Free Market Realities

Last month we were entertained by a group of long-haul truckers driving their rigs into downtown Washington DC to protest the high prices of diesel fuel. Their demand? They wanted Congress to act immediately to establish a price of $2.00 per gallon for diesel. That’s all. Why no, there was no mention of how this economic legerdemain was to be accomplished. Just do it.

That followed shortly by more formal theater of the absurd. The Senate held hearings and subpoenaed top oil industry officials to testify about (oxmoronic term warning…) “obscene profits” by the oil companies. The dollar figure for last year’s net profit was droned incessantly, in total isolation from numbers like total sales volume, costs of operating, raw material fluctuations or that most essential defining parameter: percentage profit—the percent of total sales that is actual profit rather than the raw number. Turns out the profit margin is somewhere below a rather puny 8%.

Then one of our finest governing minds of the senior legislative chamber astonished all by proposing that OPEC be called upon to toe the arbitrary price lines the Senate could set or face the wrath of the Senate. I wonder how exactly he would compel those OPEC nations to appear humbly before him?

Here’s a more realistic take on the energy policy front: Growing Up On Energy Policy

The moment of unintentional truth in the Senate hearings came when the august Senators were lectured by the oil execs that, “No, Senator, the oil industry is not a free market.” That is the key and unfortunately for modern America, too few of our citizens understand what that simple declaration means.

Certainly oil companies in America do not operate in a free, AKA “supply-demand” market. Global forces move the market and many of them are politically driven rather than market. OPEC is a cartel; a collection of nations that act in their estimated national self-interest to regulate production of a resource to maximize their profit while still preserving future viability of that consumable product. Satisfy the market without squandering your country’s wealth and dissipating your economic future. It’s a tightrope act.

Within our country the oil companies operate with both hands tied behind their back and blindfolded. We hold domestic resources but the oil companies are prohibited from exploiting them. The demand for refined products has increased exponentially, but the oil companies are prohibited from building new refineries in response. Gasoline and other refined products could benefit from some efficiencies in production and delivery techniques, but the individual states impose a hodge-podge of blends, additives and restrictions to complicate the system. Atop it all we have a multi-level tax structure on the product and an alphabet soup of government agencies breathing down the industrial neck. Hardly a supply/demand driven free-market. Top the whole cake off with the incessant demands of Congress to impose a punitive tax on the oil companies. That should certainly lower consumer prices…or not!

But, the energy policy question is bigger than that. Oil is not the only casualty. We’ve also got issues of natural gas and coal, both of which are prime players in our electrical energy production. Coal, in particular, is a targeted villain. It’s black and dirty. It leaves clinkers in the furnace and smoke in the chimney. But, in large measure that isn’t true. Modern coal power plants are quite clean. I watched one close-up in Colorado Springs for twenty years. It’s right down town, next to I-25 and a few blocks from city hall. Hasn’t been an air pollution alert in the area in nearly two decades. Yet, we resist clean technology coal as a means of power production despite incredible resources of the raw material.

None of which even begins to deal with our eco-paranoia over nuclear power. Japan, India, France, in fact most of Europe, all run on nuclear generated electricity. It’s efficient. It doesn’t create global warming gases—even if we assume that is an issue to be dealt with. It doesn’t consume an unrenewable resource for fuel. And imagine for a moment how much petroleum and natural gas could be freed up if we shifted our electricity production to nuclear.

The WSJ editorial points it out, and I’ll reiterate it. We need to demand that Congress grow up. They can’t play games with environmentalist whacko constituencies by restricting viable energy solutions while simultaneously imposing irrational regulatory restrictions on the industries we expect to satisfy our basic energy needs.