When customers’ demand
for gasoline increases relative to the supply, the sellers
of gasoline raise their prices. As the producers and owners
of gasoline, this is their right—and we should be glad
that they exercise it. Not only do price increases encourage
future production, but without such price increases, we would
very quickly see shortages as customer demand for cheap gasoline
far outstripped the available supply. Thanks to price increases,
we can ensure our continued access to gasoline to the extent
we are willing to pay for it—i.e., to the extent we
value it. Most of us are willing to pay $3 a gallon for a
15-mile office commute—but might not be for a 15-mile
drive to our pet’s beauty salon, and so our personal
consumption voluntarily decreases as prices increase.
In the realm of business, a higher price means that firms will
only purchase oil or gasoline to the extent that they can make
profitable use of it at those prices. An efficient airline will
still be able to offer low prices while using high-priced jet
fuel; a less efficient airline may not be able to. A company
in China or India that uses oil to run highly efficient factories
can make profitable use of oil at $70 a barrel; their laggard
competitors may not be able to. Since nearly every product we
use involves oil at some stage of production, we all gain vast
benefits from oil being directed toward its most profitable uses.
There is no moral or economic justification for any politician
or consumer to declare market prices “too high,” and
to use the government to coerce lower prices. To do so violates
both the rights of gasoline producers and their productive customers
to set voluntary prices—and, in doing so, causes destructive
shortages. When shortages exist, how much gasoline one is able
to get depends not on one’s willingness to pay a mutually
agreeable price, but on one’s political pull to secure
rations, or on whether one has time on one’s hands to wait
in endless lines (as in the 1970s).
There is only one sense in which we are entitled to tell the
government to “do something” about gasoline prices:
insofar as these prices are made artificially high by the government’s
many regulations on oil and gasoline production.
Consider oil-refining regulations. Various state governments
impose the absurd mandate that companies refine nearly 60 different “blends” of
gasoline—despite the fact that cars using today’s
standard unleaded gasoline, even with the overall increase in
driving, pollute very little by historical standards. Additionally,
endless red tape and “environmental impact studies” forced
by regulators hostile to industrial development, make new construction
dramatically less profitable. The costs of such regulations are
huge and raise the price of gasoline; according to the American
Petroleum Institute, “the refining industry has spent over
$47 billion over the last decade to comply with environmental
and fuels regulations—expenditures that generally yield
little or no return on investment.”
Another costly set of regulations are those prohibiting domestic
drilling on plentiful sources of oil. In the name of safeguarding
a portion of the caribou habitat in an Alaskan wasteland, drilling
is prohibited in ANWR—a potential source of one million
barrels a day. Also off limits is the entire Outer Continental
Shelf of the United States—a far larger untapped source
of oil. Chevron’s recent discovery of an estimated three
to 15 billion barrel reserve in the Gulf of Mexico invites the
question: How many such troves are currently off limits?
The government is right to take action if an oil company provably
threatens or harms a person’s property. But to impose huge
costs on oil companies and their customers in the name of preserving
untouched nature is unconscionable.
What should the government do about gasoline prices? Get its
hands out of the market—and keep them off.
Alex Epstein is a junior fellow at the Ayn Rand Institute,
which promotes Objectivism, the philosophy of Ayn Rand—author
of Atlas Shrugged and The Fountainhead. E-mail media@aynrand.org.
