Morriss on Gasoline Prices

by Don Boudreaux on May 30, 2006

in Energy, Prices, Regulation

My friend Andy Morriss (who blogs with me over at Market Correction) has this important letter in today’s Wall Street Journal:

Your editorial on the
congressional obsession with claims that gasoline prices are high
because of a conspiracy among oil companies rightly pointed out the
lack of a factual basis for the endless investigations ("The Gas-Gouging Myth,"
May 24). You are too gentle with Congress, however. An important part
of the gas price story is the responsibility Congress bears for a
century of failed federal energy policies. Not only did price controls
in the 1970s give us gas lines but the Mandatory Oil Import Program in
the 1960s produced such absurdities as the "Mexican Merry-Go-Round," in
which oil was shipped by tanker from Mexican oil fields to Brownsville,
Texas; unloaded in customs bond into trucks; driven across the border
back into Mexico, around a traffic circle, and back into the United
States, and reloaded on tankers for shipment to the East Coast,
qualifying the oil for a quota exemption as an overland import.

The impact of thousands
of equally sensible rules on the U.S. refining industry has left it
with insufficient capacity, insufficient pipeline connections, and huge
barriers to entry caused by regulatory requirements. When EPA and state
"boutique" fuel requirements are piled on top of such a fragile
structure, it is no surprise that the result is high prices and a lack
of capacity to respond to supply disruptions like last year’s
hurricanes. Rather than congressional hearings on the oil industry, it
is time for some hearings on Congress’s repeated assaults on energy

Andrew P. Morriss
Professor of Business Law and Regulation
Case School of Law

Market prices reflect reality, the good, the bad, and the indifferent.

Be Sociable, Share!



22 comments    Share Share    Print    Email


Brian Moore May 30, 2006 at 12:03 pm

Moriss teaches at my alum. I never took a class from him, but I'm certainly proud of his stuff I've read.

Brian Moore May 30, 2006 at 12:04 pm

And I spelled his name wrong. That might explain my less-than-4.0 GPA there.

John P. May 30, 2006 at 4:00 pm

To paraphrase Carlyle, Congress goes its way, and reality goes its.

Brian Moore May 30, 2006 at 4:35 pm

… and then Congress passes a law stating that reality is undermining their policies and throws it in jail.

Ken May 30, 2006 at 8:06 pm

Why is it that in all their concern with those obscene and excessive profits the oil companies make, Congressional investigations never get around to mentioning the fact that state and federal taxes on gasoline are more than double these profits? What's another word for "two plus times obscenely excessive"?

John Dewey May 31, 2006 at 9:22 am

"state and federal taxes on gasoline are more than double these profits"

Of all the taxes I pay, directly or indirectly, the gasoline tax is the least objectionable. Nearly all the money collected is used to build and maintain highways. This tax is basically a user fee.

The problem with the gasoline tax may be that it's too low. I'm not positive, but I don't think this user fee has been adjusted for inflation or for the increased energy efficiency of today's vehicles.

Duncan Brown June 1, 2006 at 1:34 pm

Ken, to say that "state and federal taxes on gasoline are more than double these profits" sort of misses the point." Isn't it true that the tax is paid mainly by drivers, who are the users of the roads? In most states (and nationally too I think) the gasoline tax goes into a fund for highway constrution. People who don't benefit from these highways because they don't drive much (like me) escape the heaviest burden. I agree with John Dewey that that division of costs and benefits seems most just. In addition, the tax should in principle be the vehicle for internalizing some of the expernalities, if you will (such as pollution of various kinds). It could be a neat and simple way to capture those problems in the form of incentives to reduce them. Right?

It's way simpler to do that than to use nighmarishly complicated miles per gallon standards and nickel and time subsidies for windfarms, hybrid vehicles or whatever.

True_Liberal June 1, 2006 at 9:47 pm

While it's true that gasoline tax is essentially a user fee (self-subsidy) for the motorist, it's also true that taxpayers from Manhattan, NY to Manhattan KS subsidize urban mass transit that most have never used.

JohnDewey June 2, 2006 at 4:37 am

True Liberal,

I agree that funding mass transit is an inappropriate use for the gasoline tax. That's an unwise political concession made by our elected officials. They ignore that rail transit is grossly inefficient outside of a handful of very dense cities.

Lance June 2, 2006 at 5:23 pm

I don't think the comment about gas taxes was meant disparagingly, though Ken may feel they are unjust or wrongheaded. His point is simply that if the oil company profits are obscene then the taxes must be as well. I think Ken probably doesn't think oil company profits are obscene, what he feels about the taxes I can't say.

T White July 3, 2006 at 5:05 am

Since 2001, the five largest oil refining companies operating in America have recorded over $280 billion in profits. In the first three months of 2006 alone, Exxon Mobil made over $8 billion dollars in profits and Chevron made over $4 billion in profits. All the while consumers are paying the price at the pump. When you think about rising gas prices the first thing to understand is that the people we expect to solve this problem — the folks in Washington — are the very people who do not want it solved. To ask politicians to do something about the skyrocketing cost of gasoline at the pump is like asking Osama bin Laden to do something to prevent terrorism. Neither can provide solutions because they are both responsible for the problem to begin with. How many years has it been since we've been living with an energy crisis? Why hasn't it been solved? It’s because politicians are always looking for some issue to exploit, and when they have an issue dealing with a matter that hits everyone in the pocketbook they would much prefer to have the problem always on tap so they can demagogue it at election time.
Sen. Carl Levin, D-Mich., said he believes gas prices "would come down within a matter of days" if President Bush told oil companies that he was going to support a windfall profits tax. "But the president will not call the oil companies into his office because he's been too closely allied with those oil companies, and if he does it's going to be a window-dressing conversation," said Levin, who appeared with Specter on CNN's "Late Edition." On May 1, 2006, when gas prices topped $3 per gallon, there was a petition launched urging the President and Congress to take action to the lower sky-rocketing cost of gasoline. Over 106,000 citizens signed on, sending a clear message to Washington and to the boardrooms of big oil that these excessive profits have got to stop. Regular people need real relief and the way to do it is to cap the outrageous profits of oil companies, repeal these tax subsidies, and promote real competition. Hardworking middle-class families across The US are being squeezed at the pump, while big oil companies are reaping billions in record-setting profits. The average family is paying 72 cents more per gallon for unleaded gasoline than they were a year ago at this time. In fact, oil company profits have skyrocketed nearly 200 percent since President Bush's inauguration in January 2001, while family incomes have increased by 14 percent. Apparently, for the last 10 years, big oil (i.e., Exxon, Standard, Sunoco, etc.) has given more than $190 million to members of Congress. At least according to, one of the most active liberal Web sites. And since 75 percent ($142,635,314!) of those donations have gone to Republicans. Those donations have guaranteed us an energy policy that serves the big oil kingdom more than public interest. Until our representatives stop taking oil money, it’s going to be hard to make progress on anything that would slow down the profits of the big oil, global warming and clean energy alternatives.
The Energy Department just announced that crude oil supplies rose 1.4 million barrels to 347.1 million for the week ending June 16, 2006. Analysts had been expecting a drawdown, so this news caught them by surprise. What's more, crude oil supplies in the United States are now at their highest levels since May 1998, when oil was trading around $15 a barrel. Add in the fact that Canadian oil inventories are fully stocked, and the more imminent reality is of a sizable oil-price decrease — not a huge increase. Recently I interviewed four oil-tanker executives who control a combined 85 percent of the oil coming into the United States. They confirmed market rumors that the amount of oil being stored on large carriers on the high seas is abnormally high. One of the CEOs even predicted the possibility of $40 to $50 oil in the next 6 to 12 months. In another interview, Chevron CEO David O’Reilly suggested that gasoline and energy demands have flattened in the U.S., and may be showing signs of decline.
The Republican-led Congress continues to push a central theme of Bush administration economic policy: Help the ultra-rich whenever there's a window of opportunity, but don't throw a bone to the working poor unless it's an absolute political necessity. House GOP leaders are striving to exempt more multimillionaires from the estate tax after failing to win its outright repeal in the Senate. House Ways and Means Committee Chairman Bill Thomas, R-Calif., proposed legislation Wednesday that would permanently exempt as much as $10 million of a couple's estate from federal taxation, up from $4 million now. Meanwhile, GOP senators led the charge Wednesday against a predominantly Democrat-backed proposal by Sen. Edward Kennedy, D-Mass., to raise the shamefully low federal minimum wage of $5.15 an hour to $7.25 over a period of more than two years. The proposal drew support from 52 senators on a procedural measure, but needed 60 votes. The federal minimum wage, which now has less buying power than in the 1950s, hasn't been raised in nine years. While the out-of-touch GOP hierarchy in Congress doesn't see the necessity for a badly needed boost in the wage floor, voters and legislators have taken matters into their own hands by raising the minimum wage above the federal level in 21 states and the District of Columbia, the Los Angeles Times reported Wednesday. Several other states are considering minimum-wage increases. But there's one pay hike that many members of Congress have enthusiastically supported — that, of course, is a compensation boost for themselves. On June 13, House lawmakers accepted a $3,300 pay raise — to $168,500 annually — by rejecting a bid to challenge an automatic 2 percent cost-of-living increase.
Let's see now — what have members of Congress done to deserve a raise? Run up big budget deficits? Kowtow to slimy lobbyists such as Jack Abramoff? Pass an energy bill that includes tax breaks for oil companies making record profits, but fails to raise fuel economy standards to reduce our reliance on foreign oil? Oh, yeah, they really deserve a raise, don't they? Pardon the digression. Let's get back to the estate tax and minimum wage. President Bush's 2001 tax-cut legislation phased out the estate tax through 2010, when it will be repealed for one year, only to be fully revived in 2011. The estate tax is an ideal tax — it is levied only on a small, exceptionally wealthy tier of society that can most afford to pay it, but it nevertheless raises a substantial chunk of needed federal revenue. Under current law, only 12,600 estates, representing less than 1 percent of those who die, will face the tax this year, the nonpartisan Tax Policy Center estimates. In light of the big cuts in income-tax rates for the wealthy over the last 25 years and the record budget deficits incurred by the Bush administration in recent times, slashing the estate tax is the height of folly. Thomas' measure would shrink federal revenues by a staggering $280 billion through 2016, the staff of the bipartisan congressional Joint Committee on Taxation estimates. That could significantly increase federal red ink, saddling our children and grandchildren with even bigger debts. Meanwhile, most GOP members of Congress can't find it in their little hearts to raise the minimum wage to a paltry $7.25, as Kennedy proposes, even though the wage floor hasn't been raised since 1997. Raising the minimum wage isn't welfare, as some argue. The pay hike goes only to those who work. Raising the minimum not only would help those making $5.15, but also put needed upward pressure on the wages of millions of additional struggling working-class people earning less than $10 per hour. But why should Republican members of Congress help the working class when it's more profitable to reward the fat cats with another big tax cut? After all, who's more likely to make a hefty campaign contribution when the next re-election campaign rolls around — a multimillionaire or someone sweeping floors for a living?

Previous post:

Next post: