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May 18, 2006
Rising prices
In recent weeks, the nation has been wracked with rising gasoline prices and the ensuing consternation. For Congress and the president, the politics of high gasoline prices are relatively straightforward: high prices are bad, lower prices are better. But sometimes, political expediency outpaces realistic capability. Although it may be popular to advocate lower gasoline prices, it may be much harder for Congress to achieve that objective. Beyond the question of ability, however, lies a more serious question. Congressional action to lower gasoline prices may be hypocritical and, even worse, counterproductive.
There is no denying that gasoline prices have been on the rise nationwide. The average price for regular unleaded gasoline has climbed above $2.90/gallon, with prices much higher in several states. This is almost one dollar higher than the average price a year ago, and it is approaching the record high of $3.06/gallon set in the wake of Hurricane Katrina last September. Consternation over high gasoline prices is a semi-regular occurrence in the United States, and politicians and pundits alike have offered a slew of explanations for the rise in prices. Instability in Iraq, uncertainty in the U.S. relationship with Iran, increasing demand from India and China paired with static levels of supply, insufficient refining capacity, and price gouging by oil companies have all been suggested as reasons for the rising prices. In previous periods of high gasoline prices, the oil cartel OPEC has also been blamed. Regardless of the explanation, one thing is certain: the high price of gasoline is a foreign policy issue that directly affects Americans every day.
Accordingly, Congress has clamored to respond to the issue. Senate Majority Leader Bill Frist (R-TN) initially advocated a $100 rebate to taxpayers to offset the climbing gasoline prices. But this proposal quickly proved unpopular with consumers and legislators alike, even including Frist's fellow Republicans. Sen. John Cornyn (R-TX) referred to Frist's proposal as "a nonserious response to a serious problem." The rising gasoline prices seemed all the more unfair in the wake of the record profits reported by many major oil companies--the outgoing chairman of ExxonMobil, for example, recently received a $400 million retirement package. In response, Sen. Arlen Spector (R-PA) suggested a "windfall profits tax" on large oil companies that would be designed to discourage price gouging. "I believe that we have allowed too many companies to get together to reduce competition," Specter said. "They get together, reduce the supply of oil, and that drives up prices."
President Bush also offered his own plan to alleviate high gasoline prices. According to the administration, the plan would ensure that consumers are treated fairly, promote greater fuel efficiency, and invest in gasoline alternatives. Bush also called for revoking existing tax breaks to oil companies and for allowing the EPA to waive environmental restrictions that create fuel supply shortages. He suggested boosting the U.S. gasoline supply by deferring this summer's deposits into the Strategic Petroleum Reserve (SPR), a federally managed petroleum reserve designed to alleviate disruptions in oil supply: "By deferring deposits until the fall, we'll leave a little more oil on the market ... every little bit helps."
Each of the proposals suggested by Congress and the president operate under the assumption that the government is capable of affecting the price of gasoline. In one way--by adjusting the federal tax on gasoline--it can. But such tax only represents a portion of the overall cost of a gallon of gasoline, and the gasoline tax in the United States is already far lower than that in other developed countries. Many industry experts suggest that the factors affecting the price of gasoline are beyond governmental control. Questions of global petroleum supply and demand and political tensions with unpredictable, oil-rich regimes cannot be answered overnight by either the legislative or the executive branches of government. One industry expert suggested that delaying petroleum deposits to the SPR, as proposed by Bush, was akin to "not even rearranging a single deck chair on the Titanic."
Of course, the likelihood of policy-making impotence does not stop politicians from gathering behind a popular cause. But this allure of political popularity risks the ignorance of good policy. High gasoline prices could represent a natural market pressure on unsustainable social and economic habits in the United States. They could encourage carmakers and consumers alike to place a higher value on automobile fuel efficiency; discourage suburban sprawl and encourage the growth of more tightly woven communities; encourage investment in mass transit; generate less particulate pollution and slow the processes of global warming; encourage healthier lifestyle habits; and decrease U.S. dependence on unreliable or dangerous sources of petroleum.
If these themes sound familiar, they should--they have been discussed previously in this space. More importantly, President Bush himself spoke of energy independence in his most recent state of the union address, and legislators from both parties have advocated similar themes for many years. But very little of the recent posturing over gasoline prices seems to reflect any of these sentiments. For example, Sen. Charles Schumer (D-NY) has previously called for improvements in federally mandated fuel economy standards for automobiles. But in the wake of the recent spike in gasoline prices, he has railed against big oil companies and has noted that "American consumers will need all the help they can get at the pump as we head into the summer driving season."
Many would suggest, however, that cheap gasoline and better fuel efficiency standards are contradictory policy goals. A few legislators who have been vocal advocates for energy independence, such as Sen. Barack Obama (D-IL), have stopped short of offering rash proposals to lower the price of gasoline: "The only thing as predictable as rising gas prices are the short-term political solutions that come along with them." But most have not, and none of them have attempted to reconcile the apparent contradiction between their calls for lower gasoline prices with their same calls for energy independence.
The big complication with this issue is that high gasoline prices are a very regressive means of modifying national behavior. In the medium- or long-term, higher prices may encourage more sustainable behavior. But in the short-term, they have a disproportionately greater effect on those of middle and lower incomes than on those who are richer. Many in the working class rely on cars for their livelihood. Even if they wanted to utilize mass transit or move into more densely populated neighborhoods closer to their workplaces, they could not do so, because these options simply are not available in many parts of the country. The more well-off, however, spend proportionately less of their income on transportation, so high gasoline prices for them are generally more of a bearable inconvenience than a serious threat to their livelihood.
Herein lies the true public policy challenge. If the president and Congress are serious about encouraging energy independence and sustainable development in this country, how can they affect a positive change in U.S. society without disproportionately hurting those who are least able to make such a transition? Or, conversely, are politicians more concerned with the "here and now" issue of high gasoline prices than they are with the more challenging, longer-term issues of energy independence? These questions are immensely challenging. They involve many different interests, many potential solutions, and few obvious answers, and they demand a long-term perspective. In other words, they are the foreign policy questions best suited for a deliberative body such as Congress. So far in the debate over high gasoline prices, however, short-term posturing seems to have proven more popular than an honest debate of the longer-term issues.
Foreign Policy Association, 18 May 2006
Posted by Daniel Widome at 07:52 PM to U. S. Politics
