Gas prices and Madison

Democrats such as U.S. Rep. Steve Kagen (D–Appleton) must be breathing sighs of relief now that gas prices have slipped around 40 cents a gallon from their record highs of earlier this year. (Must be that nasty antitrust lawsuit against OPEC.)

Which does not mean that gas prices are no longer an issue for voters. That is what Randy Melchert, a Republican candidate in the 24th Assembly District in southeast Wisconsin, believes.

Melchert has a three-pronged way to reduce gas prices in the Milwaukee metropolitan area by 10 percent, and to reduce gas prices in the rest of Wisconsin as well:

• Eliminate the state’s minimum markup law.
• Reduce the state gas tax to the national average.
• Eliminate the federal mandate requiring use of reformulated gas in the Milwaukee area.
  

Melchert’s Web site, themelchertplan.com, has an interactive calculator that shows how much money his would-be constituents would save if his plan became law. Northeast Wisconsin residents, who are not subject to the reformulated gas mandate (yet), would not save the estimated 14 cents per gallon cost of RFG, but they would still save the 24 to 36 cents per gallon the minimum markup law requires and the 4 cents per gallon above the national average at which the state gas tax is set.

The gas tax is no longer indexed to inflation, so at least it's not automatically increasing every spring. Then again, the transportation fund is decreasing thanks to Gov. James Doyle's repeated raiding of the fund to balance the state budget. The transportation fund seems to be, in the words of another observer, the payday loan store of state government.

As for Doyle’s position on the minimum markup law, he seems to emulate the death penalty dance of former Gov. Tommy Thompson. Thompson said publicly that he would sign a bill reestablishing the death penalty if it reached his desk. However, a death penalty bill never reached his desk because, despite the repeated efforts of state Sen. Alan Lasee (R–Rockland), Republican legislative leaders prevented it from coming to a vote since they didn’t support the death penalty.

Similarly, Doyle has said publicly that he would sign a bill ending the minimum markup law if it reached his desk. No such bill has reached his desk, in part due to strange votes of people like Sen. Glenn Grothman (R–West Bend), who in 2005 voted in committee against ending the law over concerns that gas stations wouldn’t be able to cover the cost of credit card transactions. It’s not clear what part of the state Constitution stipulates that legislators’ duties include monitoring gas station credit card transaction fees.

For that matter, setting (or effectively setting) gas prices is not the role of government, period. Many Republicans wrongly favor the minimum markup law on the premise that eliminating it would eliminate smaller gas stations in favor of the behemoths of Big Oil. As stated here before, evidence of predatory gas pricing is nonexistent, and as it is, consumers don't usually know or ever care about the source of their gas (with the exception of Citgo, owned by Venezuela and its vile "president," Hugo Chavez).

On the other side of the aisle, do not assume that the drop in gas prices is a success of the Democratic Party. It may well be that gas prices aren't going to drop to the levels (about $2.30 a gallon) that preceded Democratic control of Congress. It is a 100 percent guarantee that, next spring at the latest, they will increase with a President Obama and Democratic-controlled Congress, since Obama and most Democrats believe that oil companies should be saddled with windfall profits taxes and, anyway, we need to be weaned from our cars and "cheap" energy. (I'll believe that the next time I see any Democratic member of Congress on a Washington, D.C., bus.)

Then again, perhaps there's less urgency about gas prices in Madison because ... gas prices are (as of today) lower in Madison than in other metro areas of Wisconsin.

How to beat Democrats in November

At last, Republicans may have figured out a way to beat Democrats in November:

Focus on gas prices. (Or, as Investors Business Daily calls it, make the initials GOP stand for "Get Our Petroleum.")

The $3.949 that as of today appears on gas station signs in the Fox Cities, more so than any economic slowdown, is what voters will focus on in November. For most consumers, I think the biggest issue they face is not economic uncertainty with their jobs, it is how much gas prices affecting their lives, in that not only are gas prices making driving more expensive, they are making most things we buy more expensive.

It is true, as noted here before, that two major contributors to high oil prices are increased worldwide demand and the weakened dollar. But our current policies of drilling nowhere that we’re not drilling now within our borders are making things worse.

President Bush Wednesday threw the issue back in the hands of the Democratic-controlled Congress by pushing Congress to approve drilling offshore and in the Arctic National Wildlife Reserve, moving on development of oil shale, and allowing easier expansion of existing oil refineries.

“I know the Democratic leaders have opposed some of these policies in the past,” said Bush, who added that if Congress heads to their July 4 recess without taking action, Congress will need to explain why “$4 a gallon gasoline is not enough incentive for them to act. And Americans will rightly ask how high gas prices have to rise before the Democratic-controlled Congress will do something about it.”

One of those Democrats controlling Congress is U.S. Rep. Steve Kagen, M.D. (D–Appleton), who is getting hammered, and rightly so, by his Republican opponent, John Gard, for Kagen’s unusual combination of futile gestures and let-them-eat-cake attitude.

Kagen has been a complete dunce on the subject of high gas prices, and in ways that his more-conservative-than-he-is constituents probably are having trouble understanding. Just this year, he has (1) commanded Bush to stop making Strategic Petroleum Reserve purchases, something that, now that SPR purchases have stopped, has had zero apparent effect on gas prices; (2) got the House of Representatives to sign on to his idea to solve the gas price problem by suing OPEC, a truly moronic proposal; and (3) brought in Rep. Collin Peterson (D–Minnesota), chair of the House Agriculture Committee, to deliver the Jimmy Carteresque news that “We needed these higher prices to force us to change our ways.”

(Embarrassingly for Kagen, however, Peterson then departed from the Kagen hymnal by saying, “I’m for drilling, I’m for nuclear, I’m for coal, whatever it takes to get us out of the Middle East.” Evidently no one briefed Peterson on Kagen’s insight that the U.S. must “have an energy policy other than drill-and-burn.”)

This is all ironic given that Democrats tried to defeat Bush on gas prices in 2004, saying that Bush’s tax cuts were being sucked up by gas prices that had jumped over $2 a gallon earlier that year, and promised to do something about gas prices during the 2006 campaign. Well, Democrats certainly done something — since Democrats took over control of Congress in January 2007, gas prices have now increased 75 percent, and gas price increases may not be finished.

This issue is a winner for Republicans who take advantage of this issue. The Weekly Standard’s Fred Barnes points out that only 20 percent of voters surveyed in a Gallup Poll blame the oil companies for high prices (the Democrats’ standard campaign line), and 57 percent of those surveyed now favor drilling where drilling is not permitted. (I wonder what the result of that specific poll question would be in Wisconsin, where new drilling is banned under state law.)

John McCain is mostly right about energy, advocating drilling offshore and expanding refineries and use of nuclear power. (The phrase “nuclear power” appears nowhere on Kagen’s campaign site, which is pretty remarkable given that a nuclear power plant sits in his congressional district.) Barack Obama, to no one’s surprise, is almost completely wrong, focusing on policies that are guaranteed to make energy even more expensive and even more scarce, apparently kowtowing to his environmental buddies like Al Gore, user of enough energy at his house to power 19 average homes.

McCain, Obama and Kagen are wrong in thinking most voters care about climate change in an era where $50 won’t fill up your gas tank. A recent Wall Street Journal/NBC News poll places the percentage of voters who see energy and gas prices as their top issue at 18 percent, with the environment and global warming at 4 percent. Moreover, alternative energy, such as solar and wind power, that every candidate seems to tout will have zero effect on oil prices seeing as how oil isn’t used for electricity generation and fuel oil is decreasingly used for heating. (Electricity is obviously used for charging batteries, but the technology isn’t there to make electric cars feasible for actual families, and don’t hold your breath that will be anytime soon. In fact, there is alarming evidence that the real energy crisis isn’t in oil, it’s in electricity.)

For those who are concerned with the environment, it should be noted that hurricanes Katrina and Rita, which roared through the Gulf of Mexico and its oil rigs, produced not one single oil spill. Environmental regulations on oil drilling are much more stringent in the U.S. than they are in the Middle East. (And, in fact, the environmentalist left now finds itself having to rethink its knee-jerk opposition to offshore drilling.)

U.S. News and World Report’s James Pethokoulis advocates a new seven-step approach for McCain that is likely to resonate with voters far more than Obama’s and Democrats’ blame-America-first view of energy. (You may not know, for instance, that in the 35 years since the first energy crisis, U.S. consumption of oil has increased just 15 percent.) It is either naïve or ignorant to believe that the U.S. will ever get to a point where energy consumption will decrease from one year to the next — unless the economy stops growing, that is, and suggesting that the economy needs to shrink isn’t likely to be a winning assertion for Democrats.

Bush’s proposals are predicted to take several years to affect gas prices. I’m not sure that’s necessarily the case, though. If the world oil markets, speculators in which are partially blamed for high oil prices, get the signal that the U.S. is prepared to add supply on its own independent of OPEC, that could in fact deflate prices to some extent short-term.

Whether or not there is a short-term effect on gas prices, and whether or not energy independence is actually an achievable or desirable goal, if the Republicans actually want to win races this November, their winning issue is at the corner gas station.

Your Tax Dollars at Work, Gas Prices Edition

In a previous post here, I wrote that “Anyone who thinks Democrats are going to do anything to reduce gas prices hasn’t been paying attention.”

Apparently I was mistaken. U.S. Rep. Steve Kagen (D–Appleton) has come up with a new approach, something he got 323 of his colleagues in the House of Representatives (one of whom is Rep. Tom Petri (R–Fond du Lac)) to sign on to — sue OPEC:

The Gas Price Relief for Consumers Act sponsored by Congressman Steve Kagen, M.D. was approved overwhelmingly [Tuesday] by the House of Representatives by a vote of 324-84. One hundred three Republicans supported the bill that would put in place the means to crackdown on possible anti-competitive practices that could be contributing to the current record-high gas prices.

The Gas Price Relief for Consumers Act of 2008 would allow the United States to sue foreign oil cartels for anti-competitive price discrimination. It would also allow the Department of Justice Antitrust Task Force to aggressively investigate both gas price gouging and market manipulation.

“Until we finally have an energy policy other than drill-and-burn, this bill will begin to set things right for the American people,” Kagen said. “We cannot drill or grow our way out of this energy crisis. We must begin to think differently in America. That includes loosening the stranglehold other nations have on our economy and exploring new forms of energy.”

The Gas Price Relief for Consumers Act of 2008 … authorizes the creation of the Department of Justice Petroleum Industry Antitrust Task Force. Among its responsibilities, the Task Force will examine such issues as the existence and effects of price gouging in the sale of gasoline, anticompetitive price discrimination by petroleum refiners, actions to constrain oil supplies in order to inflate prices, and possible oil price manipulation in futures markets. …

“This legislation will address the loopholes and exemptions that oil companies exploit at the great expense of our citizens,” said Kagen. “By passing The Gas Price Relief for Consumers Act, the House agrees that it is time to give U.S. authorities the ability to prosecute anticompetitive conduct committed by international cartels that restricts supply and drives up prices. OPEC, the world’s most well known oil cartel, accounts for more than two-thirds of global oil production, and OPEC’s oil exports represent about 65 percent of the oil traded internationally.”

Words fail me as to how laughable, stupid and naïve this really is. I’m curious as to which court outside the U.S. Kagen believes would hear this case. Kagen may be shocked to find out that the jurisdiction of U.S. courts does not extend beyond the borders of the U.S. or to non-American citizens. (Apparently, none of Kagen’s colleagues who are lawyers bothered to tell him this.) Kagen also may be surprised to discover that not even an act of Congress can overturn the laws of supply (artificially restricted due to bans on drilling and environmental regulations that have prevented new refineries from being built) and demand (increasing from growing economies outside the U.S.).

The White House says targeting OPEC in the courts “would likely spur retaliatory action against American interests in those countries and lead to a reduction in oil available to U.S. refiners.” I’m not sure if that’s the case (why would OPEC shut off one of its largest customers?), but it certainly will not do anything at all to reduce gas prices. Had Kagen’s Democratic buddies not prevented U.S. oil companies from being able to drill for oil in new locations in this country over the past three decades, then gas prices might not have increased, in Wisconsin, 65 percent since Democrats took control of Congress in early 2007.

“As the Federal Trade Commission has reported, changes in world oil prices have explained 85% of the changes in the price of gasoline in the U.S.,” says U.S. Rep. Steve King (R–Iowa). “The price of gas at the pump closely tracks the price of a barrel of oil in the world market. Further, the FTC has repeatedly found that there is no broad-based collusion to fix prices or engage in price gouging in the retail sale of gasoline.”

If I were in Congress, I would be embarrassed to have my name attached to Kagen’s waste of time. Kagen must have a low estimation of the intellects of Eighth Congressional District voters to believe this will get him more votes in November.

Kagen is right about one thing: “We must begin to think differently in America.” That should begin with sending Kagen back to his medical practice Nov. 4.

UPDATE: July light crude futures sold today for $133.17 per barrel, up $4.19 from yesterday. Apparently the world oil markets are unimpressed with Kagen’s bill as well.

Gasoline, and gas bags

This is rich, not to mention ironic coming on the eve of Earth Day:

Congressman Steve Kagen, M.D. again urged the President to take immediate action to reduce high gas prices. Speaking at The Little Gas and Convenience Store in Green Bay, Kagen repeated his request to the President to increase gasoline supplies by suspending purchases of oil for the nation’s Strategic Petroleum Reserve (SPR).

“Mr. President, it is time to act. Record high prices for gas and diesel fuels are crippling our economy, taking our hard earned money and putting it into bank accounts of Big Oil companies and market speculators,” said Kagen. “The President must take immediate action to provide immediate relief for small businesses and ordinary people who are fighting to keep their heads above water.” ...

Evidently Rep. Kagen hasn’t gotten the talking points memo from the Democratic National Committee that nothing should be done that might encourage oil companies to find more sources of oil in this country. Democrats, after all, have blocked efforts to drill for oil off the U.S. coasts and in the Arctic National Wildlife Reserve. Democrats, as the party in thrall to the environmentalist left, also have refused to favor a method of generating electricity (to recharge your hybrid) and heat that would replace fossil fuels such as natural gas and heating oil — that is, nuclear power. Democrats also have been behind the environmental laws that have resulted in the construction of exactly zero new oil refineries in the U.S. since 1976. (Ponder that one the next time you hear of a hurricane warning for states on the Gulf of Mexico.)

Anyone who thinks Democrats are going to do anything to reduce gas prices hasn't been paying attention. Democrats, after all, are the party that believes in jacking up gas prices to levels Europeans and Japanese pay — which, according to the U.S. Department of Energy, are $8.07 a gallon in the United Kingdom, $8.26 a gallon in France, $8.44 a gallon in Germany and $9.32 a gallon in the Netherlands. (In comparison, gas prices in Japan are a bargain-like $4.96 a gallon.)

Democrats increased federal gas taxes 4.4 cents per gallon in 1993, not as much as President Bill Clinton proposed, a 26-cent increase. Neither of this year’s Democratic presidential candidates has suggested suspending the 18.4-cent-per-gallon federal gas tax this summer, as Republican John McCain has. Don’t hold your breath waiting for Hillary Clinton or Barack Obama to suggest that, and don’t hold your breath waiting for Democratic Gov. James Doyle to propose suspending the state’s 32.9-cent-per-gallon fuel tax either. Obama and Clinton both propose, and Doyle proposed, new windfall profits taxes on Big Oil (the same industry, incidentally, that had a worse return on investment than other industries in all but four years between 1987 and 2006), something that Doyle swore wouldn’t be passed on to consumers. (And if you believe that, I’d like to show you a bridge over Little Lake Butte des Morts for sale.)

Gas prices elsewhere in the world demonstrate that gas prices are a worldwide issue, due first to higher demand as economies such as China’s and India’s grow. In fact, according to the International Energy Agency, China, India, Russia and the Middle East will consume more oil this year, for the first time in history, than the U.S. Oil prices actually have increased roughly in keeping with increases in prices for other storable commodities, including food commodities. Worldwide energy prices also demonstrate that the notion of “energy independence” is a pipe dream when energy markets are worldwide markets. But people who understand anything about economics (which includes the readers of Marketplace, but apparently not Kagen) know that restricting the supply increases the price, just as increasing demand increases the price. We've also discovered, the hard way, how much energy prices contribute to the price of pretty much everything.

Suspending Strategic Petroleum Reserve purchases will do next to nothing to change gas prices, particularly when you consider that China is also purchasing oil to create its own strategic petroleum reserve of 100 million barrels by 2010. The reality is that, short of a worldwide depression beginning tomorrow, gas prices are not going to decrease. As someone who commutes to work, I certainly hope they don’t increase anymore than they already have. (If you want a really scary thought, consider this: The federal government may be making Strategic Petroleum Reserve purchases on the belief that purchases will be cheaper now than in the future.) But increasing demand coupled with stupid policy decisions of the past have put us where we are today.

Kagen needs to learn three facts about our economy: (1) Gasoline and diesel fuel are forms of energy, and (2) energy powers this country's economy, so (3) when you reduce available energy, you hit the brakes on our economy. Kagen's party has had a lot to do with the third of those facts. It would be better for all of us, not to mention his reelection chances, if he proposed better ideas to power our economy, without costing us more money, than his Democratic brethren have.