don't all live in the middle of the desert, and yet prices continue to rise.

Blame the plummeting dollar, not the gas station owner.

Whereas the U.S. dollar and the euro traded almost evenly a few years ago, just yesterday the dollar was worth €0.65. Put another way, today the dollar trades at about $1.54 against the euro.

On my way to work this morning, I noticed that the gas station closest to my house was selling a gallon of gas for $3.23. At the time of this writing, oil has fallen just under $100 a barrel. But that's still only about €65 per barrel. If the dollar was trading at par with the euro -- as it was before the Fed began inflating the economy in order to, say, finance war and subsidize mortgage lenders -- gas would only cost about $2.10 today.

To put this in terms every consumer can understand, gas would cost $1.13 less per gallon than it does today -- right at this very moment -- if the government weren't destroying the value of our currency.

What's to Blame for Rising Gas Prices?

As I left for work this morning, I noticed that gas prices in southern Maryland have risen as high as $3.25 a gallon. Reports noting the increasing rates are starting to become a staple of nightly news broadcasts, but rarely are we treated to anything more than the standard fare of man-on-the-street interviews with consumers complaining about these prices as they fuel up.

A lot of people tend to believe gas prices continue to rise because "greedy oil executives" insist on "gouging" their customers. I suppose the CEO of Exxon could be just as much of a money-grubber as your local gas station merchant, or the guy who owns the local McDonald's for that matter.

But you know what? I'm glad most business owners love money as much as I do; it's generally the reason most of the stuff we buy is so affordable. Producers have an inherent incentive to keep prices as low as possible for one simple reason: They make much more money selling things to hordes of ordinary consumers than they would if they had to rely only on a relative handful of rich ones.

The next time you head to the pump, keep in mind that 18.4 cents of every gallon of gas you purchase goes straight to the federal government. I live in Maryland, which tacks on another 23.5 cents per gallon in gas taxes. That right there is a whopping 41.9 cents per gallon in taxes alone. Let's just go ahead and call it 42 cents. Per gallon. My truck holds about 23 gallons of gas, so I pay about $9.66 in taxes every time I fill my tank. Put in terms even the most naive person can understand, I forgo a 12-pack of Miller Lite every couple weeks just so I can pay taxes on the fuel that allows me to get to work -- where I earn the money the government then steals from me.

We used to get a significant percentage of our oil from Iraq. Well, it turns out that destroying a country during an unnecessary (endless?) war tends to diminish oil supply, which in turn leads to higher market prices.

And since we're on the topic of war, let's not forget that spending over a hundred billion dollars a year to maintain an empire weakens the dollar. The government inflates the currency by borrowing money from the Chinese and counterfeiting still more of its own as the Fed creates it out of thin air in order to finance military expeditions. The destruction of our currency is directly related to rising prices at the pump.

And then there are countless state and federal welfare programs -- bailouts for mortgage companies and irresponsible homeowners come quickly to mind -- which destroy wealth by confiscating our property in order to redistribute it to others. Because these are funded by borrowing, taxing, or printing even more fiat money, they in turn contribute to debasement of the currency, which is again reflected at the pump.

You can believe that rising gas prices are attributable solely to private sector salesmen if you like. But bear in mind that even when gas stations try to reduce prices for their customers, government regulators are quick to swoop in and keep them artificially high.

Men are not angels, but there is no evil like the state.

It's Easy to See Rising Gas Prices

It's harder to see the destruction of our currency, which in large part is causing those prices to rise.

Thanks, but No Thanks

Ever notice how politicians never seem to act on the problems facing their constituents until it's too late? I'm not talking about social or corporate welfare here, or even about handouts to special interests in the form of grants and earmarks. Politicians always seem to find enough money to subsidize popular "victim" groups or big-time donors to their campaigns.

No, I'm talking about managing the projects that the vast majority of taxpayers would actually benefit from. Like building and maintaining bridges and roads. Or maybe there's a dangerous intersection in your community that's needed a traffic light for years. You know the drill -- you'll probably never see it until someone actually dies.

Take for instance the Interstate 35W bridge collapse in Minnesota a couple weeks ago. Politicians nationwide were falling all over themselves trying to see who could throw the most money at new safety inspections to prevent another catastrophe. Thanks, but no thanks.

Why, I wonder, was money not already allocated to these types of programs? Could it be that instead of using our tax dollars to fund a transportation bill that actually addressed transportation and infrastructure, congressional Democrats and Republicans were too busy stuffing the bill with billions and billions of dollars worth of earmarks for special interests instead?

According to the Washington Examiner, Congress is proposing a new 5-cents per gallon federal gas tax to pay for "spending increases of at least $250 million for safety inspections on the estimated 75,000 bridges rated 'structurally deficient.'" I'm hardly the best mathematician around, but you don't need to be to realize that this $250 million has already been paid for dozens of times over in unauthorized transportation bill earmarks alone. (And here I thought it was only the oil companies that were gouging us!)

But that's how things work in Washington when we're so indifferent to this waste and abuse. And guess what? It's never going to change until people like you and me demand that politicians actually use our tax dollars for our benefit instead of theirs. Until such demands are made, our intrepid representatives will simply continue to "solve" these problems by funding new programs with new taxes instead of money that has already been allocated for such use, but nevertheless spent immorally and improperly by politicians looking out for their own interests instead of ours.

None of this is to suggest that I actually endorse federal funding of transportation and infrastructure, by the way. I'm merely reacting to reality as it currently exists. If the federal government insists on spending our money to subsidize the states and to fund its own transportation spending programs, the least it could do is use our money for this and this alone. The arrogance that must be required for any politician to believe that our tax dollars should be used for his or her personal gain is staggering. One would think that even the most die-hard big-government apologist would have to admit at least this much.

Earth to Congress: Please Stop Helping

The AJC's Jim Wooten examines Congress's plan to solve our so-called energy problem, explaining why new taxes on oil companies to subsidize "renewable" energy sources will lead to gas prices at $6 per gallon by 2016.

Or, you could just go to France today.

Gasbags

From the Washington Times:

The House yesterday passed a bill that would make price gouging by gas stations and oil companies a federal crime as prices at the pump surpassed a 1981 record reached at the height of the Iranian oil crisis. The White House, which has threatened to veto the bill, warned the legislation amounts to price controls and would lead to gas shortages and lines like in the 1970s.

Gas shortages and lines at the pump would only be the beginning, of course. Now our petty tyrants in the Congress apparently believe that selling legal goods should sometimes be considered a federal crime.

Read that again. Our legislators want to criminalize businessmen for engaging in voluntary transactions with their customers.

Forget the fact that this "gouging" will be virtually impossible to prove. Never mind that changing prices reflect changing scarcity conditions. And forget that our politicians themselves must be aware of the true cause of "high" gasoline prices (government-imposed taxes notwithstanding) but nevertheless fail to consult common sense in order to pass a bill that is all show and no substance. According to the report:

In coming years, Americans face sharply higher prices for energy as they compete with burgeoning demand for gasoline to power cars in emerging giants such as China, India and Russia. A separate report from the energy agency Monday said energy demand worldwide will soar 57 percent by 2030. To keep pace with that demand, production of oil would have to grow more than 40 percent to 118 million barrels a day.

What do our benevolent politicians think will happen to gas prices once their regulations and controls cost suppliers too much money to even remain in business? (Hint: Reducing competition usually leads to higher prices.)

Read this story and then tell me gas station owners are "gouging" their customers. It's one thing to go out of business because you can't compete with bigger and/or better companies in a free market. It's entirely another when the government decides your fate for you.

If politicians truly want to make gasoline more affordable, why don't they focus their efforts on their own tax gouging?

UPDATE: Don Boudreaux's take:

[The] vote in favor of this foolish piece of legislation was 284-141 -- meaning that lots of Republicans joined Democrats in this opportunity to prove, yet again, that members of both parties are either economically illiterate or morally stunted (or both).

Perfect.

Who's Gouging Whom?

Now that forces of supply and demand have caused gas prices to break $3.00 a gallon in many areas throughout the country, Democrats in Congress are rushing to exploit oil companies at our expense. (Of course, they wouldn't put it exactly that way.)

Sen. Charles E. Schumer (D-N.Y.) said Congress would look into breaking up the giant companies. Sen. Maria Cantwell (D-Wash.) promoted her anti-price-gouging bill, which the Senate Commerce Committee adopted on Tuesday. And Sen. Bernard Sanders (I-Vt.) backed a windfall profits tax, pointing to $440 billion in profits over the past six years for the nation's five biggest oil companies.

"I think it's time to say to these people, 'Stop ripping off the American people,' " Sanders said.

Federal and state taxes on gasoline notwithstanding, what exactly do our fine senators think will happen to gas prices as they further regulate oil companies? And exactly who do they really think will bear the burden of these expensive regulations?

I have one question for Bernie Sanders, et al.: How can oil companies possibly be gouging -- i.e. "ripping off" -- the American public if consumers can afford to pay the prices that are leading to these so-called windfall profits?

Wait. I Thought Gas Prices Were Too High

Well, apparently not in Wisconsin:

A service station that offered discounted gas to senior citizens and people supporting youth sports has been ordered by the state to raise its prices.

Center City BP owner Raj Bhandari has been offering senior citizens a 2 cent per gallon price break and discount cards that let sports boosters pay 3 cents less per gallon.

But the state Department of Agriculture, Trade and Consumer Protection says those deals violate Wisconsin's Unfair Sales Act, which requires stations to sell gas for about 9.2 percent more than the wholesale price.

[HT: Hit & Run]

Here We Go Again

I love warm weather. Here in Maryland that means an abundance of tan girls dressed in skinny tank tops and short skirts. And if my email's inbox is any indication, it also marks the arrival of stupid chain letters imploring us to boycott gas stations because the price of gas is starting to rise.

For the record, the message I got today reads: "DON'T PUMP GAS ON MAY 15TH!" and I've received it from no less than a half-dozen people, over half of whom I don't even know.

Ahhh... I love the smell of unbridled idiocy in the morning. Unfortunately, though, these people are hardly alone. In fact, it's virtually impossible to go to work or out to a bar on the weekend without hearing people complaining about rising gas prices.

As with any other good, fluctuations in gas prices indicate little more than simple supply and demand. As Thomas Sowell wrote in 2005, "With the economies of huge nations like China and India developing more rapidly, now that they have freed their markets from many stifling government controls, more oil is being demanded in the world market and there are few new sources of supply."

And according to Larry Kudlow, "Rising gas prices and home values represent the forces of good, not evil."

I have several good friends who are in the market for a new house, and the prevailing mindset among many is that it's just "too expensive" to build one. In Southern Maryland, it's not uncommon to have to spend $400,000 for a three bedroom, two bathroom house on half an acre of non-waterfront land. Certainly this is not cheap. But it would behoove us to realize that this is a good problem to have, considering some alternatives. Rising prices reflect growth and prosperity, not poverty. In my hometown of Olean, New York, low land values are indicative of a depressed economy and little to no economic growth. I know where I'd rather live.

But back to gas prices. Let's do a little comparative analysis to see if the oil barons really are just raping us at the pump.

A friend and I were at the Tiki Bar recently. While standing on the pier we overheard a guy complaining that he had to pay $2.49 a gallon to fill his tank (it's now around $2.89 and sure to continue rising). Funny thing is, he spent at least $3.00 on the Yuengling he had in his hand.

I couldn't help but realize that at $2.49 per gallon, the man spent less than 2 cents per ounce for the gas, given that one gallon equals 128 ounces. Interestingly, he never lamented the fact that he'd just dropped 25 cents per ounce for his can of beer.

How about wine? It's not abnormal for many couples to go out to dinner once a week. How many will order a $4.00 glass of wine? At about 5 ounces per glass, that's a whopping 80 cents an ounce!

Or perhaps a vodka tonic is more your style. A drink containing merely one ounce of Grey Goose vodka will run you at least five bucks in any restaurant or bar. That's right, that's five bucks an ounce.

And on and on we could go.

People are free to boycott gas stations if they choose, but it doesn't necessarily mean they understand the economic factors that drive prices. And these are most likely the same people who would empower the government to impose price controls if their little schemes to lower prices themselves don't work to their satisfaction.

That countries like China and India are turning more and more to capitalism is undeniably a good thing, both economically and politically. But if we expect a government to find a solution to a "problem" it's incapable of solving, we'll surely get what we wish for and be ever the worse off for it.

Government can and should do nothing -- unless of course that means lowering its own taxes that drive up gas prices, or combating the political hysteria preventing an increase in our own oil production, which merely limits supply and drives up prices in the first place.

More On the Ethanol Debate

Several people have written me today looking for more information on ethanol than the links I provided in my article have lent. Here are a few more links on the overall issue of replacing gasoline with ethanol:

• Report by Pure Energy Systems opposing ethanol advocates' claims that the gasoline substitute will be the savior of the environment.
• Information on federal ethanol subsidies, status and benefits
• California perspective on ethanol fuel incentives applied in the U.S.
• Facts about ethanol subsidies by the National Center For Policy Analysis
• Pretty comprehensive piece in Indiana's Star Press on the billions spent in federal government subsidies of ethanol

This should be a good start.

When Government Butts Out, Markets Thrive

Max Borders bets that gas prices will be cheaper in 10 years than they are today, so long as government keeps its mitts off and lets markets and human ingenuity prevail.

Guess where the real challenges lie.

Economies of Scale: A Primer

The other day, a co-worker approached me and asked, "You know why gas prices are going down, don't you?"

As I began my response to this fairly loaded question -- demand for gasoline is decreasing as summer travel is coming to an end; oil supply is probably higher than normal to caution against another Katrina-like fallout -- she interrupted rather abruptly and said something to the effect of, "It's an election year. Politicians want us to think everything's great so we'll vote for them, and then prices will go right up again."

I wonder how many Americans are under this paranoid delusion that a cabal of politicians sits around a table in a board room in Washington setting gasoline prices from one day to the next. For all their faults, our elected officials have no such authority in a (relatively) free market. (Of course, were they to effect price controls on gasoline this would be another story entirely.)

However, while politicians are not currently setting gas prices per se, they do influence the costs of production when they impose regulations on producers. Economics professor Don Boudreaux explained in this article yesterday why producers that take advantage of economies of scale often save consumers money, and why government has made it nearly impossible for oil refiners to do so.

If you think that government would never force consumers to buy "boutique" products when consumers would prefer to buy mass-produced products, you're mistaken. In a new paper -- "Market Fragmenting Regulation: Why Gasoline Costs So Much (and Why it's Going to Cost Even More)" -- University of Illinois law professor Andrew Morriss and Mercatus Center scholar Nathaniel Stewart show that much of the recent rise in the price of gasoline at the pump was caused by regulations that obstruct oil-producers' abilities to produce and distribute gasoline on a large scale.

Although government started interfering significantly in the oil market in the early 20th century, Morriss and Stewart find that beginning only in the late 1980s did the EPA and state and local governments launch unprecedented requirements on how fuel is formulated: "These fuel requirements added a set of constraints to refinery operation and transportation of fuels." Significantly, "Through various State Implementation Plans (SIPs), state and local governments also imposed restrictions on gasolines sold in their jurisdictions. Although there is no comprehensive list of formulations mandated by all levels of government, there appear to be at least seventeen different formulations -- a major increase from the single standard (the lead standard) in place in the mid-1980s. In addition, some state and local governments have imposed 'biofuel' requirements."

Read the entire piece for an excellent primer on economies of scale, and don't be afraid to pull it out the next time uninformed co-workers approach you to explain the economy in three minutes.

From the "Duh" Files

It seems that even when things are going relatively well, some newspaper reporters can't help but foment anxiety for a bleaker future, as is the case in this Baltimore Sun report on gas prices today.

But for all the banality of the report, you'd think the editors could have at least come up with a better subtitle than "Demand eventually will increase price."

"Robber Baron" Reprieve?

So... this means all those oil executives aren't greedy, filthy, thieving scumbags anymore, right?

Supply. Demand.

Learn it. Love it.

Private "Price Gougers" Are No Match For Government

The Waterbury, Connecticut Republican American runs an editorial today explaining exactly why charges of private "price gouging" are so far-fetched.

Attorney Richard Blumenthal has accused two gas stations of post-Katrina price gouging and essentially compelled them to dole out nearly $45,000 to the state, rather than incur even higher costs associated with fighting a legal battle. The irony, of course, is that motorists, for who Blumenthal claims to care so much about, will see no portion of this settlement.

That Cumberland Farms would be accused of gouging is odd because it is renowned for its low gasoline prices. In fact, the Torrington store cited by Mr. Blumenthal consistently has among the lowest prices in the state, according to connecticutgasprices.com.

"This result sends a message: Connecticut has zero tolerance for price gouging," Mr. Blumenthal declared.

Baloney. Stations net about 3 cents a gallon, while the state and federal governments confiscate 60.4 cents a gallon in excise taxes from Connecticut motorists. Twenty percent of the pump price goes to the government. According to the Independent Connecticut Petroleum Association, the state has the highest gasoline taxes in the Northeast, and 11 more cents than second-place Rhode Island.

For those keeping score, this means that private business could never be as successful as government when it comes to grabbing your money.

This whole episode is analogous to the congressional hearings held in November 2005, where oil executives were hauled in front of Congress to explain their industry's estimated $96 billion in "record profits," and why they shouldn't be expected to help people struggling to pay their energy bills.

Just so we're clear, these sentiments belong to politicians and Americans on both sides of the political aisle, which indicates just how determined government -- aided and abetted by many naive citizens -- is to control the actions of private corporations.

At least socialists believe government should produce the products it controls and regulates. It is the fascist who is content to endure a mixed economy, where private individuals are expected to produce through their own creativity and efforts the goods and profits he can then confiscate through fiat for his own personal gain.

In Case You Haven't Noticed

The price of gasoline has plummeted about 35 cents in the past few days. The hysterics sure are quiet now.