Americans turn loopy over gasoline. They throw tantrums when gasoline prices climb enough to hurt. If federal mandates accurately express their thinking about the fuel, they'd rather burn food. And when gasoline prices sink they become incoherent.
Politicians brazenly exploit widespread suspicion that conspiracy explains the high points in gasoline price cycles. The late Sen. Daniel Patrick Moynihan (D-NY) described the approach well during a 1996 Senate debate on gasoline prices, which then were increasing. "It is in the oldest American political tradition that when anything happens, you investigate the oil companies," he said (OGJ, May 13, 1996, p. 36).
The many witch hunts inaugurated by Congress over the years have uncovered no conspiracy, of course. Yet the witch hunters won't be appeased. Some of them even complain when gasoline prices fall. In October 2012, then-Rep. Edward J. Markey (D-Mass.) requested a Federal Trade Commission investigation into the sinister question why gasoline prices hadn't fallen as fast as crude prices. In a letter to former FTC Chairman Jon Leibowitz, he expressed concern "that gasoline prices could be behaving abnormally due to price gouging or manipulation."
Markets set prices
As long as exploiting gullibility promises political benefits, Markey and politicians like him won't acknowledge the observable truth that markets set gasoline prices. Their charlatanism is merely irritating when prices of crude and oil products are rising. When prices are falling and oil-industry workers are losing jobs, as they are now, apologies are in order.
Muddled thinking about gasoline has had consequences in Washington, DC, beyond the occasional investigation destined to find nothing. For example, it led Congress to commit grain to the production of more fuel ethanol than the market can absorb and to require sales in gasoline of far more ethanol made from cellulose than can be supplied. The unattainable renewable fuel standard represents a triumph of political opportunism and a woeful product of ignorance, much of it voluntary, about the gasoline market.
Sensitivity about gasoline prices remains a handy lever of persuasion in energy politics. In December, President Barack Obama made it a reason not to approve the border crossing of the Keystone XL pipeline. "There is very little impact-nominal impact-on US gas prices, what the average American consumer cares about," the president said in a press conference. And Markey, ever the watchdog, has used concern about the supposed effect on gasoline prices as a reason to oppose ending the ban on crude exports. "Exporting American oil might be good for big oil's bottom line," he said last October, "but it would harm American families and businesses and erode our progress towards energy independence that enhances our national security."
These views appeal to intuition but overlook much. The Keystone XL pipeline would move bitumen the cheapest way possible to refineries that value it most. Exports would allow US crude to compete internationally alongside US gasoline, the price of which follows global markers, with the probable effect of suppressing prices of crude-and therefore gasoline-overall. Both moves would enhance market efficiency, which always helps consumers of gasoline and other oil products.
Most interesting will be what happens to worry over gasoline prices as talk grows about raising federal taxation of the fuel. That discussion has begun. Politicians from both major political parties have made claims, via elevation of the federal gasoline excise, to various shares of the money consumers save as gasoline prices plunge. Their proposals raise many questions, all meriting debate.
Taxes and prices
Fundamentally, though, no one should forget that to consumers a tax hike is the same as a price increase. Opponents of Keystone XL and crude exports who hinge arguments to questionable claims about gasoline prices logically should oppose tax increases, too. And a public inclined toward outrage over gasoline prices should find the mere mention of higher taxes scandalous.
But this is wishful thinking. Concerning gasoline, too many Americans and their politicians would rather be angry than right.