Last week, the U.S. House of Representatives approved a measure to impose stiff penalties on anyone found guilty of gasoline price gouging. In doing so, House Democrats, under the leadership of Nancy Pelosi, once again revealed their utter contempt for free markets.

The measure was a clear attempt to pacify angry, gas- guzzling voters before the holiday weekend. Yet like many things that happen in Washington these days, the law is all for show.....

http://www.bloomberg.com/apps/news?p...d=an_4P_0DS8vY

After gasoline prices began rising recently, the political rhetoric began rising even faster. Liberals in Congress and in the media have launched a war of words, whose net result may well be a demand for some form of price control. Price controls are not a new idea. There have been price controls in countries around the world. There were price controls during ancient times in Babylon and in the Roman Empire.

Whatever the hopes that may have inspired price controls, economists have studied their actual consequences, which have been remarkably similar from one place to another and from one time to another -- and almost invariably bad.
That history has even included higher prices in places with price controls. For example, New York and San Francisco have severe rent control laws -- and some of the highest average rents in the country.

But those pushing for price controls on gasoline are not likely to go into facts about the consequences of price controls, much less go into the economics that explains why such bad consequences have repeatedly followed price controls. This issue, like so many others, is likely to be settled on the basis of rhetoric. And, on that basis, the left has always had the advantage.....

http://detnews.com/apps/pbcs.dll/art...1008/OPINION01

Bad and discredited ideas, it seems, never die. Neither do they fade away. Instead, they keep turning up, like bad pennies or Godzilla in the old Japanese movies.

Price controls, that is, the fixing of prices below the market level, have been tried since ancient Rome; in the French Revolution, in its notorious "Law of the Maximum" that was responsible for most of the victims of the guillotine; in the Soviet Union, ruthlessly trying to suppress black markets. In every age, in every culture, price controls have never worked. They have always been a disaster.

Why did Chiang-kai-Shek "lose" China? The main reason is never mentioned. Because he engaged in runaway inflation, and then tried to suppress the results through price controls. To enforce them, he wound up shooting merchants in the public squares of Shanghai to make an example of them. He thereby lost his last shreds of support to the insurgent Communist forces. A similar fate awaited the South Vietnamese regime, which began shooting merchants in the public squares of Saigon to enforce its price decrees.

Price controls didn't work in World War I, when they began as "selective"; they didn't work in World War II, when they were comprehensive and the Office of Price Administration tried to enforce them with hundreds of thousands of enforcers. They didn't work when President Nixon imposed a wage-price freeze and variants of such a freeze from the summer of 1971 until the spring of 1973 or when President Carter tried to enforce a more selective version.

http://freedomkeys.com/pricecontrols5.htm

Q: What are the effects of alternative fuels?

A: The [government] subsidization of alternative fuels -- non-petroleum fuels -- has already added a great deal of cost for gasoline consumers here in the U.S.

To further mandate these uneconomic sources that cannot compete -- even with heavy subsidy -- would make gasoline prices higher and hurt consumers. When the market is ready -- if it ever is -- for such fuels, then they will not need subsidy. Meanwhile, the much heavier use of ethanol in the United States is affecting world prices -- not only U.S. gasoline prices, but world prices for those consumables that use corn. And the planting of so much more corn here has displaced planting of other crops, so that there are other indirect effects. And they're all negative.

Q: So you see these as hurting Americans more than helping them?

A: Yes. The use of tax money to prop up these uneconomic sources of fuel is itself a negative for consumers. ... The use of ethanol, despite all that subsidy, makes gasoline prices higher than they otherwise would be, through the difficulty of achieving EPA regulations and the final gasoline product, and through the requirement from the 2005 energy bill that minimal volumes of ethanol are sold. ... It's even been shown that the cost of tortillas in Mexico has been affected by our new government-mandated consumption of ethanol, which has raised the cost of corn.

http://www.cnn.com/2007/US/07/10/fa.....qa/index.html

This week, readers are looking for honest answers on the reasons behind the recent spike in oil prices. Some may not like what they hear, but we'll give it a shot.

Let’s be honest. We all know that the oil market is being manipulated to drive up the price and profit for oil companies. … Do you think anybody in DC will do anything or are they just too busy cashing those lobbyists’ checks to keep the unimaginable profits rolling in?
— Richard A., Covington, Ga.

The honest answer is the reason oil prices keep setting records is that demand for fossil fuels is growing faster than the world’s oil producers can find new sources to satisfy that demand and replace the oilfields that are used up. A lot of readers don't like that answer, but it's the truth.

Prices of commodities in limited supply — gold, corn, Hannah Montana tickets on eBay — are set by the market, not the producer. The latest price is set by the last buyer, often represented by those folks waving their hands around and screaming in the trading pits, based on what the buyer is willing to pay for it. If a producer decided to ask for, say, $125 a barrel when the market price was at $100, why would anyone pay that price?

There was a time, in the early days of the Texas oil boom, when crude came out of the ground faster than producers could find a place to put it and each new gusher sent prices crashing. Eventually, the Texas Railroad Commission won the right to set limits on oil production and, in effect, set prices. That worked well as long as the U.S. companies regulated by the commission produced almost all of the world’s oil. But by the 1970s, that era was over, and Mideast producers formed OPEC, a cartel modeled after the TRC. But with so many players in today's global oil market, even OPEC has had mixed success in managing prices as its members squabbled over political differences and cheated on assigned production quotas.

Today, independent oil producers like Exxon Mobil, Chevron, and BP are relatively small players — as big as they are. The bulk of oil is produced by non-U.S., state-owned oil companies — many of them in parts of the world where corruption, underinvestment or violence have hurt efforts to expand production.

Congress has no more control over oil prices that you do. Some countries, like China and Venezuela, keep prices low by subsidizing the cost to retail buyers. That could happen here too, but all you would do is take taxes paid by everyone and give them to people who use gasoline. You would also encourage people to use more gasoline, which is not a great idea when it’s harder and harder to find the oil needed to make it.....

.....Oil prices are set in a worldwide market and Western oil companies control a small fraction of the supply. Most oil comes from nationalized oil companies from countries like Russia, Saudi Arabia, or Mexico.

Explaining what oil companies were doing with their record profits, he said the industry was either reinvesting them in exploring for more oil, or returning them to shareholders in the form of stock buybacks and dividends. He noted that 41% of oil company stock is owned by pension or retirement funds.....

Democratic presidential candidates are criss-crossing Pennsylvania this week, dropping in at gas stations and truck stops to convince voters they've got the best plan to tackle soaring gas prices and Big Oil profits.

The price of gas is a key issue for Democratic presidential candidates campaigning in Pennsylvania.

Clinton likened herself Tuesday to Sylvester Stallone's Rocky Balboa character, but said the big fight ahead isn't just against her opponent, Sen. Barack Obama, but also against the country's oil crisis.

While beating back calls from some of her opponent's supporters to step down, Clinton has taken to lashing out at the Bush administration's oil policy.

"The president is too busy holding hands with the Saudis to care about American truck drivers who can't afford to fill up their tank any longer," she said.

Obama, meanwhile, said Monday a crackdown is needed on oil companies.

"[We] need a president who can stand up to Big Oil and big energy companies and say enough is enough," Obama said Monday.....

Recent data from the Energy Information Administration shows that since 1981—the first year of the Windfall Profits Tax—total taxes from all oil industry sources exceeded the combined profits of all companies in every year but the past three. Between 1981 and 2006, government collected $1.65 trillion in total taxes after adjusting for inflation. That is 65 percent more than the combined earnings of the 16 largest domestic oil companies during the same period.

High, wide and fuel-hungry, the gleaming black Cadillac Escalade on display at the Beijing auto show is an unlikely car for an era of record oil prices.

But while sport utility vehicle sales in the U.S. are tumbling, automakers are finding that for China's newly prosperous car buyers, bigger is still better.

So General Motors Corp. has made the Escalade a star of its auto-show display and is eager to get it on the market here.

"If you look at the fastest-growing market segments in China, there are two — SUVs and luxury cars," said Joseph Y.H. Liu, GM China's vice president for sales and marketing.

Auto sales in China are booming, with analysts and automakers forecasting growth at 15-20 percent this year. But demand for the biggest vehicles is even stronger, with sales of luxury cars and SUVs expected to surge by 40-45 percent.

The phenomenon is welcome news for automakers seeing little or no growth in the United States, Europe and Japan. They also make fatter profits from sales of high-end vehicles than from economy models.....

For 20 years now, workers in Palm Beach County, Fla., have been counting cars with sensors at strategic points along the county's 4,000 miles of roads. And as sure as the tide flows in the nearby Atlantic, nearly every year traffic volume has climbed at least 2 percent. But in 2007 there was a slight decline in the number of vehicles on the roads. And this year, traffic is down 7.5 percent through March. "We're seeing a very significant change," says county engineer George Webb. "We're having a good time speculating why."

It's not just Palm Beach. Traffic levels are trending downward nationwide. Preliminary figures from the Federal Highway Administration show it falling 1.4 percent last year. Now, with nationwide gasoline prices having recently passed the inflation-adjusted record of $3.40 a gallon set back in 1981, the U.S. Energy Information Administration is predicting gas consumption will actually fall 0.3 percent this year. That would be the first annual decline since 1991. Others believe the falloff in consumption is actually steeper than the government's numbers show. "Our canaries out there tell us they are seeing demand drop much more considerably than the fraction the EIA is talking about," says Tom Kloza, chief oil analyst at Oil Price Information Service, a market research firm in Gaithersburg, Md.

Is oil-guzzling America changing its profligate ways? Some think so, though it's worth noting the U.S. still consumes one-third of the world's annual gasoline output. "It appears we've finally hit the ceiling that's causing the U.S. population to rethink how and where they use their vehicles," says Paul Weissgarber, who heads the energy practice at consulting firm A.T. Kearney.....

SHUANG MIAO, China — Li Rifu packed a lot of emotional freight into his first car. Mr. Li, a 46-year-old farmer and watch repairman, and his wife secretly hoped a car would better the odds of their sons, then 22 and 24, finding girlfriends, marrying and producing grandchildren.

A year and a half later, the plan seems to be working. After Mr. Li purchased his Geely King Kong for the equivalent of $9,000, both sons quickly found girlfriends. His older son has already married, after a short courtship that included a lot of cruising in the family car, where the couple stole their first furtive kisses.

“It’s more enclosed, more clandestine,” said Li Fengyang, Mr. Li’s elder son, during a recent family dinner, as his bride blushed deeply.

Western attention to China’s growing appetite for automobiles usually focuses on its link to mounting dependence on foreign oil, escalating demand on natural resources like iron ore, and increasing emissions of global warming gases.

But millions of Chinese families, like millions of American families, do not make those connections. For them, a car is something both simpler and more complicated.

J. D. Power and Associates calculates that four-fifths of all new cars sold in China are bought by people who have never bought a car before — not even a used car. That number has remained at that level for each of the last four years. By contrast, less than a tenth of new cars in the United States are purchased by people who have never bought a new car before, and less than 1 percent of all new cars are sold to people who have never bought a new or used care before.

China’s explosive growth in first-time buyers is the driving force behind the country’s record car sales, up more than eight-fold since 2000. It is the reason China just passed Japan to become the world’s second-largest car market, behind the United States.....

It is great to see that we finally have some national unity on energy policy. Unfortunately, the unifying idea is so ridiculous, so unworthy of the people aspiring to lead our nation, it takes your breath away. Hillary Clinton has decided to line up with John McCain in pushing to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for this summer’s travel season. This is not an energy policy. This is money laundering: we borrow money from China and ship it to Saudi Arabia and take a little cut for ourselves as it goes through our gas tanks. What a way to build our country.

When the summer is over, we will have increased our debt to China, increased our transfer of wealth to Saudi Arabia and increased our contribution to global warming for our kids to inherit.

No, no, no, we’ll just get the money by taxing Big Oil, says Mrs. Clinton. Even if you could do that, what a terrible way to spend precious tax dollars — burning it up on the way to the beach rather than on innovation?

The McCain-Clinton gas holiday proposal is a perfect example of what energy expert Peter Schwartz of Global Business Network describes as the true American energy policy today: “Maximize demand, minimize supply and buy the rest from the people who hate us the most.”

Good for Barack Obama for resisting this shameful pandering.....

More than 200 economists, including four Nobel prize winners, signed a letter rejecting proposals by presidential candidates Hillary Clinton and John McCain to offer a summertime gas-tax holiday.

Columbia University economist Joseph Stiglitz, former Congressional Budget Office Director Alice Rivlin and 2007 Nobel winner Roger Myerson are among those who signed the letter calling proposals to temporarily lift the tax a bad idea. Another is Richard Schmalensee of the Massachusetts Institute of Technology, who was member of President George H.W. Bush's Council of Economic Advisers.

The moratorium would mostly benefit oil companies while increasing the federal budget deficit and reducing funding for the government highway maintenance trust fund, the economists said.....

The confluence of record oil prices and a presidential election year is proving to be an irresistible combination for Congress and the candidates, all of whom happen to be members of that esteemed body.

Two of the three U.S. presidential contenders are promoting the idea of a federal gas-tax holiday this summer. Two of the three (a different duo) want to enact a windfall profits tax on oil companies, a bad idea whose time has apparently come (again).

One of the three wants both. That would be Hillary Clinton, Democratic senator from New York.

Populist millionaire Clinton (millionaires make the best populists) has lashed out at the oil companies, accusing them of market manipulation and collusion. She's railed against speculators, those evil traders who buy when everyone else is selling and sell when the crowd is buying.

She labeled the Organization of Petroleum Exporting Countries a monopoly and threatened to file a complaint with the World Trade Organization. (Her Democratic opponent, Illinois Senator Barack Obama, inconveniently pointed out that Clinton hasn't signed on as a sponsor to a bill that would make oil- producing and exporting cartels illegal.)

Never mind that the Federal Trade Commission has never found evidence of price-gouging when Congress has asked the FTC to investigate oil prices. Or that oil companies aren't more profitable than other manufacturing industries, except at times when the price of the product they sell is soaring. Or that taxing businesses' excess profits -- How much is excess? -- will lead to a decline in oil exploration and development. Or that taxing business usually means taxing consumers.....

It's hard to imagine now, but in 1999 gasoline sold for 90 cents a gallon. How'd we get from there to $4 a gallon?

There is no short answer - many things happened, and together they formed a chain of events from cheap gas to $100 tankfuls.

2004: Demand pressure
One of the most common reasons cited for the price jump is supply and demand - we are using more oil, which accounts for 70% of the price of gas, and finding less of it.

Why we are finding less oil and using more of it is partly a result of the low prices during the 1990s. Those low prices - partly caused by low gas taxes in the U.S. compared to other developed nations - both encouraged rapid consumption domestically (think SUVs) and underinvestment in new production by the world's oil companies.

By the time 2004 rolled around - and developing economies around the globe roared to life - the world was left in a pinch.....

ADAM SMITH’S modern disciples are far more enthusiastic about his celebrated invisible-hand idea than he ever was. In their account, Smith’s assertion was that purely selfish individuals are led by an invisible hand to produce the greatest good for all. Yet Smith himself was under no such illusion.

On the contrary, the relevant quotation from his “Wealth of Nations,” which describes a profit-seeking business owner, is far more circumspect. It says that this owner “is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” It continues: “Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”

In short, Smith understood that the invisible hand is often benign, but not always.

This understanding has important implications for economic policy in general, and for the recent presidential campaign dust-up about gasoline taxes in particular.

If you believe, with Smith’s modern disciples, that unfettered pursuit of self-interest always promotes society’s interests, you probably view all taxes as a regrettable evil — necessary to pay for roads and national security, but also an unwelcome drag on economic efficiency. The problem, according to this view, is that taxes distort the price signals through which the invisible hand guides resources to their best destinations.

Smith’s more nuanced position supports a different view of taxes. When market prices convey accurate signals of cost and value, the invisible hand promotes the common good. But prices often diverge from cost and value and, in those cases, taxes can actually help steer resources toward more highly valued uses.....

As much as Americans fret over the rising price of gas, one thing worries them more: the possibility of having to wait in long lines to buy rationed gas.

A CNN/Opinion Research poll released Tuesday shows that 55% of those surveyed are more worried about long lines at gas stations and rationing than about the high prices that drivers have paid in recent months. The poll shows 40% of the respondents are more concerned about the high prices.

While gas rationing is not expected at this time, it was a hallmark of the 1970s- era energy crisis, when drivers lined up outside gas stations and sales of gas were limited to certain days of the week.

However, at that time, gas was in short supply, which is not the case today.....

ST. LOUIS (AP) - Two prayer services will be held at St. Louis gas stations to thank God for lower fuel prices and to ask that they continue to drop. Darrell Alexander, Midwest co-chair of the Pray at the Pump movement, says prayer gatherings will be held Monday afternoon and evening at a Mobil station west of downtown St. Louis.
Participants say they plan to buy gas, pray and then sing "We Shall Overcome" with a new verse, "We'll have lower gas prices."

An activist from the Washington D.C. area, Rocky Twyman, started the effort, saying if politicians couldn't lower gas prices, it was time to ask God to intervene.

The group thinks the prayer is helping, saying prices are starting to fall below $4 a gallon.

Record gasoline prices caused U.S. demand to sink to a five-year low in the first seven months of the year, slashing auto sales and cutting consumer spending.

Gasoline use declined 2.1 percent through July, the American Petroleum Institute said in a monthly report. Auto sales fell to the lowest since 1993 in the month, causing U.S. retail sales to drop for the first time in five months. Consumer spending makes up more than two-thirds of the U.S. economy.

``We're seeing people driving less, using more public transportation and buying more fuel-efficient vehicles,'' said Ron Planting, an analyst with the Washington-based institute who helped prepare the report. ``There are people combining trips. There's no limit to the creativity that people will apply to how to save some fuel.''

Regular gasoline, averaged nationwide, reached a record $4.114 a gallon on July 17, according to AAA, the biggest U.S. motorist organization. The average was $3.79 a gallon today.

U.S. auto sales tumbled 13 percent in July as General Motors Corp., Ford Motor Co. and Toyota Motor Corp. posted declines on lower demand for fuel-thirsty trucks.

``I switched my car from a Nissan Pathfinder to a Hyundai Accent,'' said Ivan Vasquez, a 28-year-old steam fitter from Queens, New York. ``Before, it took me $80 to $90 to fill up. Now, it takes less than $40, but I try not to use my car as much as possible. I take public transportation whenever I can.''

Driving Less

The Federal Highway Administration said today that U.S. motorists drove less in June for an eighth consecutive month. The AAA average price at the pump hit a then-record $4.09 a gallon in June. Vehicle-miles traveled fell 4.7 percent in June from a year earlier, the Washington-based agency said.....

NEW YORK (Fortune) -- While Congress and Bush administration officials have been working to complete a bailout plan and stem the financial contagion on Wall Street, a different kind of economic crisis emerged across the South this week: A severe, hurricane-related gasoline shortage has curtailed trucking from Atlanta to Asheville, N.C., and created a wave of panic buying among motorists.

The return of gas lines has largely flown under the radar of politicians who are usually keenly attuned, because their constituents are, to what's going on at the pump. But more of the Capitol gang should be paying attention to this.

That's because nationwide our gasoline inventory is shockingly low. Liquidity must be restored soon to this market, or we could be facing a crippling run on the gasoline bank. And if you think Americans are outraged about Wall Street, wait until their Main Street grocery store doesn't get the bread and milk delivery for a week or two.....