- The Washington Times - Wednesday, May 8, 2002

Lots of us have watched "That '70s Show" so many that some politicians think we're eager to live it as well. Americans of a certain age can remember, without great fondness, the energy crises of that decade. It featured government price controls, claims of obscene profits, and angry congressional investigations of alleged oil company conspiracies.

Most people, as they waited in long lines for the chance to buy a few gallons of fuel, learned a lesson about the value of trusting market forces over government regulation. But some forgetful types apparently need a refresher.

Gasoline prices are on the rise lately. Now, prices of innumerable commodities rise and fall all the time, as you may notice when you visit the produce section of your supermarket. But most prices are not posted in giant numerals at every busy intersection. So many people tend to notice, and overreact to, any jump in pump prices.

Lately, there has been one. Since mid-March, the average fee nationally for unleaded regular has risen to $1.39 a gallon which is up from $1.11 in February. Painful, huh? Actually, you might consider the current price grounds for cheering. It's down 30 cents from a year ago.

There is no cheering, though, on Capitol Hill, where memories are short and demagogues are plentiful. Last week, a Senate investigative subcommittee released a 396-page report lamenting the recent instability of petroleum prices and accusing oil companies of shamefully manipulating markets to gouge consumers.

Meanwhile, on the other side of the country, the Hawaii legislature voted to put controls on pump prices, starting in 2004. It didn't occur to the lawmakers that one reason the state has the highest gasoline prices in the country is that it has the highest gasoline taxes. Corporate profiteering, bad; government profiteering, good.

The Senate subcommittee report was proof that, in the words of energy economist Michael Lynch of DRI-WEFA, an economic consulting firm, "If you go on a witch hunt far enough, you'll find a witch." Among other things, it claimed Marathon Ashland Petroleum withheld supplies of reformulated gasoline in 2000 "so as not to depress prices." The company replied that it produced 33 percent more of the stuff that year than the year before and "sold every drop we made." The Washington Post noted, "The report found no evidence of antitrust violations or collusion."

Never mind that. Among the outrages unearthed by our courageous investigators was an internal Marathon memo from 1998 that said, "Nature stepped in to lend the oil producers a helping hand in the form of Hurricane Georges," referring to a devastating tropical storm that killed hundreds of people.

Sen. Carl Levin, Michigan Democrat, who apparently had lived 67 years without ever encountering black humor, pronounced this "an amazing document" and angrily demanded an explanation. A Marathon executive dutifully apologized "that my company would take pleasure in a hurricane."

The report, like the Hawaii price caps, is based on the assumption that oil companies have the power to enrich themselves at will by shutting off supplies, driving up prices, and turning motorists upside down to shake all the change out of their pockets. It claims, at the same time, that "the price of gasoline has also become more volatile than ever."

But if oil companies are so good at colluding to fleece the consumer, why the volatility? Why can't they simply push prices up to the sky and keep them there? Last year, when the price dropped by 60 cents between May and December, the oil barons looked like they couldn't execute a plot to rob a lemonade stand.

An industry that enjoys vast market power ought to be a lucrative one. But as the federal Energy Information Administration reports, the return on investment in refining and marketing petroleum averaged a paltry 4 percent in the 1990s.

How could that be? It might have something to do with the fact that consumers have enjoyed a long stretch of luxuriously low gasoline prices, owing to an abundance of the stuff. Gasoline sells today for about what it did in 1981. If pump prices had just kept pace with inflation over the last two decades, we'd be paying about $2.75 a gallon, not $1.39.

Our good fortune isn't an accident. It's the result of getting the government to butt out. Price controls discouraged production, with the perverse effect that prices rose. When President Reagan got rid of the caps, prices soon began to drop. And though they have jumped up and down on occasion, they have generally stayed low even in the Aloha State.

But if we're tired of having it easy and want to bring back high prices, long lines and energy chaos, we know how to do it. The Hawaii legislature and the Senate subcommittee are off to a good start.


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