Lowering anti-competition lawwould help lower gasoline prices

October 09, 2005|By Tom Firey

With gas prices hovering around $3 a gallon and Maryland motorists understandably frustrated, State Senate President Thomas "Mike" Miller has ordered a legislative review of possible laws and regulations to combat the price spike.

Usually, when politicians launch reviews or spout off a slew of proposals to address some crisis, they have little interest in adopting their own suggestions.

They only want political cover from angry voters - and gas consumers are very angry right now. But once in a while, a politician is sincere in his call for policy response, and now may be one of those times. This could be good news for Marylanders because the state can push gas merchants to lower their prices and profits. Unfortunately, there also are many steps that lawmakers can take that would generate great publicity and yield themselves political benefits, but would ultimately harm consumers.

Put in the latter category two proposals by Frederick County Del. Galen Clagett. Last month, Clagett called for government price controls on gasoline and temporary government takeover of the petroleum industry. Those suggestions certainly have populist appeal, but history offers a grim appraisal of price controls in the United States (not to mention the former Soviet Union, the Eastern Bloc, Cuba and North Korea).


Think back to the 1970s - a time of bell bottoms, sideburns, muscle cars and, yes, government price controls on oil and gasoline.

In August of 1971, the Nixon White House - which was desperately fighting inflation - ordered a nationwide freeze on all wages and prices. Public backlash against frozen wages forced Nixon to lift the freeze in November, but he then implemented price caps on petroleum and increased government intervention in the oil industry. The result was gasoline shortages around the country and long gas lines at open service stations.

Why did price controls cause a gas shortage? Because the caps prevented U.S. consumers from offering enough money to bring crude oil here from elsewhere in the world. When Nixon's price controls limited what Americans could spend for gas and oil, oil companies - led by the foreign, nationalized producers that dominate the market - increasingly sold to other countries that were willing to pay more. Adopting price controls today would yield the same result - more oil and gas would flow away from the U.S. and toward Europe, China and India.

What if the U.S. were also to nationalize American oil producers as Clagett suggests? Couldn't we then force them to keep their oil here?

But domestic oil satisfies only a small part of U.S. consumption, and there's no way U.S. production could be ramped up to cover demand. To make up even a small fraction of U.S. oil imports, government would have to press into service wells and refineries that are so costly to operate that the oil companies won't run them even in this time of high prices and profits.

To cover those costs, a government-run oil industry would either have to raise prices further or else use government revenue to cover the cost. The result would be that Americans would pay even more for gas - either at the pump or in their taxes.

So, if Del. Clagett's return to Nixonomics won't work, what policies would help Maryland consumers? For one thing, Annapolis could throw out many of the anti-consumer state laws that depress price competition.

Senate President Miller should lead an effort to ferret out and repeal those statutes, especially the 2001 law prohibiting broad gasoline discounting and the 1974 law requiring that all gas sold in Maryland pass through franchised middlemen instead of allowing gas companies to sell directly to consumers.

It is high time for Maryland to get rid of its anti-competition gas laws that enrich well-connected businessmen while harming consumers. If Sen. Miller makes a serious effort to strike down those pieces of corporate welfare, he would show himself to be a great friend of Maryland consumers.

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