We’ve been told that we’re in an energy crises. Over and over it’s routinely asserted that any solution will require leadership. Leadership, of course, implies top down direction from governmental elites. It seems few people today think anything can be accomplished without such centrally directed leadership. They are wrong.

High gas prices cut U.S. driving for 8th month: government

Americans scaled back their driving during June by almost 5 percent in response to soaring fuel costs, the government said on Wednesday — a day after announcing the biggest six-month drop in U.S. petroleum demand in 26 years.

The Transportation Department said U.S. motorists drove 12.2 billion fewer miles in June compared to a year earlier, marking the eight month in a row that travel declined in the face of record gas prices as Americans change their driving habits, buy more fuel-efficient cars and switch to public transport.

“Changes in consumer behavior have essentially erased five years of growth in gasoline demand,” the American Petroleum Institute said on Wednesday in a separate report that showed gasoline use during the first seven months of 2008 fell by 2.1 percent to the lowest level for the period in five years.

This is, or should be, the common sense predicted outcome. Consumers adjust their behavior in response to changes in prices. Facing higher energy prices, users will seek more cost effective traveling methods. Knowing this, where is the crisis we hear so much about? What, exactly, do we need leadership for that can’t be accomplished by the dynamic free market? The fact of the matter is there is no energy crisis, but rather a political crisis, otherwise known as a presidential election.

At long last, Mexico is cracking down on those unscrupulous individuals who hop across the border intent on soaking up nanny-state benefits at taxpayer expense.  Fox news reports:

A Mexican border city has begun fining U.S. drivers who cross the border to fill extra drums, tanks or barrels with government-subsidized Mexican fuel.

The city of Ciudad Acuna, across the border from Del Rio, Texas, said Friday that it fined four U.S. residents for carrying extra diesel and would impound their cars until they pay. The fines equal 70 percent of the value of the diesel confiscated.

U.S. drivers can fill up their own vehicles, but carrying extra fuel containers back across the border violates customs regulations and possibly safety rules, a report from the city said.

Mexico, one of the world’s top 10 oil producers, sells diesel fuel domestically at subsidized prices of about $2.25 per gallon, about half the U.S. price.

What, did you think I was talking about Mexicans coming into America?  No doubt similar fines on illegals soaking up benefits in America would constitute a human rights violation.

What Mexico needs is comprehensive diesel reform.  We need to get these diesel-moochers out of the shadows, not intimidate them by enforcing fines and seizures and whatnot.  We must realize that we are not two separate nations, but one interconnected macro-economy, and thus this is not just their subsidized diesel, but the subsidized diesel of all North Americans.  Furthermore, these diesel-moochers, who are the real victims here, should be issued Mexican driver’s licenses, to ease the transition into Mexican society for their brief jaunts south of the border.  They’re just looking for a better life, and to fill the gas tanks that Mexicans won’t.

Barack Obama has a solution to high gas prices: use the Strategic Petroleum Reserve (SPR).

Sen. Barack Obama called Monday for using oil from the nation’s strategic reserves to lower gasoline prices, the second time in less than a week that he has modified a position on energy issues, as he and Sen. John McCain seek to find solutions to a topic that is increasingly dominating the presidential race.

…His proposal comes a month after Obama said he would consider using oil from the reserves only in a “genuine emergency,” such as “terrorist acts.” Aides said the plan is not a reversal because he would replace light crude oil in the reserves with less-expensive heavy crude. They also noted that the senator from Illinois last week described the country’s economic conditions as an “emergency.”

So not only is this yet another in a long line of flip flops, it’s also a stupid idea. Granted, it’s not as morally repulsive and economically damaging as his rehashed call for government sanctioned thievery (”windfall profits tax”), but it’s a blatant misuse of the strategic reserve for the purpose of electoral benefit.

The SPR was established in response to the Arab oil embargo. Its purpose is to provide a temporary cushion against physical shortages in the oil supply, thus protecting the economy from excessive damage during emergency situations and also to discourage attempts at using oil as a political weapon. The key point here is that SPR is intended to be used for transient emergencies.

There is no such physical shortage at present. The price of gasoline right now is reflective of growth in global demand, not dramatic decreases in supply. Opening SPR would likely have a depressive affect on gas prices, but it would be temporary and would do nothing to solve the issue that has created those prices in the first place. Unlike the situations SPR was designed for, this is not one we can just wait out. Furthermore, as oil demand grows the size of the reserve that is needed to successfully protect the economy during times of physical disruption increases. Using SPR now would only make it more difficult to protect the economy should a true shortage or interruption arise in the future.

Although the reserve has been used for political purposes in the past (in the nineties some was sold off to trick people into thinking the government had become fiscally responsible), such actions should be opposed. The SPR is not a vote buying slush fund to get Barack Obama elected.

The environmental/judicial dictatorship has spoken:

In what is thought to be an unprecedented ruling, a Superior Court judge in Fulton County, Ga., halted the construction of a coal-fired power plant, saying that the plant must limit its emissions of carbon dioxide.

Citing an April 2007 US Supreme Court ruling that recognizes carbon dioxide – the primary gas responsible for global warming – as a pollutant under the federal Clean Air Act, Judge Thelma Wyatt Cummings Moore overturned a lower court’s decision to issue an air-pollution permit to Dynegy’s Longleaf power plant near Columbus, Ga. Her decision is believed to be the first one that links global warming to an air-pollution permit.

The case had been brought by the Sierra Club and Friends of the Chattahoochee, a local environmental group. They were represented by GreenLaw, an Atlanta-based public-interest law firm.

The coal-fired power plant – the first proposed in Georgia in 20 years – cannot begin construction until it can obtain a valid permit that complies with the court’s ruling.

The United States has the world’s largest supply of coal.  It accounts for 50% of our electrical production. The enviro’s are attempting to hold our coal supplies hostage along with our oil reserves. Even if we maximize “alternative” sources, we cannot meet growing demand for power without increases in coal production. Placing our energy economy in the hands of eco-tyrants and their judicial cohorts is a disaster waiting to happen.

Democrats have responded to rising oil prices as one would predict: not by seeking to alleviate the primary cause of price increases (a widening gap between growth in supply versus demand), but by finding a new boogeyman to justify increasing government involvement in and control over markets.

The evil-doer behind the conspiracy to hurt average people at the gas station? Oil speculators!

Obama vows to crack down on oil speculation

U.S. Democratic presidential candidate Barack Obama offered new steps on Sunday to crack down on speculation in oil markets, saying his plan would help rein in runaway fuel costs.

A jump in gasoline prices above $4 a gallon has spurred consumer anger and is a top theme in the race between Obama and his Republican rival in the November election, John McCain, who has proposed more U.S. offshore oil exploration as a way to boost energy supplies.

“I think everyone believes there’s too much speculation in the oil markets,” said New Jersey Gov. Jon Corzine, an Obama ally who announced the proposals in a conference call with reporters. “A lot of the price of oil, I think, people put at the doorstep of speculators bidding up and holding supplies off the market.”

Corzine said Obama’s plan aims to close the so-called Enron loophole, which exempts some energy speculators who trade electronically from U.S. regulation. It takes its name from the now-collapsed energy firm that benefited from the law.

Obama would require U.S. energy futures to trade on regulated exchanges. The campaign also said he backed legislation that would direct the Commodity Futures Trading Commission, the top U.S. futures market regulator, to investigate proposals such as increasing margin requirements in the market.

In addition, the Illinois senator wants to see more transparency and oversight of institutional investors in commodities markets.

“Too much speculation!” cries Corzine. These people are vultures, preying on the misery of average Americans! Or are they? To listen to democrats, you wouldn’t even know speculators served a valuable economic purpose.

Speculators correct false prices in markets, allowing them to function more efficiently. This is not to say that prices are alway at the appropriate level in the short run. Irrational exuberance can drive prices to unjustifiable heights, as we’ve seen in both the 90’s tech-bubble and the recent housing-bubble. But both of these bubbles were popped, and price followed with sustained down periods.

Market critics often sight the alleged near-sightedness of capitalism. Speculators incorporate future considerations into the current price of goods. If a war is likely to break out in several oil producing countries, thereby disrupting supply, speculators who buy now, and thus increase current prices, in anticipation of selling when supplies are more scarce, give markets time to react to coming changes and encourage reductions in consumption. This behavior softens the blow of sudden changes in market conditions.

Whether or not the current prices are at the correct (most efficient) level remains to be seen, but central authorities don’t have the capacity to make that determination. People may want lower prices for themselves, but that doesn’t make such prices are the correct ones. Pressuring the market either through price controls or regulation to implement lower prices will result in greater inefficiencies such as shortages. If people really desire such prices, they should argue for increases in supply, not greater regulation or a disruption in the functioning of speculators.

A mandate passed in 1994, in which Al Gore provided a celebrated tie-breaking vote, and over a decade’s worth of subsidies has not succeeded in replacing oil with ethanol. But where government has failed, the market appears to be succeeding:

Scientists find bugs that eat waste and excrete petrol

Unbelievably, this is not science fiction. Mr Pal holds up a small beaker of bug excretion that could, theoretically, be poured into the tank of the giant Lexus SUV next to us. Not that Mr Pal is willing to risk it just yet. He gives it a month before the first vehicle is filled up on what he calls “renewable petroleum”. After that, he grins, “it’s a brave new world”.

Mr Pal is a senior director of LS9, one of several companies in or near Silicon Valley that have spurned traditional high-tech activities such as software and networking and embarked instead on an extraordinary race to make $140-a-barrel oil (£70) from Saudi Arabia obsolete. “All of us here – everyone in this company and in this industry, are aware of the urgency,” Mr Pal says.

What is most remarkable about what they are doing is that instead of trying to reengineer the global economy – as is required, for example, for the use of hydrogen fuel – they are trying to make a product that is interchangeable with oil. The company claims that this “Oil 2.0” will not only be renewable but also carbon negative – meaning that the carbon it emits will be less than that sucked from the atmosphere by the raw materials from which it is made.

Actually what’s really most remarkably about what they are doing is the fact that they are doing it without government.  At least, liberals must find that remarkable.

Who knows whether this can be applied on a large enough scale to be useful, and the article goes on to describe the difficulties. But what strikes me is the fact that no government official could have ever directed this. You cannot centrally plan this kind of innovation. Indeed, government efforts to direct resources distort the normal market behavior by giving incentives to focus on areas that may or may not be productive. Conversely, that leaves less resources for other areas.

Contrast: When markets are left alone they produce bugs that crap oil. When government directs action we get a worldwide food crisis.

H.R. 2264: No Oil Producing and Exporting Cartels Act of 2007 (NOPEC):

The Sherman Act (15 U.S.C. 1 et seq.) is amended by adding after section 7 the following:

`Sec. 7A. (a) It shall be illegal and a violation of this Act for any foreign state, or any instrumentality or agent of any foreign state, to act collectively or in combination with any other foreign state, any instrumentality or agent of any other foreign state, or any other person, whether by cartel or any other association or form of cooperation or joint action–

`(1) to limit the production or distribution of oil, natural gas, or any other petroleum product;

`(2) to set or maintain the price of oil, natural gas, or any petroleum product; or

`(3) to otherwise take any action in restraint of trade for oil, natural gas, or any petroleum product;

when such action, combination, or collective action has a direct, substantial, and reasonably foreseeable effect on the market, supply, price, or distribution of oil, natural gas, or other petroleum product in the United States.

The bill passed the House 345-72.

Unsurprisingly it would only apply to foreign states, exempting the organization most responsible for restricting supply: the U.S. Congress.

I’m a few days late on noting F.A Hayek’s May 8th birthday, but the occasion provides a great opportunity to highlight the continuing relevance of his work. At a time when many in the West believed in the idea of a “democratic socialism,” Friedrich Hayek warned, in The Road To Serfdom, that economic planning of the type advocated by many on the left would inevitably lead to totalitarian dictatorship, on top of being poor economics.

Unfortunately, many leftists today are just as intent on traveling down the road to serfdom as they ever have been. Representative Paul Kanjorski (D-PA) is at the front lines of the liberal war on oil companies. His proposed legislation, the Consumer Reasonable Energy Price Protection Act of 2008, not only imposes an economically damaging windfall profits tax, but creates a Reasonable Profits Board to sit in judgment of private activity and determine how much profit is reasonable for a company to make.

Since Represenative Kanjorski thinks this is a good idea, maybe he’ll like my own proposal: a Qualified Candidates Board. Rather than trusting those pesky voters to determine which public office candidates are qualified, just as he doesn’t trust consumers, the board would be tasked with determining which candidates are allowed to run for office. As its first order of business, I submit the name of Paul Kanjorski as one to be barred from office for his gross economic and political ignorances.

President Bush (White House comments can be found here) recently signed into law the Energy Independence and Security Act of 2007. If we lived in a world where titles have meaning, this would be a positive occasion. Sadly, this bill provides neither security nor independence. Rather, it forces on consumers a product they do not want, subsidizes a number of pipe-dream “alternative fuel” projects that, if they were truly sources of potential fuel, would be funded by the market, and adds a $1.4 billion tax burden on businesses and workers.

Ranking member of the Environment and Public Works Committee, Senator James Inhofe, finds much to fault in this legislation:

“I simply could not support an ‘energy bill’ that will further drive up the already high price of gas at the pump or the cost of energy in our homes,” Senator Inhofe said. “Absent from this ‘energy’ bill are domestic energy resources - such as oil, natural gas, nuclear and clean coal technologies - that are essential to securing an American energy supply that is stable, diverse, and affordable.”

“Further, I am disappointed that this bill significantly increases the renewable fuels mandate in an irresponsible manner. Through my leadership position on the EPW Committee in 2005, I successfully worked with my colleagues to create a comprehensive program to increase the use of renewable fuels in a measured way that makes economic sense. This bill, however, contains a nearly five-fold expansion in the bio-fuels mandate. The fact is there are a growing number of questions surrounding ethanol’s effect on feed prices and our agricultural community, its economic sustainability, its transportation and infrastructure needs, and its water usage. As a result, I believe it’s just too early to significantly increase the mandate. The fuels industry needs more time to adapt and catch-up with the many developing challenges facing corn-based ethanol.”

“Unfortunately, this bill raises $1.4 billion by extending the ‘temporary’ Federal Unemployment Tax Act (FUTA) surtax on businesses which was first established in 1976 to repay loans from the federal unemployment trust fund. Even though this money was fully repaid in 1987, Congress has extended this temporary tax five times, imposing an annual $1.4 billion tax burden on America’s workers and employers.”

“This bill could have been even worse. Fortunately, however, I was able to work with my Senate colleagues to ensure major sections of the bill were stripped out. Democrat attempts to include a tax increase of $21 billion dollars, mostly aimed at the oil and natural gas industry, were defeated, as well as the attempt to include a Renewable Portfolio Standard that would have significantly increased the cost of electricity in Oklahoma and across the country.”

Representative Barton said this of the bill on the House floor:

Let’s take the issue of fuel economy standards. If there is a crown jewel in this bill, it apparently is that we’re going to raise CAFE standards significantly for the first time in 30 years. On the surface, that may appear to be a good thing, but let me point out a few things.

There are over 350 models of automobiles and trucks that are currently available for sale to the American public. There are only eight vehicles that get 35 miles to the gallon. They are the Honda Fit, the Honda Civic, the Honda Civic Hybrid, the Toyota Yaris, both manual and automatic, Toyota Corolla, Toyota Camry Hybrid, and the Toyota Prius. That’s it.

Now, let’s look at the top eight selling vehicles that the American public have bought so far this year. Number one is the Ford F-series pickup. Number two is the Chevrolet Silverado pickup. Number three is the Toyota Camry, not the Camry Hybrid. Number four is the Dodge Ram pickup. Number five is the Honda Accord. Number six is the Toyota Corolla. Number seven is the Honda Civic. Number eight is the Nissan Altima. Only two or three of those get 35 miles to the gallon.

I will stipulate, as smart as our engineers in Detroit are, it is going to be very, very difficult, if not impossible, for the Ford F-series pickups, the Chevy Silverado and the Dodge Ram pickup to get 35 miles to the gallon by the year 2020.

Of course you won’t have any Ford F-series pickups getting 35 MPG. Nor do the democrats care. They don’t believe in choice and freedom. They’d mandate everyone putz around in a Prius if they didn’t have that pesky problem of elections to deal with. He goes on to say:

What the bill before us is is a mandatory conservation bill. Now, conservation in and of itself is a good thing. I won’t deny that. But conservation without some supply is a bad thing, and that’s what this bill is. We’re preempting State and local building codes with Federal building standards for so-called “green buildings.” We’re mandating 35 billion gallons of alternative fuels that right now the technology simply doesn’t exist. Hopefully our engineers and scientists can make that happen, but what if they don’t?

We are also basically just changing the way that we operate in a market economy for energy in this country to the government knows the best and the government is going to tell the American people what’s best for them, whether the American people like it or not. I think that’s a mistake, Mr. Speaker. And for that reason, I would hope we vote against the bill.

There is no energy independence in this bill. There is no exploration of domestic fuel sources that we can make substantial use of now or in the immediate future. There is no new call for nuclear power. There is absolutely nothing tangible in terms of new energy sources from this legislation. We cannot merely conserve our way into energy independence, not if we expect to grow our economy at the same time.

In addition to these issues, that old socialist boogey-man of “price gouging” is yet again attacked. According to Project Vote Smart the bill includes the following on “price gouging”:

- Establishes that in times of energy emergency as declared by the President, price gouging and market manipulation is prohibited and punishable by a civil penalty up to $1,000,000 fine or a criminal penalty of up to a $5,000,000 fine or up to 5 years in prison (Title 1(Subtitle B(Sec. 609))).

- Defines “price gouging” as charging an unconscionably excessive price charged by a supplier. Defines “unconscionably excessive price” as a price that has a gross disparity from the average price at which the item was offered for sale in the usual course of the supplier’s business prior to the President’s declaration of an energy emergency, a price that grossly exceeds the prices at which similar crude oil gasoline or petroleum that is obtainable from other purchasers, represents an unfair leverage on the part of the supplier, or if the price cannot be attributable to increased wholesale or operational costs (Title 1(Subtitle B(Sec. 602))).

I’ve written on price gouging before (here, here and here), but the sheer stupidity of this idea needs to be challenged yet again.

The argument behind “price-gouging” legislation is one of emotion rather than logic. Price-gouging, the argument goes, is when evil business operators raise prices in the midst of some crisis, emergency or other sudden event. This takes advantage of consumers extraordinary need of some good and shouldn’t be allowed. Or should it?

Let’s put this another way and do a little economics 101. What purpose do prices serve? Prices are a means to signal where goods and resources should be utilized. Rather than having some central planner direct scarce resources, the price system (in conjunction with the profit motive) works to get the right amount of resources into the right places to satisfy consumer preferences. So, when demand for certain goods increases during an emergency, what purpose does the subsequent rise in price serve? It serves to signal the need for more of that resource in a given area. Removing these signals has consequences. Price controls enacted to prohibit “price gouging” exacerbate shortages.

Take for example the case of a Miami man who responded to a shortage of generators by traveling to North Carolina and returning with 35 generators much desired by the area struck by Hurricane Wilma. That’s 35 generators that would not have been available to the people of Miami had this man not acted. If government had it’s way, he never would have. Miami-Dade County sued him for “price-gouging”. Never mind the fact that any purchase is voluntary and that his customers obviously found his prices reasonable (the act of purchasing says so). Never mind that without being able to charge those prices he wouldn’t have spent his time and energy bringing those goods where they were needed. This is the folly of “price-gouging” legislation. It harms economic activity and thus does a disservice to those it claims to protect. One estimate finds that, had price controls such as those proposed by anti-price-gougers been in place following hurricanes Katrina and Rita, an additional $1.5-$2.9 billion in economic damage would have been caused.^[1]

Though President Bush ignored their findings in signing this energy bill, the White House Council of Economic Advisers, finding that such a law “contradicts standard economic principles” and thus that “‘price gouging’ legislation should be opposed,” sternly warned against the consequences of such legislation just 6 months ago:

Such legislation is harmful for primarily two reasons:

* “Price gouging” legislation that effectively places controls on prices exacerbates shortages and potentially increases lines at gasoline stations.

* The difficulty in defining “price gouging” would create an unnecessary regulatory regime with potentially high litigation costs and great uncertainty for sellers, enforcement agencies, and the courts. These added costs and uncertainties would deter investment in new supply, increasing prices in the long run.

“Price gouging” legislation would reduce incentives to supply areas facing a fuel shortage. For example, in the days after natural disasters, such as hurricanes, price increases induce domestic refineries outside the affected region and foreign suppliers to rapidly ship additional gasoline to affected areas. If this legislation were implemented, it could deter retailers from increasing prices and it might not be worthwhile for suppliers to divert their shipments. Retailers in the affected region would have even less gasoline and drivers would face additional hardship. With gasoline prices kept below market levels, there would be shortages. Consumers would be forced to line up at gas stations, but gasoline would run out before satisfying demand and many would be forced to do without.

Without the flexibility for prices to increase, supply disruptions last longer than they would otherwise. By disrupting the price mechanism, price controls make lines longer during emergencies, misallocate the available supply, and prevent those with the greatest need for gasoline from getting access. Also, by making it illegal for prices to increase when supplies are tight, price gouging legislation makes retailers reluctant to lower prices when supplies are readily available, for fear of not being able to adjust to future supply changes.

The White Paper also notes that law already prevents anticompetitive behavior, and that firms may not use disasters as an opportunity to collude. Real price fluctuations, however, are to be expected following a disaster and serve a vital role. Politicians can make easy sound-bytes out of attacking such price spikes, but they do nothing but harm by attempting to legislate them out of existence. So not only does this bill provide nothing to help with energy independence, it provides real and tangible harm to the functioning of the economy.

^[1]Montgomery, W. David, Robert A. Baron, and Mary K. Weisskopf. 2007. POTENTIAL EFFECTS OF PROPOSED PRICE GOUGING LEGISLATION ON THE COST AND SEVERITY OF GASOLINE SUPPLY INTERRUPTIONS. Journal of Competition Law and Economics 3, no. 3 (September 1): 357-397. http://jcle.oxfordjournals.org/cgi/content/abstract/3/3/357.

I’ve addressed the folly of “price gouging” legislation here enough already, but something in this article caught my eye. Though loaded with most of the usual nonsense and democrat ignorance, a particular statement by a republican senator stood out.

For the first time, it would be a federal crime to charge “unconscionably excessive” prices for petroleum products at the wholesale or retail level. Critics of the provisions, including the Bush administration, said the measure amounts to price regulation and could lead to supply shortages.

“The federal government has all the legal tools necessary to address price gouging,” said the White House.

The oil industry has repeatedly argued that many investigations have failed to uncover price fixing by oil companies. “If there is no manipulation, there should be no fear of a strong federal statute,” Cantwell countered at a news conference Tuesday.

Sen. Larry Craig, R-Idaho, called the price gouging provision “a feel-good vote” that he probably would support. “But does it bring gas prices down? Probably not,” he said.

And just who does this vote “feel-good” for? It shouldn’t feel good for anyone who believes in free enterprise. It shouldn’t feel good for anyone who believes in the fundamental principles this country was founded on. It might feel-good for those who think the federal government should have final say in everything, including the prices of our goods. So I’d expect it to feel great for a socialist (hence, most democrats), but it’s a sad state of affairs when such nonsense feels good to a republican. No wonder the party seems lost. No one has any principles any more; it’s all just “feelings”.