Well, gasoline in Richmond has has hit $3.00 a gallon, or just shy of it, and I spent $48 filling up the gas tank of my Jeep — the most I’ve ever paid for in my life. I’m not happy about it, but I don’t see high gas prices as a reason to start foaming at the mouth and chewing on the carpet. Others feel less constrained.
The hysteria over rising gas prices has reached a fever pitch. The economic ignorance of the sound bites and commentary I’ve seen on national television knows no bounds. Demagogues are calling for self-destructive taxes on oil company profits, oblivious to the reality that, in a capitalist society, profits are a critical signal that guide the flow of capital. (1) If you confiscate Exxon Mobil’s profits, you reduce the capital available to the world’s largest oil company to invest in more exploratory drilling, new oil wells, new pipelines, new refineries, etc. (2) If you tax oil industry profits, you also reduce the incentive for owners of outside capital to invest in new capacity. Why bother if the profits will be taxed away?
Here in Virginia, a semblance of sanity still reigns. Gov. Timothy M. Kaine has not yet proposed anything as breath-takingly stupid as the proposals emanating from Washington, D.C. The Governor has said he will investigate reports of “price gouging,” which, given the fact that the the concept of “price gouging” is meaningless and impossible to define, means he will, for all practical purposes, do nothing…. Which is exactly what he should do. Nothing. Virginians and Americans will adapt to higher gas prices if government does not interfere.
(The Governor also is considering applying for a waiver of federal regulations requiring cleaner gasoline be sold in Virginia’s major metro areas, but has not yet made a determination. See the Times-Dispatch report. Unfortunately, he’s sticking to his guns on trying to raise $1 billion for transportation projects without raising gasoline taxes — a topic for another post.)
As I have been hammering away relentlessly on this blog (See “A World with One Billion Cars“), the world economy is moving from a 20-year era of cheap petroleum to a plateau of more expensive petroleum. This shift is driven by the combination of (a) escalating world consumption of petroleum, especially in rapidly developing economies like China and India, and (b) the peaking of global oil production capacity, the increasing expense of exploiting the remote and isolated oil reserves that remain, and terrorist/political instability in oil-producing countries. This is not the oil companies’ fault. This is not Dick Cheney’s fault. This is not the auto industries’ fault. It is not the environmentalists’ fault. It’s the reality of geology and geopolitics.
The American public can adapt to the new global realities by changing their energy-intensive lifestyles, and politicians can help them by speaking honestly and forthrightly about why the price of gasoline is increasing, instead of demagoguing the issue for short-term political gain.
Here in Virginia, the General Assembly has been examining what Virginia can do to increase energy production. That is OK, as far as it goes. But there is nothing that Virginia can do to increase the global supply of oil, and probably little it can do to increase the petroleum refining capacity needed to convert oil to gasoline. What the political and business leadership of Virginia has so far failed utterly to do is admit that Virginia is acutely vulnerable to oil price shocks. Virginians consume more gasoline per capita than the national average, in part because our transportation policy is geared toward matching every increase in automobile travel with an increase in transportation capacity with no thought of modulating travel demand.
But reality is a stubborn thing. With each increase in the price of gasoline, the bankruptcy of the old order becomes increasingly evident. Let us hope that Gov. Kaine, who prides himself on straight talk, begins leveling with the people of Virginia.
Leave a Reply
You must be logged in to post a comment.