Gas Prices Part 1: High Gasoline Prices Are The Best Energy Policy

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Crude oil prices are well over $40 a barrel and gasoline prices are over $2 a gallon. Politicians are promising to do something if elected. I promise to do less than nothing.

Unlike the 1970’s when high prices were caused by shortages of supply caused by an oil embargo, today’s high prices stem from the increasing demands of a global economic recovery. High demand, not low supply, has caused the current price increases.

If using our tax dollars to lower the price of gasoline is a good idea, why not subsidize gasoline prices and set the price at a dollar a gallon again? Or why not subsidize it completely and give it away for free? The answer is because it would make the problem worse. Artificially driving the price lower would increase the demand for oil, and it is the demand for oil that is driving the price higher. Artificially decreasing the price will only accelerate the depletion of our finite oil resources.

John Kerry spokesman Phil Singer is quoted as saying, “The Bush administration keeps saying it’s working for lower gas prices but so far it’s been all talk and no action.”

I promise even less action than President Bush. Not only will my administration take no new action to manipulate oil prices, but we will also undo much of the current legislation.

High oil and gasoline prices are good. Without any coercion high prices set energy policy more effectively than any government program could. High prices decrease the use of oil. They increase conservation. They ensure that the oil we use is directed to the most valuable purposes. They encourage alternative energy development. They encourage fuel-efficient cars. And they encourage domestic oil production. The higher cost of oil provides the negative feedback to decrease consumption and encourage energy production.

Any who are critical of the profits that oil companies and refineries are experiencing can spend their own resources to explore new oil supplies, test and develop their sites for production, and compete in the marketplace at a lower price. If such a venture is too expensive and risky for $40 dollars a barrel, then how high would oil prices have to go before you would think it was a good deal? Oil companies face similar choices.

If you believe that oil companies are making too much profit, buy stock in them. Then if you’re right, over time you can systematically sell your oil stock investment gains to pay for the increased cost of gasoline. Because we have free markets, each of us can choose how to address economic problems.

The Financial Freedom Party stands firmly against suppressing free markets. We believe free markets are more than simply an issue of pragmatism and efficiency. Free markets are a moral issue and suppressing freedom is immoral. The urge to exert power over others is wrong. This notion of liberty used to be the liberal ideal. Today’s liberals whine for more statism even when the price of oil is working in a healthy way.

If you find the moral argument of freedom unconvincing, free markets can still win the pragmatic debate. In our current situation, any coercive action that government could take to force price reductions would punish only those innocents who follow free markets.

How? It would punish domestic oil producers by truncating their profits when the price of oil is high without subsidizing them when prices are low. It would punish alternative energy pioneers by keeping their product economically unfeasible at the very time when America needs alternative energy sources. It would punish recycling centers by keeping the energy required to create new materials cheaper than the cost of recycling existing materials. It would punish those who take mass transit or car pool by using their tax dollars to subsidize those who drive gas-guzzlers solo.

If market forces drive up the price of gasoline, any efforts to reduce it aside from supply and demand punishes the exercise of economic freedom and personal responsibility. Individual financial freedom requires free markets.

Photo by Scott Rodgerson on Unsplash

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)