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Source link: http://archive.mises.org/16033/what-can-we-do-about-gasoline-prices/

What Can We Do about Gasoline Prices?

March 15, 2011 by

Government officials blame oil speculators, corporate greed, and OPEC, anyone but themselves. FULL ARTICLE by Mark Brandly


Felton March 15, 2011 at 8:16 am

Anticipating the question – If the gasoline tax is applied solely to infrastructure construction, does the tax have a legitimate purpose? If there is no gasoline tax, what vehicle could be used for such funding? Thanks!

Ryan March 15, 2011 at 8:47 am

Unlike with business entrepreneurs, economic calculation doesn’t permit the State to make vital decisions. The State with that tax money has no idea where the money should go, what capital and capital goods it should buy, how much of it to buy, etc. Everything it does with the tax money is completely arbitrary. The tax money it collects has anything but a legitimate purpose.

Tony Fernandez March 15, 2011 at 3:08 pm

Toll roads. Walter Block has talked about this extensively, as has Murray Rothbard. Look up The Privatization of Roads and Highways.

Scott Turley March 16, 2011 at 12:03 am

I read Walter Block’s essay on toll roads and it’s simply not convincing. There are real barriers to competition when it comes to roads. Further the constructions and maintenance costs are high. Affluent areas would get too many roads, poorer areas would get too few. It would be too difficult to provide competing transportation routes in many areas so there would be an incentive for a private company to raise toll rates and skimp on maintenance. Consumers would be forced to put up with it because what else they are going to do? Seriously, fly? (That was one of his suggestions).

ABR March 16, 2011 at 1:20 am

The libertarian argument is that public roads ought never to have been built, and that cities ought to have evolved privately. Where such an evolution would have led, no one knows precisely.

In the case of roads, it will be exceedingly difficult to undo the damage that a public system effected. You shouldn’t blame Dr. Block for that.

Scott March 15, 2011 at 9:44 am

While all of these are valid points, something also needs to be said about government intervention on the other side of this coin – subsidies. RAND corporation in a study identified over $90 billion in annual defense spending dedicated to “Protecting the Global Flow of Oil”. Billions more are spent every year on foreign aid to keep Middle East tyrants pumping oil to keep the prices low and to keep oil pegged to the US dollar to hide inflation. And globally, US severance taxes are among the lowest in the industry with many nations charging 40-50% of revenues.

Gasoline achieved it’s status as the “best” fuel by being the waste byproduct of a different market (the fuel oil market). As a byproduct, it is cheap – as a primary product, it is not. The sooner we all see the REAL cost of gasoline, and the fact that it’s much higher than what we’re paying at the pump even if the taxes are removed, the better off we’ll all be as the market moves to alternatives.

Daniel Hewitt March 15, 2011 at 10:03 am

That could very well be – that gasoline ends up costing more than another source of fuel. Deregulating it all and letting the market sort it out is clearly the solution. What result that solution will lead to is anybody’s guess. The energy market is so incredibly distorted that I would not want to make any prediction.

Scott Turley March 15, 2011 at 10:25 am

I’m wondering what libertarians say about the secondary costs of oil consumption, especially it’s effects on the environment. This can happen obviously every day through emissions and during catastrophic events like the oil spill. A tax on oil and gas makes a ton of sense in this context because the true environmental costs are born by everyone collectively and takes a government response to deal with them.

Prime March 15, 2011 at 11:13 am

Search this website for articles on “externalities.” It’s been thoroughly covered, and no, it does not “take a government response to deal with them.”
Anyhow, the taxes in place go toward facilitating the consumption of oil, not mitigating their impact on the environment.

Scott Turley March 15, 2011 at 11:53 am

Will do, I’m only a recent follower of this site, so I haven’t yet read how markets would respond to externalities such as these.

Daniel Hewitt March 15, 2011 at 12:35 pm

-eliminate the state-granted privilege that permits some to soil the property of others without compensating them
-eliminate tragedy of the commons by eliminating the commons

There is lots to read on this site. To get you started:

Scott Turley March 16, 2011 at 12:34 am

Thanks Daniel, I’m making my way through the first link (it’s rather long), and the answer it seems it lawsuits and the court system. I admit the idea has some appeal. I agree the government tends to get environmental enforcement wrong a lot. So, enforcement by the individual people who are affected has some merit.

The problem I have with it is that large corporations have such deep pockets, it seems like environmental protection through lawsuits would have serious limitations.

In the case of the BP spill, where the damage was spectacularly large, lawsuits would sink BP and any insurance company that had insured them. The government would still be largely responsible for cleanup.

But in many other cases, where environmental damage is subtle and degradation occurs over many years, it may be much more problematic.

michal March 16, 2011 at 4:54 am

well, in case of BP, you have to factor in the fact, that BP knew, that they will never be liable for the damages they cause – hence their security procedures were not that strict as they would be otherwise. Under normal conditions, insurance companies would enforce very prudent business practices upon ventures with risk of a large-scale damages such as this one.

And besides, what is wrong about a corporation going belly up because of damage claims.

ACitizenwithoutaCane March 16, 2011 at 10:19 pm

Such big companies only exist because of statism. Big corporations, laws and politicians go hand in hand

Scott March 15, 2011 at 11:15 am

My personal libertarian response is simple – stop giving preferred special interests of all kinds exemptions from legal liability. If special interests aren’t granted exemptions by politicians, then no government response is necessary. In a nation where juries award millions over a cup of coffee being too hot, we can all pretty much imagine what juries would’ve done to BP over the oil spill last spring. When the people are properly allowed to destroy the companies destroying our air and water, then and only then will the pollution stop. Government simply does not possess the means to stop it.

The Fresh Prince of Darkness March 15, 2011 at 11:52 am

Why should anything have been done to BP about the oil spill?

Scott March 15, 2011 at 12:15 pm

Because their business activities, whether intentionally, accidentally or negligently, destroyed the lives and property of others. A number of people were killed outright and numerous privately owned business entities were severely damaged by this incident. Those legitimately harmed by the incident should have the right to sue those responsible for damages.

The Fresh Prince of Darkness March 15, 2011 at 12:34 pm

There’s a bit of sleight-of-hand going on here. You speak of those harmed having the right to sue “those responsible,” but the only malefactor you can identify are BP’s *business activities.* If you mean to suggest that certain parties affiliated with BP should be held responsible, then you simply must be far more specific than you are here. Who should pay? The shareholders? CEO? The workers present on the rig at the time of the accident? Who, exactly?

Scott March 15, 2011 at 2:18 pm

There’s no sleight-of-hand at all. BP is the business entity that purchased the rights to drill in that location. How liability and responsibility is divided amongst their employees, owners and subcontractors is an internal matter for their organization. But they certainly shouldn’t be exempt from liability for an accident that was a known hazard of the business activity. Blowouts happen – that’s why these wells have what are called Blowout Preventers (which failed in this case).

Ultimately, the question of “those responsible” is a question for a proper private court but those who were harmed certainly shouldn’t be denied their day in court simply because a corporation bought off the right politicians to obtain exemption from known hazards of their business.

The Fresh Prince of Darkness March 15, 2011 at 2:27 pm

OK, in other words, you have no idea who is to blame but you’ll go ahead and bash BP instead.

Scott March 15, 2011 at 3:06 pm

Darkness – there is a difference between blame and liability. Was BP specifically to blame for causing the spill? Probably not as most information points to failures of subcontractors causing the actual event. Was BP liable for it? Certainly – it was a known risk of their normal business and it was their name, not the subcontractors, on the contracts for the rights to drill. This wasn’t some freakish extreme event beyond their control, like the tragedy unfolding in Japan – this was a standard risk in their normal business that wasn’t properly managed. They didn’t hit magma, they hit oil and natural gas, exactly what they intended to hit – they just failed to properly control it.

I work for a small manufacturer that subcontracts some manufacturing. If my product fails and causes a death when used properly used, I’m liable for it. Will I turn around and sue my subcontractor if he made my parts out of spec? Certainly, but that doesn’t clear me of liability. It’s still on me to make sure my subcontractors are meeting spec before my name goes on the product. No difference here.

Scott Turley March 15, 2011 at 11:58 am

It seems to me (not being an expert) that the very real costs of the BP oil spill was so high (really how can you even put a price tag on some of the environmental damage that happened there), that BP would no longer exist if we expected BP to be totally responsible for damages and to be fully exposed to lawsuits. Perhaps that is a desirable outcome – but my suspicion is that you would see much less offshore oil drilling as a result (any?).

But that doesn’t answer my other question about carbon emissions and its long term environmental impact that are sometimes subtle in the short term but may have long term consequences. Global warming is just one consequence. But I’m asking the question in much broader terms.

The Fresh Prince of Darkness March 15, 2011 at 12:02 pm

You’re missing my point. Why do you assume BP *as such* bears responsibility for the spill?

Scott March 15, 2011 at 12:23 pm

This is exactly my point – this type of protection of businesses from the outcomes of their actions distorts the markets as much if not moreso than taxes. If their actions are killing people and destroying property then they either shouldn’t be doing it or they should be held responsible for the effects. I have a right to shoot a gun – I don’t have the right to shoot you in the head and I don’t have the right to shoot your house full of holes. They have the right to drill for oil where they pay for the privilege but that doesn’t give them the right to kill people and destroy property in the process.

Gasoline is a choice – there are other ways to fuel a car…

Inquisitor March 15, 2011 at 12:48 pm

BP is a corporation. It is owned by its shareholders, managed by its CEOs (held accountable by its board of directors) and employs thousands of employees at different levels of authority. It is insured, has many consumers and many suppliers. It probably receives a good deal of subsidies too. In this complex network, who in “BP” should be held accountable? That is what fresh prince is asking.

Scott March 15, 2011 at 1:15 pm

BP, the corporation, was the ultimate entity that paid for the rights to drill for oil in the given location. As such, BP and all entities hired to work at location on their behalf should be subject to having to defend themselves in a courtroom based on the fact that actions there resulted in death and destruction of property. What would the outcome of that be? That’s for the court and/or jury to decide based upon all facts.

The point is that it is not for government to decide and it certainly doesn’t make sense for government to provide blanket exemptions to select companies before incidents like these even occur.

Anthony March 15, 2011 at 9:35 pm

Fresh Prince/Inquisitor:

At the very least the assets owned by BP (including capital and drilling rights) could be sold by auction and the proceeds used to cover the cost of the lawsuits. Obviously insurance companies would contribute as well to the extent that they agreed to cover such events. In turn any subcontractor deemed to bear partial responsibility could be similarly liquidated in proportion to their degree of liability.

Are you asking what should happen if there are outstanding liabilities after all of BP’s assets have been liquidated? I have not spent a great deal of time looking into arguments about limited liability corporations but I would say that the shareholders would be safe from reprisal, as would the most managers’ personal assets (unless specific managers were deemed negligent and thus partially responsible).

Who do you think should be held accountable?

ACitizenwithoutaCane March 16, 2011 at 10:21 pm

Simple: The CEOs and everyone with authority at BP.

The persons who decide are the persons who are responsible.

Scott Turley March 16, 2011 at 10:42 am

Maybe so, but I guess my point is if you want regulation by lawsuit then you are at least running the risk of severely limiting any kind of activity with risks of catastrophe. I’m reading a book right now, The Black Swan: The Impact of the HIghly Improbable”, and it seems to me that the BP oil spill qualifies as a Black Swan event. In retrospect, we like to act like the event was predictable and preventable, but I’m not sure it was – we’re human after all. But it was a catastrophe big enough that it would have sunk BP and any insurance company tied to BP without government support. And the government would still have been on the hook for much of the cleanup.

Without government backing, I can imagine that practically any kind of off-shore drilling would be impractical – especially in deep waters. Maybe this is a feature not a bug, but I have my doubts about this.

The reason I bring this up is I think one purpose of a tax on oil is to help fund the costs imposed by its environmental impact.

I guess I remain unconvinced that the environment can seriously be managed by property ownership rights and lawsuits.

ABR March 16, 2011 at 1:44 am

It’s impossible to assess damages accurately since value is objective, but judges and juries do assess damages all the time.

In pure laissez faire, BP might have purchased the shoreline and surrounding ocean, or purchased the right to pollute from the owners of the ocean and shoreline.

CO2 is a gas, essential to plant life. You’d have a hard time convincing a rational jury that emitting CO2 is a tort. But let’s reduce O2 to O, ending up with CO, a gas we know is poison. If BP were emitting sufficient quantities, it would be held liable for damages under a sane judicial system.

If ‘everybody’ were emitting a small quantity of CO, and the small quantities added up to large quantities, then likely a libertarian court would rule in favour of the original small emitters, having homesteaded a right to pollute, and then go after the remainder.

On the issue of accountability: the corporate veil is a creation of the State. But some libertarians argue that the veil is a red herring to the real problem: individuals commit torts; thus, they should be liable. In other words, if Joe Blow works for BP, and commits a tort, then Joe should be liable, not the shareholders nor the officers nor the directors of BP, unless the latter conspired with Joe or gave him orders to do what he did.

It’s a tricky subject.

Ben Ranson March 15, 2011 at 10:54 am

“Even though gasoline sellers are legally liable to pay the tax, the tax burden is shifted onto the buyers in the form of higher prices.”

It would be more accurate to say that the tax causes suppliers to restrict gasoline production, and that gasoline buyers face higher prices due to a smaller supply. The well-being of consumers is impaired, but the suppliers pay the tax.

Inquisitor March 15, 2011 at 2:07 pm

I was gonna say this too. As Rothbard pointed out, costs are absorbed by the supplier, not passed on.

greg March 15, 2011 at 12:46 pm

You clearly don’t understand what sets the price of oil and gas. It has little to do with supply and demand as our current situation has supplies at all time highs in Cushing, OK and demand is somewhere at the same levels it was in 2002.

The price of oil and gas is set by the future trading on the NYMEX. Traders buy and sell contracts that represent a fraction of the total supply on hand. The price of these contracts is set by the supply of contracts and the demand set on the put and call sides of the trade. It is quite simple to understand and it is amazing people can’t figure it out.

You made some very good points to reduce the price of gas, but if you want to see a quick drop, just raise the margin requirements on trading oil futures and you will see a fast drop in the price of oil as the velocity of trades are reduced.

I agree with the SPR, pump it dry! We have 4 times more oil reserves in the US than is in Saudi Arabia according to CNBC. Much of our reserves is in oil shale which according to an specialist from Shell, cost $30 a barrel to get out of the ground. So sell off the oil, reduce our debt and allow companies to develop these and other oil fields.

Iain March 15, 2011 at 6:11 pm

Seems to me your first two paragraphs contradict each other.

KennyV March 15, 2011 at 3:56 pm

…Wow — Austrian Economics can’t definitively figure out whether Buyers or Sellers actually pay American gasoline taxes.

Mark Brandly & others says it’s ‘Buyers’.

Rothbard & others say ‘Sellers’

What would von Mises say ?

Who knew that basic economics was so difficult, even for Austrians ?

Scott March 15, 2011 at 4:21 pm

The problem isn’t “basic economics” – the problem is academics vs real world. Academics can twist just about anything into any direction desired if you give them enough time. In the real world, all revenues come from the Buyers and therefore anything paid for by those revenues is obviously paid for by the Buyers.

Yes, Sellers adjust production based on a variety of factors so one could technically say they are bearing the burden but unless the Seller is cannibalizing his organization, the dollars that go to the government came from the Buyer, not the Seller. And that applies to every cost paid for by revenues.

Mr Whipple March 15, 2011 at 7:04 pm

Just put Blythe Masters and the other market manipulators in prison, where they belong. Problem solved.

Steve P March 15, 2011 at 11:38 pm

Much of what the author cites as contributing to high gas prices has been going on for decades. In 1998 oil traded below $10 per barrel DESPITE most of these factors. I believe speculation in the commodity trading pits (where price is the result of sujective valuation by traders rationalizing their decisions) is the most significant factor driving the change in prices. This holds true for any commodity widely traded on one or more exchanges. What factors discussed in the article changed so dramatically to warrant the decline from $140 to $40 per barrel in just a few months in 2008?

Steve P March 16, 2011 at 10:42 am

A possible “solution” might be to eliminate leverage from speculation. Unless it is done globally, however, the players would just move the game around the world, beyond the reach of regulators, or expand its use in cyberspace.

Larry Dailey March 16, 2011 at 9:10 am

How about this one. You are right on everything you said.
Now, let’s say there is no oil shortage(we are not close to being out of gas). How about the price of gasoline “not” going up but the dollar going down. In summary, our money is no good, too many dollars chasing a gal of gasoline/oil. It’s just an adjustment for the de-valuation of dollar.
Of course I still agree we have fascism/government intervention in oil sector & laissez-faire capitalism will cure all problems.

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