Tuesday, August 30, 2005

Nationally, the average price for regular gasoline around $2.50 per gallon. Are gasoline prices high? That’s not the best way to put that question. It’s akin to asking, “Is Williams tall?” The average height of U.S. women is 5 foot four. For men, it’s 5 foot 10 inches. Being 6 foot four, I would be tall relative to the general U.S. population. Put me on a basketball court, next to the average NBA player, and I would be short. So when we ask if a price is high or low, we must ask: relative to what?

In 1950, a gallon of regular gasoline sold for about 30 cents; today, it’s $2.50. Are today’s gasoline prices high compared to 1950? Before answering, we have to take into account inflation since 1950. Using my trusty inflation calculator (www.westegg.com/inflation), what cost 30 cents in 1950 costs $2.33 in 2005. In real terms, that means gasoline prices today are only slightly higher, about 8 percent, than in 1950. Up until the recent spike, gasoline prices have been considerably lower than 1950 prices.

Some Americans demand the government do something about gasoline prices. Let’s think back to 1979 when the government did something. The Carter administration set up price controls. What did we see? Long gasoline lines, if the station hadn’t run out of gas. It’s estimated Americans used about 150,000 barrels of oil per day idling their cars while waiting in line.

To deal with long lines, the Carter administration introduced the scheme of odd and even days: A motorist whose license tag started with an odd number could fill up on odd-numbered days; those with an even number on even-numbered days.

With the recent spike in gas prices, the government has chosen not to pursue stupid policies of the past. So, we haven’t seen shortages, or long lines or gasoline station fights and riots. Why? Price has been allowed to perform its valuable function — that of equating demand with supply.

Our true supply problem is of our own making. Much oil lies below the 20-million-acre Arctic National Wildlife Refuge (ANWR). The land proposed for oil drilling is less than 2,000 acres, less than one-half of 1 percent of ANWR. The U.S. Geological Survey estimates there are about 10 billion barrels of recoverable oil in ANWR. But environmentalists’ hold on Congress has prevented us from drilling for it. They also restricted drilling in the Gulf of Mexico and off California.

Another part of our energy problem involves refining capacity. Again, environmentalists have prevented us from building additional domestic refineries for 30 years.

Few realize the U.S. is also a major oil-producing country. After Saudi Arabia, producing 10.4 million barrels a day, and Russia with 9.4 million barrels, the United States’ 8.7 million barrels a day makes it the world’s third-largest producer of oil. But we could produce more. Why don’t we?

Producers have various ways to win monopoly power and the higher profits it produces. How can the Organization of Petroleum Exporting Counties (OPEC) gain more power?

I have a hypothesis, for which I have no evidence, but it should be tested. If I were an OPEC big cheese, I would easily conclude I could restrict output and charge higher prices were U.S. oil drilling restricted. I would see environmental groups as allies and make “charitable” contributions to help them reduce U.S. output. Again, I have no evidence, but it’s worth examining.

Walter E. Williams is a professor of economics at George Mason University and a nationally syndicated columnist.

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