Bush Announces Short-Term Plan to Fight Gas Prices
25th April 2006
But what about our addiction?
The president announced that he will have the Federal Trade Commission and the Justice Department investigate possible price gouging and price fixing in the oil industry.
In addition, the president said that the government will, for the time being, stop buying oil to fill the Strategic Oil Reserve. In the past, presidents used the oil reserve as a way of regulating the price of oil. When the price fell, they’d buy oil and fill the reserve. They’d release the oil when the price rose. Buy low, sell high.
Until now, the Bush administration has been filling the reserve at a time when oil costs more than it ever has. At over $70 per barrel, more than double the price in 2000, and more than 7 times the price in 1999, the Bush administration has been using taxpayer money to buy extra oil. This amounts to a gift to the oil industry worth billions of dollars.
And does anyone think that the president is serious about investigating the oil industry? You may recall that it was the oil industry that wrote Bush’s oil policy in a series of secret meetings with Vice President Dick Cheney. And now Bush and Cheney are going to investigate their friends? Please.
A windfall profits tax, which is also under consideration, would help consumers recoup some of the higher prices in the form of tax revenues. Those taxes could then be used to finance alternative energy and conservation programs.
The reason windfall profits taxes work is that petroleum has a very rigid short-term demand curve. That means that prices can go very high without having a large impact on demand. Over the long term, consumers will buy smaller cars, farmers will switch to non-petroleum fertilizers, and demand will fall. Supply can also be increased over a period of years. Until then, though, oil companies can take a hefty extra profit whenever oil prices rise.
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