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Wasn’t There a Time When Republicans Knew Something About Economics?

Senate Republicans have unveiled their “Gas Price Relief and Rebate Act of 2006,” and it’s not pretty. Let’s just go through its components, one by one.

1) Gas Tax Holiday Rebate: everyone gets a check for $100.

Taxes are a large part of the cost of gasoline. How about if we cut them?

2) Consumer Anti-Price Gouging Protection: Authorizes the FTC and others to “bring enforcement actions against any supplier unlawfully inflating the price of gas.”

Meaning what? How you you “unlawfully inflate the price of gas”? Last year, Congress directed the FTC to conduct an investigation of “price gouging.” Pursuant to that law, the FTC reported to Congress just last month; you can read the report here. It is, to put it mildly, unhelpful. Here is the FTC’s conclusion:

The Commission has made considerable progress in identifying and gathering the information necessary to address the inquiries posed by Congress. The Commission has cast a broad net, using compulsory process to demand information from almost 200 companies across the United States. Moreover, the Commission has interviewed other companies to obtain necessary information and is conducting 15 investigational hearings. The agency is continuing to gather and assimilate information, and it would therefore be premature to draw conclusions at this time.

Inasmuch as no one knows what “price gouging” is, I’m not holding my breath. There was a time when Republicans knew better than to engage in this kind of stupid degagoguery. If Republicans don’t know any more about economics than Democrats, why, exactly, should we keep voting for them?

Well, there is national defense. But, still.

3) Tax Incentives: Repeals tax incentives for the oil companies, while expanding tax incentives for hybrid vehicles and increasing refinery capacity.

Not sure I understand that one. Is someone other than the oil companies expected to build oil refineries?

4) Fuel economy standards: Authorizes the Secretary of Transportation to impose fuel economy standards.

How about if we just let people buy whatever kinds of cars they want, and let them decide whether they’re willing to pay for the gas?

5) Advanced Energy Initiative: Funds research and development into alternative fuels and “advanced technology vehicles.”

I’m all for those things. But is there something special about the government’s money? Isn’t the prospect of cutting in on the oil companies’ action sufficient incentive for industry to carry out that research?

6) Strategic Petroleum Reserve: “Urges” the President to suspend making contributions to the reserve for six months.

Well, you can’t say Congress isn’t doing anything. They’re “urging.”

7) Expanding Domestic Supply in ANWR: “Opens a portion of the Coastal Plain of ANWR to environmentally sensitive oil exploration to reduce our dependence on foreign oil.”

Hallelujah. Let’s hope it passes this time. This means you, Norm. And you too, Mark.

8) Refinery Capacity: Includes incentives to encourage additional refinery capacity.

I believe it’s the case that we haven’t built an oil refinery anywhere in the U.S. for more than 15 years. I don’t think the problem is a lack of “incentive;” I think the problem is that government regulations (principally environmental) and the threat of litigation make refinery construction so slow and expensive as to be virtually impossible. Do the Republicans propose to do anything to make refinery construction easier? Not that I see in the package I got from the Senate.

Bottom line: The Republican Senators’ proposal does nothing, other than ANWR drilling, that acknowledges the rules of supply and demand that govern prices. The “Gas Price Relief and Rebate Act” is mostly crude pandering of the kind we used to expect from Democrats, not Republicans.

One Republican Congressman, Mike Conaway of Texas, did offer some sensible thoughts:

Congress’s actions must be rationally based on economics and the realities of global energy markets. We must not fall into the political trap of knee-jerk reactions that will only worsen our problems.

There is a great hypocrisy in America’s national energy policy. As long as politicians continue to demagogue energy companies and oppose legislation that addresses the long-term problem of rising energy costs, we will continue to fail the American people.

Yes, oil companies are making large sums of money in real dollars; however it is disingenuous to simply look at the raw dollar amounts without looking at these numbers in the proper economic context. We need to look at the percent of return these companies are making. In reality the oil and gas industry’s earnings are easily comparable to other industries and in many cases lower.

According to Business Week and Oil Daily magazines, the oil and natural gas industry earned 5.7 cents for every dollar of sales compared to an average of 5.5 cents for all U.S. industry over the past five years. By contrast in the third quarter of 2005 the pharmaceuticals industry made a profit of 18.6% per dollar of sales versus 7.6% for the oil and gas industry. The average profit per dollar for all US industries is 7.9%. ***

It is time for Congress to look at the facts. It is the global market place and the law of supply and demand, not greedy oil companies that are responsible for higher prices. The price of a barrel of oil is set by the global market not by multinational energy companies. When some in Congress refuse to allow for domestic and deep sea energy exploration that would increase supply and reduce cost, the problems get worse. We must enact legislation that would open ANWR, expand refinery capacity, reduce costly fuel regulation and allow for deep sea exploration. These are long-term issues that could have made a difference today had we avoided political posturing and addressed them years ago. It isn’t too late for us to do the right thing now and begin enacting common sense legislation like increasing supply and increasing research and development regarding alternative sources of energy.

We must stop allowing the issue of rising energy costs to be clouded with misinformation and politically motivated emotion.

I want the oil companies to make enormous amounts of money. I want them to make enormous amounts of money so they can spend it on drilling wells and building pipelines and refineries. I talked to an oil executive recently who told me that the fact that we can’t expand our refining capacity is a scandal in terms of the public interest, but is actually good for the oil companies’ profitability. Look at it this way: if the oil companies agreed among themselves not to drill for oil in new locations like ANWR, and not to build new refineries, so as to limit the supply of oil and thereby drive prices higher, it would be illegal; indeed, it would be the greatest price-fixing conspiracy in American history. But it isn’t the oil companies that have conspired to limit supply and thereby drive prices higher. It is our government that has foreseeably, if not intentionally, achieved this ignoble end.

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