Blame Congress for soaring gas prices

COMMENTARY Environment

Blame Congress for soaring gas prices

Apr 29, 2008 4 min read

Former Distinguished Fellow

Ernest served as a Distinguished Fellow at the Heritage Foundation.

It's time for consumers to strike back against the real culprits behind rising gasoline and food prices.

Who deserves blame? Middle East sultans? Oil company executives? Commodities speculators?

How about blaming our very own United States Congress? For decades, Congress has led our government into disastrous decisions by being the patsy of radical environmentalists, naysayers and prophets of doom. Recent presidents have done little to resist.

Now American consumers pay the price while politicians try to evade and shift the blame.

However, we can lower gas prices by reversing misguided federal policies, and lower food prices, too. It's all about what we learned (or should have) in Economics 101 - supply and demand.

The stifling of domestic oil and gas production and the suppression of new refineries and nuclear power plants have choked off the supplies of domestic energy, forcing us to rely on foreign oil. In the international market, we must bid against the growing energy appetites of China and India, and we're held hostage by the oil cartels of OPEC. The world market is unstable and expensive, and we shouldn't be at its mercy.

Politicians keep promising a plentiful supply of alternative energy, but that remains far in the future, and much of it will be more expensive than $4-per-gallon gasoline. Ponder this: How could you afford any fuel that needs government subsidies to compete with $120-a-barrel oil? Those will never be affordable for consumers.

We don't have a shortage of oil and gas reserves; they've just been placed off limits. They include parts of Alaska, other public lands, the Gulf of Mexico and offshore areas. The American Petroleum Institute, or API, reports that opening up these areas would provide enough oil to power 60 million cars for 60 years, plus enough natural gas to heat 60 million homes for 160 years. But 85 percent of coastal waters have been declared off limits, along with similar restrictions on 75 percent of the onshore prospects.

That's why 60 percent of our oil is now imported. And these restrictions caused America to lose more than 1 million jobs in oil and gas during the past 25 years. How many "green collar" jobs have we gained to replace them?

Similar federal policies have blocked construction of oil refineries and nuclear power plants for more than 30 years, again increasing our dependence on foreign supplies of energy.

Yes, our modern technology can produce the energy we need without harming the environment. Unfortunately, liberals have sought to demonize the oil and gas industry, hoping to destroy its credibility so the public will see it as a greedy bunch of rich polluters.

With gasoline so expensive, oil executives were called before Congress to discuss record-high profits. The hope was to justify taxing them for another $18 billion, on top of the $90 billion they already pay. Politicians then would give that $18 billion to subsidize other types of energy that are too expensive to operate profitably.

Yet the profit margin for oil and gas is about 7 cents for each dollar invested, according to Business Week. That's about the same margin as Avon Cosmetics, and Bed Bath & Beyond. And toothpaste maker Colgate-Palmolive. Apple, with high-tech gurus, was twice as profitable. So were Coke and Pepsi. And Microsoft and Google made four times the average oil company's rate of return.

But is anybody angry about the high cost of toothpaste, iPods or soft drinks? Why don't more profitable companies get raked over the coals by Congress? Because Congress doesn't need them as scapegoats. Lawmakers have messed up America's energy supply so badly that they need someone and something else to blame. They're creating a diversion - trying to brainwash the public into how to think and who to accuse.

Another reason for high gas prices: federal and state regulations that require dozens of "boutique fuels," dictating different blends of gas for different regions. As a result, we no longer have an efficient national market that enables a surplus in one area to be shifted to another part of the country. Boutique fuels require expensive refinery shutdowns to change output from one formula to another, lowering production and risking overproduction for one area and underproduction for someplace else. Consumers pay the price.

A big part of boutique fuels is the ethanol mandate, now set by Congress at $18 billion a year, which shifted the corn supply from food to fuel. The mandate set off a domino effect as the government pays farmers to grow corn rather than other grains, and to sell it for fuel instead of food. And because corn is the major feed for livestock, the prices of meat, eggs, milk and so on climb along with prices for grain, flour, baked goods, etc.

Nobody wants to be blamed for food riots and world hunger, but the public is realizing those are the outrageous results of ethanol subsidies.

Besides, ethanol reduces all-important gas mileage. As the Heritage Foundation's Ben Lieberman put it, "America's energy policy has been on an ethanol binge, and now the hangover has begun."

Unfortunately, we've lost time while we were on that binge. Now, if we want to get serious about lower gasoline prices (and food prices), here's a simple five-point checklist:

1. Understand the causes, especially the role of government

2. Open up reserve areas

3. Build refineries and nuclear power plants

4. End expensive and wasteful mandates, especially ethanol

5. Let the free market develop alternatives for the future

Finally, remember patience: These problems didn't develop overnight and can't be solved overnight. America's consumers should wake up and realize taxes aren't the only way elected officials reach into our pockets. It's time to slap away those hands.

Ernest Istook is recovering from serving 14 years in Congress and is now a distinguished fellow at The Heritage Foundation.

First appeared in World Net Daily