Thursday, April 27, 2006

Surging oil prices reveal a wave of stupidity

That would be my headline for the week. As oil prices have hit record highs over the last week, the airwaves have been buzzing with idiotic discussions. Angry consumers have bashed oil firms over the outcomes, and demanded more regulation in the oil market. Some have demanded investigations into pricing. Very few have discussed the level of tax and regulation that is already placed on the shoulders of the oil industry.

The Mises institute has a great summary of the state of the oil industry in the US, which is being crippled by regulation:

Oil refiners have complied with congressional directives using either Methyl tert-butyl ether (MTBE) or ethanol. (Furthermore, MTBE has been found to leach into water tables, creating taste and odor problems, making it less desirable as an additive because of the liability involved. Congress has refused to grant oil refiners immunity from MTBE lawsuits, thus throwing a sop to the trial lawyers' lobby. Ethanol, on the other hand, cannot be moved via pipeline and, thus cannot be mixed into gasoline at the refinery, unlike MTBE.) Both additives supposedly help fuels burn more cleanly (that is, burn more completely, leaving less waste), but their effectiveness is questionable:

Oxygen helps gasoline burn more completely, reducing harmful tailpipe emissions from pre-1984 motor vehicles. In more modern vehicles, the emissions reduction is negligible.


So, let us trace this sorry story to its most recent beginnings. (1) Congress requires new fuel mixtures during the warm weather months which are costly and disrupt available supplies, but those mixtures do not make the air any cleaner; (2) The President and Congress decide to invade Iraq and now are making threats toward Iran, thus guaranteeing political instability and violence in the largest oil-producing region of the world; (3) Congress requires even more ethanol mixtures, despite the fact that it disrupts supplies and ethanol manufacturers cannot meet the goals; (4) gasoline prices spike, and members of Congress call for arrest and imprisonment of oil executives.

Not surprisingly, almost all of the anger from consumers — if editorial cartoons are an indication of the direction of the rage — is pointed toward oil companies and their executives. On the other hand, members of Congress, which created this current crisis, are calling for the near-destruction of oil companies, imprisonment of executives, as well as a whole new set of taxes that would further reduce available fuel supplies — all in the name, of course, of lowering gasoline prices.