Walter E. Williams bio photo

Walter E. Williams

Bradley Prize Winner 2017

Professor of Economics.
(703) 993-1148
D158 Mason Hall
Department of Economics
George Mason University

Related Sites:
The homepage of George Mason University.
Homepage of the Department of Economics at GMU.

We Americans are going to pay through our noses to stay warm this winter, and we can thank our elected and unelected officials in Washington.

Let’s analyze the economics of it by starting with an example. Pretend you own a supermarket. What would you want the government to do that would enable you to price-gouge your customers? The answer’s easy: government should do anything that would restrict the market supply of grocery products. Government might shut down your competitors or enact regulations that make it more costly for them to operate. But, if your prices got too high, your customers might choose substitutes: such as eating at restaurants. You would also want government to do something that would make restaurants more costly.

The supermarket example explains the nuts and bolts of the high oil and gasoline prices that we’re paying. Let’s look at it. OPEC is a monopoly cartel. The best way to secure and maintain a monopoly power is to have governments write laws and regulations that reduce competition with competitor products. The Clinton/Gore administration has aided OPEC by restricting drilling and exploration in Alaska’s Arctic National Wildlife Refuge (ANWR), where the Department of Energy conservatively estimates that there are more than 16 billion barrels. At fairly modest drilling rates, that translates into about 800 million barrels of oil per year.

There are also Clinton-Gore administration restrictions on untold billions of barrels of oil under the ocean floor oil waiting to be drilled. By putting all this oil off-limits to drilling, the Clinton/Gore administration has empowered the OPEC monopoly and has made us vulnerable to its price-gouging.

But Washington has done even more to strengthen OPEC’s hand. In our supermarket example, your ability to jack up prices was not only enhanced by the government doing things to restrict your direct competitors but also by placing restrictions on your indirect competitors – restaurants. Just as restaurants are partial substitutes for supermarkets, coal is a partial substitute for oil, particularly for heating and electricity generation. The Clinton/Gore administration has restricted our supplies of clean, low-sulfur coal by using its executive order authority to declare millions of acres in the Western U.S. to be national monuments.

In the wake of rising oil prices, what do our politicians try to sell us? Sen. Dick Durbin, D-Ill., accuses the oil companies of “gouging” the public, stating, “It’s an increase directly attributable to profit-taking by the oil companies.” EPA Secretary Carol Browner declared, “The oil companies … owe us an answer.” Al Gore chimes that the Republican presidential ticket of Bush and Cheney is “in the pocket of big oil.” That’s typical Washington. Counting on an uninformed public, politicians blame everybody except themselves.

Stifling oil production is a major part of high gasoline prices, but not the only one. According to a Congressional Research Service report “Midwest Gasoline Prices,” the new EPA requirements for reformulated gasoline (RFG), requiring the use of ethanol, add 25 to 34 cents per gallon. That’s not the only cost. MTBE, which is used in reformulated gasoline in other parts of the country, has become a major source of ground water pollution, not to mention making people who smell the fumes sick.

The bottom line is that America’s environmentalists have massive clout with the Clinton/Gore administration. They’ve used that clout to impose monumental costs on the American people. We, like suckers, listen to Washington’s hacks blaming U.S. oil companies. As to high energy prices, we haven’t seen anything yet, particularly if Gore becomes our next president and puts his extremist environmental ideas, outlined in his book “Earth in the Balance,” into practice.